labor force participation interest rate shocks and unemployment dynamics in emerging economies abstract emerging economies emes have highly volatile unemployment and real wages standard models with interest rate shocks can generate higher unemployment volatility but still fall quantitatively short of matching the empirical volatility of unemployment a small open economy search model with endogenous participation and self employment a feature of emes generates 90 percent of the volatility of unemployment in the data highly volatile wages and quantitatively consistent cyclical aggregate dynamics amid productivity and interest rate shocks of plausible magnitudes endogenous participation amplifies shocks and plays a critical role in overcoming a key limitation of standard search models for emes

budget deficits stability and the monetary dynamics of hyperinflation hyperinflationary processes usually occur in countries with extremely large budget deficits in models of inflationary finance with rational expectations e g buiter 1987 large budget deficits cannot lead to hyperinflation the purpose of this paper is to reconcile the standard theoretical model with the stylized facts it shows that by introducing a lag in the adjustment of the money market into the standard inflationary finance model large budget deficits are indeed the main reason for hyperinflation the paper also provides an explanation for the ineffectiveness of moderate reductions in the deficit in reducing inflation and argues that fiscal lags can be destabilizing copyright 1989 by ohio state university press

behavioral hazard in health insurance a fundamental implication of standard moral hazard models is overuse of low value medical care because copays are lower than costs in these models the demand curve alone can be used to make welfare statements a fact relied on by much empirical work there is ample evidence though that people misuse care for a different reason mistakes or behavioral hazard much high value care is underused even when patient costs are low and some useless care is bought even when patients face the full cost in the presence of behavioral hazard welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign we derive optimal copay formulas that incorporate both moral and behavioral hazard providing a theoretical foundation for value based insurance design and a way to interpret behavioral nudges once behavioral hazard is taken into account health insurance can do more than just provide financial protection it can also improve health care efficiency jel codes d03 i12 i13 i30 i38

inflation and currency depreciation in germany 1920 1923 a dynamic model of prices and the exchange rate this paper presents a dynamic model of the german hyperinflation explaining prices the exchange rate and the money supply in the model estimated simultaneously the nominal exchange rate is allowed to diverge from purchasing power parity in the short run the monetary approach to exchange rate determination and the quantity theory of money are assumed to be valid in the long run the dynamic adjustment of prices and the exchange rate to monetary disturbances is made explicit and currency substitution between domestic and foreign currency is introduced explicitly the problem of the autocorrelation of the residuals of the money demand function found in previous studies is resolved the fit of inflation and exchange rate changes is very satisfactory and the speed of adjustment of the exchange rate to monetary disturbances is found to be much higher than for prices copyright 1995 by ohio state university press

a welfare measure of offset effects in health insurance abstract changing health insurance coverage for one service may affect use of other insured services when improving coverage for one service reduces use of another the savings are referred to as offset effects for example costs of better coverage for prescription drugs may be partly offset by reductions in hospital costs offset effects have welfare implications but it has not been clear how to value these impacts in design of health insurance we show that plan paid rather than total spending is the right welfare measure of the offset effect and go on to develop a sufficient statistic for evaluating the welfare effects of change in coverage in the presence of multiple goods we derive a simple rule for when a coverage improvement increases welfare due to offset effects

the austral plan in recent years several countries have experienced extremely rapid inflations but without total collapses of the national currencies argentina was one of those cases by mid 1985 the rate of price increase exceeded 30 percent per month however prices continued to be set in pesos and there remained a sizeable volume of short term nominal contracts the treatment of such inflations poses several questions what is the desirable speed of disinflation what mix of instruments can effectively act on prices without causing an excessive fall in real income how can prices be kept on a stable or moderately rising trend the austral plan announced in june 1985 combined fiscal measures with a price wage freeze and a monetary reform linked to a system for the conversion of debt contracts the program quite successfully managed the transition to a much lower inflation rate while real output recovered rapidly after an initial contraction still inflationary forces remained strong the problem of achieving a sustained stabilization proved quite difficult to solve this paper briefly describes the program and its effects with some references to current debates on stabilization policies see my 1986 study for full discussion and details

