the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

real exchange rates trade balances and nominal shocks evidence for the g 7 abstract to identify nominal shocks in structural var models of open economies it is common practice to use purchasing power parity as a long run identifying restriction so that there are no long run effects of nominal shocks on real exchange rates however in some recent open economy intertemporal models with sticky prices nominal shocks can have long run effects on both real exchange rates and trade balances in this paper structural var models for the g 7 are identified in such a way that nominal shocks at least potentially can have long run effects on a country s real exchange rate for the g 7 nominal shocks are found to have a significant long run effect on each country s trade balance over the post bretton woods period we do not have to appeal to hysteresis effects to explain this finding for trade balances since nominal shocks are found to have a significant long run effect on each country s real exchange rate

terms of trade shocks and the balance of trade there is a harberger laursen metzler effect abstract according to the harberger laursen metzler hlm effect an exogenous increase in the terms of trade faced by a small open economy leads to an improvement in that country s trade balance in this paper structural vector autoregression techniques are used to investigate whether there is any systematic pattern in the responses of the trade balance to terms of trade shocks for a large number of small open economies two important results emerge first there is strong support in the data for the existence of an hlm effect second the response of the trade balance and real income to a terms of trade shock implied by the structural vector autoregression model are strongly consistent with those reported by mendoza 1995 from simulating a particular dynamic stochastic equilibrium model of a small open economy

labour markets liquidity and monetary policy regimes dans leur etude les auteurs elaborent un modele d equilibre du mecanisme de transmission de la politique monetaire qui fait ressortir les elements de friction relatifs a l acquisition d information sur le marche de la monnaie et a la recherche d emploi

energy consumption real income and temporal causality results from a multi country study based on cointegration and error correction modelling techniques abstract unlike previous studies on the causal relationship between energy consumption and economic growth this paper illustrates how the finding of cointegration i e long term equilibrium relationship between these variables may be used in testing granger causality based on the most recent johansen s multivariate cointegration tests preceded by various unit root or non stationarity tests we test for cointegration between total energy consumption and real income of six asian economies india pakistan malaysia singapore indonesia and the philippines non rejection of cointegration between variables rules out granger non causality and imples at least one way of granger causality either unidirectional or bidirectionial secondly by using a dynamic vector error correction model we then analyse the direction of granger causation and hence the within sample granger exogeneity or endogeneity of each of the variables thirdly the relative strength of the causality is gauged through the dynamic variance decomposition technique by decomposing the total impact of an unanticipated shock to each of the variables beyond the sample period into proportions attributable to shocks in the other variables including its own in the bivariate system results based on these tools of methodology indicate that while all pair wise relationships shared common univariate integrational properties only relationships for three countries india pakistan and indonesia were cointegrated for these countries temporal causality results were mixed with unidirectional causality from energy to income for india exactly the reverse for indonesia and mutual causality for pakistan the vdcs were not inconsistent with these results and provided us with an additional insight as to the relatively more dominant direction of causation in pakistan simple bivariate vector autoregressive models for the three non cointegrated systems did not indicate any direction of causality significantly in either direction

the liquidity effect and money demand abstract i suggest a liquidity effect model in which financial intermediation costs are determined by aggregate economic activity an expansionary monetary shock leads to a persistent contraction in the loan deposit rate spread a persistent liquidity effect and a persistent real expansion a feature of this expansion is that nominal prices respond sluggishly to monetary shocks as an equilibrium outcome

monetary and financial interactions in the business cycle this paper develops a computable general equilibrium model in which endogenous agency costs can potentially alter business cycle dynamics the model resembles the influential theoretical work of ben bernanke and mark gertler 1989 two sources of shocks are considered productivity shocks and monetary shocks the model is parametrized to match key features of u s aggregate activity the principal result of the analysis is that agency costs add very little to the basic business cycle dynamics copyright 1995 by ohio state university press

the long run relationship between inflation and output in postwar economies abstract we investigate the relationship between inflation and real output in a large sample of postwar economies our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country we find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample the main exceptions are certain low inflation countries in which permanent inflation shocks permanently increase the level of output we also find that permanent inflation shocks do not permanently influence real output growth rates in our sample