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

bolivia hyperinflation stabilisation and beyond this article argues that the bolivian hyperinflation of 1984 85 was fundamentally rooted in problems of external finance and distributional conflict and shows how the new economic policy nep addressed these issues with an orthodox approach that attracted the support of international lending institutions and shifted the balance of power away from labour along the way i conduct an econometric investigation of the proximate determinants of inflation in both the hyperinflationary and post inflation periods i close by considering current and future problems in the bolivian macroeconomy

interfirm relationships and informal credit in vietnam trading relations in vietnam s emerging private sector are shaped by two market frictions the difficulty of locating trading partners and the absence of legal enforcement of contracts examining relational contracting we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier a longer duration of trading relationship is associated with larger credit as is prior information gathering customers identified through business networks receive more credit these network effects are enduring suggesting that networks are used to sanction defaulting customers

were price changes during the great depression anticipated abstract this paper reassesses whether the large swings in prices during the 1930 s were anticipated we argue that uncertainty about monetary fiscal and exchange rate policies induced systematic differences between the rate of price change expected by economic agents at the time and the time series forecasts of inflation our analysis of nominal interest rates and ex post inflation strongly supports this view in fact our results suggest that the deflation of the early depression years and the inflation that followed were both largely unanticipated

unobserved rational expectations and the german hyperinflation with endogenous money supply a kalman filtering technique is employed to test the convergent expectation hypothesis in the great german hyperinflation when the money supply is endogenously determined after converting the model structure to a state space form the parameters are estimated via minimization of a gaussian likelihood function the result is then used in a filter smoother combination to yield smoothed estimates of the state variable associated with the arbitrary constant of the rational expectations solution bo th para metric and nonparametric tests lead us to reject the null hypothesis of convergent expectations copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the endogeneity of money during the german hyperinflation a reappraisal this paper provides evidence that casts doubt on the conclusioon of several studies of the german hyperinflation that since government raised most of its revenue from money creation the money supply process was endogenous this conclusion in the literature is based on the assumption that the money supply and the price level can be described by linear arima models it is shown here that the linearity assumption is violated by the data and that relaxing this assumption reverses the earlier results the paper provides additional evidence in support of the finding that the money supply process may be exogenous

terminating hyperinflation in the dismembered habsburg monarchy to assess the validity of thomas sargent s claim that hyperinflation can be terminated without dire employment effects monthly unemploymentpercentage estimates were constructed for poland hungary and austriaover the period both before and after monetary stabilization followingworld war i these data reveal that there were significant effects onemployment in the three territories unemployment peaked in poland at alittle less than 13 percent in hungary at 12 percent and probably higher and in austria at 7 percent an attempt is made to identify those considerations that contributed to the emergence of unemploymentwith the advent of monetary stabilization copyright 1986 by american economic association

fiscal deficits and inflation abstract macroeconomic theory postulates that persistent fiscal deficits are inflationary yet empirical research has had limited success in uncovering this relationship this paper reexamines the issue in light of broader data and a new modeling approach that incorporates two key features of the theory unlike previous studies we model inflation as non linearly related to fiscal deficits through the inflation tax base and estimate this relationship as intrinsically dynamic using panel techniques that explicitly distinguish between short and long run effects of fiscal deficits results spanning 107 countries over 1960 2001 show a strong positive association between deficits and inflation among high inflation and developing country groups but not among low inflation advanced economies

expectations in the german hyperinflation reconsidered abstract data on forward foreign exchange rates during the german hyperinflation after world war i provide direct observations of expected changes in the spot rate although levels of these forward rates seem to be efficient predictors of the spot rate the predicted changes in the spot rate are biased downward substantially and do not meet the specific conditions of rationality indeed the bias in the forward rate predictions is similar to bias in adaptive expectations of the spot rate the behavior of the forward rate can be rationalized as a gradual market adaptation to a new regime of volatile and escalating inflation reasonably represented by adaptive expectations the strict definition of rational expectations needs to be broadened to allow for the difficulty of distinguishing between permanent and transitory shocks

testing for rational bubbles with exogenous or endogenous fundamentals the german hyperinflation once more abstract the presence of rational price bubbles during the german hyperinflation is tested under two different structural assumptions on the money process if the money supply is constrained to be exogenous to the current inflation rate the hypothesis of no bubble can be rejected however this is no longer found to be true when a feedback rule from inflation to money creation is allowed the analysis contradicts previous results presented in the literature

credit market imperfections labor markets and leverage dynamics in emerging economies abstract emerging economies emes have different credit and labor market structures relative to advanced economies we document that economies with larger self employment shares tend to exhibit less countercyclical leverage dynamics we build a model where formal credit markets input credit relationships and the structure of labor markets interact that 1 captures a comprehensive set of eme business cycle regularities and 2 rationalizes our new fact the interaction between firms net worth interfirm input credit and self employment underlying our framework is critical for explaining our fact and is supported by the data

inflation and currency reform expectations of currency reform are explicitly incorporated into a rational expectations version of the cagan model of money market equilibrium where expectations about the timing of reform are lerived from a simple government rule for choosing when to reform the currency the model is estimated for three of the episodes of hyperinflation that cagan investigated and the results support the hypothesis that expectations of reform were responsible for the apparent instability of the demand for money during the final months of these hyperinflations

the effect of insurance coverage on preventive care despite the growth in health insurance products that differentially cover preventive care and nonpreventive care little is known about how preventive care utilization responds to targeted changes in coverage using administrative data from a large company this paper examines the implementation of an insurance benefit design which differentially increased the price of nonpreventive care while decreasing the price of prevention leveraging a difference in differences research strategy we find that preventive care utilization did not increase and even declined due to the differential price change this evidence indicates a meaningful negative cross price effect suggesting that nonpreventive care and preventive care are complements jel i13 i11

fiscal reforms and stabilisation four hyperinflation cases examined this paper discusses a hypothesis that is common to several recent explanations for the needs of hyperinflations of the 1920s namely that fiscal reforms had been responsible for their sudden end it is suggested that the very presence of these reforms can be disputed once evidence is provided on the fact that budget deficits were mostly caused by the so called oliveira tanzi effect i e deficits were mostly generated by inflation itself some observations are offered on other issues to be addressed if an alternative explanation for the stabilizations are to be found copyright 1990 by royal economic society

cagan s hypothesis and the first nationwide inflation of paper money in world history more than 25 years ago phillip cagan proposed the hypothesis that the demand for real cash balances depended mainly on the expected rate of inflation provided that the monetary sector was sufficiently isolated from changes in the real sector cagan 1956 to test his hypothesis cagan studied seven hyperinflations in modern europe during which variations in the real variables were negligible compared with the astronomical increases in prices it is well known that he got confirmatory results from his studies however until recently it has not been realized that the same hypothesis is also strongly supported by data from a very different socioeconomic context namely the first nationwide inflation of paper money in world history paper money was invented in china in the northern suing dynasty a d 960 1126 and widely used in the southern sung dynasty a d 1127 1278 the first inflation on a national scale occurred from around 1190 to the end of the dynasty when the monetary system collapsed in this inflation period available historical records do not suggest significant expansion of the economy or important changes in real income modern financial assets such as bonds and equities did

inflation and imported input prices in some inflationary latin american economies this paper first updates to 1980 the estimates of the harberger inflation model for argentina brazil chile colombia and uruguay and shows that all the hypotheses of this model hold and the reaction to monetary growth is fairly rapid an aggregate supply function including imported inputs is then hypothesized following recent theoretical work this yields two testable propositions on the reduced form estimates of inflation a the relation between inflation and monetary growth should be less than proportional and the income coefficient should be insignificant contrary to the harberger model and b inflation should be a weighted average of monetary growth and imported inflation assuming the underlying aggregate production function is homogenous of degree zero in prices tests on the same data base support both hypotheses these results also explain the similar results of many of the previous estimates of the harberger inflation equation which included the rate of devaluation in an ad hoc fashion

the greek stabilization of 1944 46 it is a matter of great contention among economists whether economic stabilization programs can be instituted without imposing high real costs those believing in the core or underlying rate of inflation hypothesis argue that relying only on conventional monetary and fiscal policies will impose high costs the rational expectations proponents on the other hand argue that a convincing antiinflation program will likely minimize these costs as economic agents respond to a genuine regime change or change in the rules under which monetary and fiscal policies are conducted a way of discriminating between these contending views is to examine the stabilization phase of the world s episodes of hyperinflation thus far the work of thomas sargent 1982 on the post world war i experiences in austria hungary poland and germany and william bomberger and myself 1983 on post world war ii hungary have adduced evidence in support of the rationalists view price level stability was achieved rapidly without a prolonged period of high unemployment the greek stabilization of 1944 46 is not so straightforward and as such provides an interesting contrast to the other episodes its unique feature is that price level stability took over a year to achieve following the initial reform of november 11 1944 it was not achieved until in a third reform in early 1946 the greek 1018 1024