transaction costs of tradable white certificate schemes the energy efficiency commitment as case study this paper analyses the nature and scale of transaction costs tcs borne by obliged parties under a tradable white certificate twc scheme taking the first phase of the energy efficiency commitment eecl in great britain as a case study several sources of tcs were considered such as search for information persuasion of customers negotiation with business partners and measurement and verification activities information was obtained through interviews and a questionnaire distributed to obliged parties results show that the most significant sources of tcs were related to search for information persuading customers and negotiating with managing agents contractors to implement energy efficiency measures perceived high tcs related to contract negotiation and liability risks slightly reduced the low trading level the scale of tcs was estimated to be around 10 and 30 of total investments costs for the lighting and insulation segments respectively the results indicate that despite the presence and scale of tcs the eecl scheme generated energy savings that yielded net societal benefits estimated financial benefits range from 0 6 to 6 p kwh for insulation and lighting savings respectively when avoided external costs due to electricity savings are included estimated economic benefits range from 3 to 8 p kwh several lessons from the eecl can be drawn for twc schemes among others it is found that informative policy instruments to raise awareness among end users are critical if a twc scheme is to deliver cost effective energy savings in all the nature and scale of tcs under twc schemes will differ because of a number of endogenous and exogenous determinants c 2007 elsevier ltd all rights reserved less

dynamic complementarities a quantitative analysis abstract this paper considers the importance of dynamic complementarities as an endogenous source of propagation in a dynamic stochastic economy dynamic complementarities link the stocks of human and organizational capital which are influenced by past levels of economic activity to current levels of productivity we supplement an otherwise standard dynamic business cycle model with both contemporaneous and dynamic complementarities the model is calibrated using estimates of these effects from both micro and aggregate data our quantitative analysis identifies empirically relevant dynamic complementarities as a source of propagation for both technology and taste shocks

search financial market frictions and monetary transmission this paper evaluates the implications of search and matching frictions in the financial market for the bank lending channel of monetary policy borrowers and lenders participate in a decentralized loan market for the purpose of establishing long term credit relationships and the provision of loanable funds to productive firms locating credit relationships is costly in terms of time and real resources and the interest rate is negotiated via a bargaining mechanism this structure is incorporated into an otherwise standard monetary business cycle framework and used to study how such frictions in the credit market contribute to explaining the contemporaneous impact and propagation of monetary growth shocks and inflation while anticipated inflation negatively impacts real activity it can also increase loan market participation and the inflow of newly established credit relationships it is shown that i bargaining and costly search mitigates the traditional inflation tax effect of monetary injections and ii the existence of long term lending relations tends to dampen liquidity effects monetary shocks in this environment lead to larger liquidity effects relative to the frictionless case and are capable of generating persistence in the nominal interest rate labor consumption and output it can also explain the excess volatility of credit creation relative to output and the observation that overall credit creation can lead output over the business cycle

exports investments and economic development of pre accession countries of the european union an empirical investigation of bulgaria and romania this paper attempts to analyse the relationship between exports investments and economic development in two pre accession countries of the european union bulgaria and romania for investigation of this relationship a multivariate autoregressive var model is used the results of cointegration analysis showed that there is one cointegrated vector among exports investments and economic growth for the two countries granger causality tests based on error correction models ecm indicated that there is a strong granger causal relation between economic growth and exports as well as between investments and exports for the two countries in addition economic development and capital accumulation in an economy seem to have just as much of an influence on exports as exports have on capital accumulation and economic development

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

the welfare costs of moderate inflations in the recent past the view that a little bit of inflation was good for the economy was widely held the phillips curve in its earlier incarnations implied that moderate inflation was worth tolerating because it would permit lower unemployment this justification for tolerating inflation has long since been abandoned by economists and policymakers because both theory and experience showed it to be false nevertheless one legacy of this era seems to be a fairly widespread tolerance for moderate inflation recently there has been much discussion of removing this inflationary bias by passing legislation that would require the federal reserve to target zero inflation in this paper we examine some of the consequences of achieving that goal we appraise the revenue and welfare costs of policies designed to reduce moderate inflation rates to zero much has been written about why government policies may have an inflationary bias in this paper we don t address the issue of what motivates governments to inflate implicit in our analysis however is the notion that one important motive for inflation is the revenue raising potential of the inflation tax it would be difficult to argue that the inflation tax constitutes an important revenue source for the united states one indirect and very imperfect measure of this would be contributions by the federal lleserve to the treasury in recent years those rebates have amounted to

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

energy supplier obligations and white certificate schemes comparative analysis of experiences in the european union abstract a number of member states of the european union eu have introduced market based policy portfolios based on quantified energy savings obligations on energy distributors or suppliers possibly coupled with certification of project based energy savings via white certificates and the option to trade the certificates or obligations the paper provides an up to date review and analysis of results to date of white certificate schemes in the eu in the eu supplier obligations and white certificate schemes have delivered larger savings than originally expected with obliged companies exceeding targets and in some cases at cost below what policy makers have anticipated supplier obligations foster the uptake of standardised energy efficiency actions often targeting smaller energy users residential sector lowering the transaction costs and contributing to market transformation the role of certificate trading is more ambiguous trading can bring benefits where the target is set sufficiently high with respect to the energy saving potential in the sectors covered theoretically trading may be better suited for broader systems with comprehensive coverage but even in smaller schemes trading may reduce the transaction costs of compliance for obliged actors without sufficient expertise on end use energy efficiency yet trading increases the administrative cost ratio of energy saving obligations

monetary policy regimes and beliefs this paper investigates the role of beliefs over monetary policy in propagating the effects of monetary policy shocks within the context of a dynamic stochastic general equilibrium model in this model monetary policy periodically switches between low and high money growth regimes when individuals cannot observe the regime directly they must draw inferences over regime type based on historical money growth rates the authors show that for an empirically plausible money growth process beliefs evolve slowly in the wake of a regime change as a result their model is able to capture some of the observed persistence of real and nominal variables following such a regime change

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

coal fires fresh air and the hardy british a historical view of domestic energy efficiency and thermal comfort in britain fuel poverty has been most commonly researched in the uk although it is experienced in other parts of europe to varying degrees boardman 1991 showed that energy inefficient buildings and heating systems are the most significant components of fuel poverty and highlighted the legacy of older buildings in this country that remain the majority of those now recognised as hard to treat this paper considers the historical context for fuel poverty as a particularly british phenomenon it examines claims that this is due to the mild climate and low indoor temperature expectations it is concluded that there are significant differences from the european situation the climate particularly its characteristic changeability has influenced building and heating methods and the low priority given to energy efficiency by legislators significantly economic priorities produced poor quality mass housing during the industrial revolution the availability of coal encouraged the use of open fires which demanded high ventilation rates the british do value warmth but older buildings designed for heating with radiant open fires are difficult to adapt to convective central heating lessons can be drawn for newly industrialised economies similarly producing poor quality mass housing with low priorities for energy efficiency

the effects of budget deficit on national saving in the oecd abstract in this paper we estimate a structural var using a panel of oecd countries which includes national saving and budget deficit both as the ratio to gdp to test the ricardian equivalence hypothesis in this framework we separate saving and deficit movements into two types of shocks associated with structural parameters of these economies our results suggest that ricardian equivalence did not work in our sample of oecd countries since private saving compensated only a small fraction budget deficit this supports the interpretation that the large budget deficits have been a very important factor behind the significant increase in real interest rates in the eighties and early nineties

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

social equity issues in the distribution of feed in tariff policy benefits a cross sectional analysis from england and wales using spatial census and policy data abstract the feed in tariff has become a popular policy instrument globally for deploying clean energy often involving substantial public spending commitments yet relatively little attention has been paid to how payments made under this policy type get distributed across socioeconomic groups this paper links information on individual domestic photovoltaic pv installations registered under the feed in tariff for england and wales to spatially organised census data this makes it possible to observe which socioeconomic groups are benefitting most and least under the policy comparing the observed benefit distribution to a counterfactual distribution of perfect equality a moderate to high level of inequality is found cross sectional regressions suggest that settlement density home ownership status physical dwelling type local information spillovers and household social class shaped this outcome greater sensitivity to these factors in policy design could improve distributional outcomes under feed in tariff policies in england and wales and beyond

oil price shocks and employment the case of ohio coal mining economic theory suggests that oil price shocks will have an impact on employment in local coal markets however theory is silent on both the absolute and relative magnitudes based on vector autoregressive models we find that oil price shocks and therefore opec policies have significant impacts on ohio coal mining employment our study indicates that oil price shocks have larger impacts on ohio coal mining employment than do shocks to coal prices or coal wages our study is unusual in that we have examined the impact of oil price shocks on employment in a specific industry

poor energy poor energy saving obligations distributional effects and the malfunction of the priority group abstract the european union s energy efficiency directive forces the member states to install energy efficiency obligation schemes in a first step this paper identifies the distributional effects caused by this policy instrument which occur when energy efficiency measures are implemented phase of delivery and when its costs are passed on to the society phase of financing in the phase of delivery suppliers prefer to implement measures at the property of those customers which enable them to minimise their costs i e enterprises with large energy savings potentials and high income households who can contribute a greater share of the costs in the phase of financing distributional effects occur when the costs of the scheme are passed on from the obliged suppliers to their customers primarily affecting less competitive customers i e households and small enterprises in the british scheme the so called priority group was installed in order to decrease distributional effects and to support energy poor households in a second step this paper evaluates approaches to reduce energy poverty and indicates ineffectiveness high transaction costs and incoherency with the aims of the obligation scheme alternative approaches to tackle energy poverty are briefly described

evidence on macroeconomic complementarities this paper provides empirical evidence on macroeconomic complementarities a restriction on the nature of interaction between individuals in a multiagent setting these models imply that activities across agents will be positively correlated that discrete decisions will be synchronized and that disturbances will be magnified and propagated the paper shows that these implications are consistent with aggregate observations as well as some microeconomic evidence further looking at certain historical episodes such as the national industrial recovery act as well as seasonal fluctuations provides additional support for models with macroeconomic complementarities copyright 1996 by mit press