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

the hungarian hyperinflation and stabilization of 1945 1946 inflation in hungary after world war ii was the most intense on record the reforms of august 1946 were immediately and entirely successful in stabilizing prices this paper describes and analyzes the unique policies and institutions that produced these phenomena despite its severity the hungarian experience was consistent with the less extreme inflation and stabilization experiences examined by sargent price stabilization was accomplished by fiscal rather than purely monetary measures and was paradoxically accompanied by rapid and prolonged money growth

a model of speculative efficiency with news error components this paper proposes a theoritical model to assess of news on the spot forward exchange rate relationship and thereby predicts of the impact of news on the exchange rate two types of news are analysed rational expectations type innovations and announcement effects form newspapers by using historical data form a time period which includes the german hyperinflation of the early 1920s an estimate from of the model is derived which is substantially simpler than the version requried using contemporary data preliminary results support the main theoretical predictions but also cast some doubt on a literal interpretation of the exchange rate model plus rational expectations

the real bills doctrine versus the quantity theory a reconsideration two competing monetary policy prescriptions are analyzed within the context of overlapping generations models the real bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation the quantity theory prescription in contrast is for restrictions on private intermediation designed to separate money from credit although our models are consistent with quantity theory predictions about money supply and price level behavior under these two policy prescriptions the models imply that the quantity theory prescription is not pareto optimal and the real bills prescription is

the german hyperinflation and the demand for money revisited this paper shows that a remarkably well defined demand for real balances exists for the german hyperinflation episode including the final months which have previously been considered as outliers the authors econometric analysis exploits the theory of cointegration given the obvious nonstationarity of the data further they consider two likely sources of misspecification income variability and the necessity to distinguish between the high inflation and hyperinflation episodes copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

exchange rate based stabilisation durables consumption and the stylised facts in this article we show that a model featuring durable consumer goods imperfect substitution between domestic and foreign assets and weak credibility can explain the qualitative and quantitative aspects of the stylised facts associated with exchange rate based stabilisation including the tremendous increase in real interest rates following a temporary reduction in the crawl total consumption spending rises 14 26 the real exchange rate appreciates 20 37 and the current account deficit swells to 10 15 of gross domestic product despite large capital inflows the real interest rate increases from 10 to 20 100

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

economic exchange during hyperinflation historical evidence indicates that hyperinflations can disrupt individuals normal trading patterns and impede the orderly functioning of markets to explore these issues we construct a theoretical model of hyperinflation that focuses on individuals and their process of economic exchange in our model buyers must carry cash while shopping and some transactions take place in a decentralized setting in which buyer and seller negotiate over the terms of trade of an indivisible good since buyers face the constant threat of incoming younger hence richer customers their bargaining position is weakened by inflation allowing sellers to extract a higher real price however we show that higher inflation also reduces buyers search increasing sellers wait for customers as a result the volume of transactions concluded in the decentralized sector falls at high enough rates of inflation all agents suffer a welfare loss

the wage price spiral this paper rehabilitates the old wage price spiral it shows that after an increase in aggregate demand the process of adjustment of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms to maintain or increase their markups of prices over wages under continuous price and wage setting the process of adjustment would be instantaneous under staggering of price and wage decisions the adjustment takes time the more inflexible real wages and markups are to shifts in demand the higher is the degree of price level inertia and the longer lasting are the effects of aggregate demand on output