definitions of fuel poverty implications for policy abstract this paper outlines why the definition of fuel poverty is important in policy formulation and describes how the government s current definitions evolved from the original concept it discusses the determination of income and fuel costs and the possibilities for a relative and common european measure it examines problems inherent in assessing fuel costs as a percentage of income and puts forward the arguments for a budget standard approach the paper illustrates how the size of the problem depends on the definition and chosen threshold and suggests advantages for a rating scale it illustrates how the income composition and thresholds also govern the distribution of the target populations and the relative importance of the main causal factors and examines the consequent policy implications it explores the definition of vulnerable households and the importance of severity and questions whether the uk fuel poverty strategy is targeted at households least able to afford their fuel costs as the name implies or primarily those at risk from excess winter and summer mortality and morbidity finally after examining the role of supplementary indicators it looks at the opportunities for changing the definition and comments on the government review of the definition and targets

demand and supply shocks in italy an application to industrial output abstract we investigate the impact of three different kinds of disturbances on industrial output in italy they originate respectively in aggregate demand technology and the labour supply we first illustrate the theoretical restrictions which permit identification of the three shocks then econometric identification is achieved by extending the blanchard and quah 1989 the american economic review 79 pp 655 673 procedure to a multivariate case our main conclusion is that output variability is significantly affected by technological shocks at all frequencies labour supply disturbances are also relevant while demand shocks have a minor impact on the series although they act in the expected direction therefore the short run behaviour of industrial production is largely explained by supply side shocks

introduction to experimental game theory the title experimental game theory refers to experiments whose goal is to learn about general principles of strategic behavior as opposed to the performance of specific institutions twenty five years ago it would have been startling to see experimental modifying game theory in this way or to find an entire issue of an economics journal devoted to game experiments if this now seems natural it is a tribute to the increasingly

production inflexibilities and the cost channel of monetary policy this article shows how the existence of production inflexibilities in the form of capacity utilization constraints conditions the magnitude of the response of macroeconomic variables to a money supply stimulus capacity is modeled under explicit microfoundations where the existence of idiosyncratic demand uncertainty generates variable utilization rates across firms in this context money has real effects due to non fisherian effects stemming from limitations in households access to the financial market firms capacity constraints generate a convex aggregate supply curve which is a feature of the economy that has important implications for the conduct of monetary policy

prudence justice benevolence and sex evidence from similar bargaining games abstract most learning experiments involve repeated play of exactly the same situation and hence can not discriminate between learning to use a deductive principle and other forms of routine learning in this paper subjects confront a sequence of similar but not identical bargaining games all of which can be solved using the same deductive principles conventions based on these deductive principles emerge within 70 periods in 5 of 26 eight person cohorts we found no economically significant differences between all male and all female cohorts journal of economic literature classification numbers c72 c78 c92 d83

the effects of macroeconomic shocks on sector specific returns the reliance on market and sector specific indexes to evaluate managed portfolios and the popularity of index investing has increased the importance of understanding what leads to market movements how long they may last and how different sectors respond to macroeconomic shocks this research is concerned with how shocks to macroeconomic variables affect five major s p sector specific stock market indexes the paper employs the newly developed econometric technique of generalized impulse response analysis the results identify the various responses of the sectors to unanticipated changes in some key macroeconomic variables asset prices are commonly believed to react sensitively to economic news daily experience seems to support the view that individual asset prices are influenced by a wide variety of unanticipated events and that some events have a more pervasive effect on asset prices than do others chen et al 1986 p 386

liquidity and real activity in a simple open economy model abstract this paper analyzes the ability of an open economy version of lucas s 1990 liquidity model to account for properties of international data the focus is on the model s ability to account for exchange rate dynamics and measured effects of monetary policy shocks on exchange rates interest rates and real activities across countries the model generates a prediction that a positive domestic monetary innovation is associated with nominal and real currency depreciations however the model s predictions with respect to nominal and real exchange rate volatilities are low

new directions for modelling strategic behavior game theoretic models of communication coordination and cooperation in economic relationships author s crawford vp abstract in this paper i discuss the state of progress in applications of game theory in economics and try to identify possible future developments that are likely to yield further progress to keep the topic manageable i focus on a canonical economic problem that is inherently game theoretic that of fostering efficient coordination and cooperation in relationships with particular attention to the role of communication i begin with an overview of noncooperative game theory s principal model of behavior nash equilibrium i next discuss the alternative thinking and learning rationales for how real world actors might reach equilibrium decisions i then review how nash equilibrium has been used to model coordination communication and cooperation in relationships and discuss possible developments