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

informality and the labor market effects of financial crises abstract we provide evidence based on a large sample of countries on the effects of financial crises on key labor market indicators including official and unofficial employment unemployment and the participation rate crises are followed by a drop in the official market participation rate and by an increase in informal employment these responses are strongly persistent empirical results are then interpreted with a dsge model which accounts for informality and for financial and labor market frictions in this framework the informal sector acts as a buffer which absorbs workers in bad times and vice versa our simulations suggest the informal sector also is a crisis amplifier for the official economy for a given financial shock the ensuing contraction in the official economy is deeper and more persistent the larger the initial size of the unofficial sector this implies that in less developed economies financial crises cause a relatively stronger reallocation of inputs towards less efficient sectors expose a larger fraction of the population to the adverse effects of informality cause a sharper deterioration of public finances limiting governments ability to supply public goods and to engage in countercyclical fiscal policies

financing patterns around the world are small firms different using a firm level survey database covering 48 countries we investigate how financial and institutional development affects financing of large and small firms our database is not limited to large firms but includes small and medium size firms and data on a broad spectrum of financing sources including leasing supplier development and informal finance small firms and firms in countries with poor institutions use less external finance especially bank finance protection of property rights increases external financing of small firms significantly more than of large firms mainly due to its effect on bank finance small firms do not use disproportionately more leasing or trade finance compared with larger firms so these financing sources do not compensate for lower access to bank financing of small firms we also find that larger firms more easily expand external financing when they are constrained than small firms finally we find suggestive evidence that the pecking order holds across countries

informal employment safety net or growth engine summary is informal employment a safety net or a growth engine to address this question this paper studies the trends and cycles of informal employment it first presents a theoretical model of long and short run behavior of informal labor then it analyzes these relationships empirically using the share of self employment in the labor force as the proxy for informal employment in the long run informality is larger when labor productivity is lower government services weaker and business flexibility less prevalent in the short run informal employment behaves counter cyclically indicating that it acts primarily as a safety net the degree of counter cyclicality however varies inversely with the size of informal labor itself

the macroeconomics of labor and credit market imperfections labour market frictions are not the only possible source of high unemployment credit market imperfections driven by microeconomic frictions and influenced by macroeconomic factors could also be to blame to develop this idea in a simple and tractable macroeconomic model we treat credit and labour market imperfections in a symmetrical way accordingly we introduce specificity in credit relationships and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions in the spirit of diamond 1990 these imperfections mirror job search frictions in the labour market we study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages we explore a number of possible extensions endogenous destruction monetary policy and the short run effects of financial liberalization

some colonial evidence on two theories of money maryland and the carolinas recent developments in monetary economics stress the nature of monetary injections emphasizing that they have implications for the relationship between money and prices in contrast traditional approaches posit stable money demand functions that are independent of how money is injected the former approach implies that certain proportionality relations between money and prices need not obtain this permits the two approaches to be empirically distinguished but only if an appropriate experiment is conducted the colonial period is one such experiment colonial evidence suggests that the nature of injections is crucial to the effect on prices of changes in the money supply

high inflation heterodox stabilization and fiscal policy abstract in 1985 86 argentina bolivia brazil and israel introduced stabilization programs aimed at drastic and immediate reductions in inflation besides traditional fiscal and monetary policies the stabilization packages included a number of heterodox elements such as wage and price freezes exchange rate pegging and deindexation measures this paper delineates the analytical relationship between the traditional and heterodox policies discusses the role and impact of the heterodox policies in the programs and examines in detail the role of traditional fiscal policy when coupled with heterodox policies and applied with the aim of moving quickly from very high to very low inflation

employment and firm heterogeneity capital allocation and countercyclical labor market policies abstract developing and emerging economies have large employment shares in micro and small firms which are characterized by limited access to formal financing and high reliance on input credit these economies implemented a host of countercyclical labor market policies amid the global financial crisis gfc but labor market data limitations prevent detailed empirical assessments of the effectiveness of these policies we develop a business cycle model with frictional labor markets consistent with the employment and firm structure of these economies and assess the aggregate impact of key countercyclical labor market policies implemented amid the gfc improving job intermediation for large firms is particularly effective in aiding recoveries policies targeting smaller firms yield limited aggregate benefits differences in labor productivity and sectoral contribution to employment and output across firm categories are key in explaining the response to policy

a real target model of wage inflation with variable union power the uk experience 1962 1984 this paper offers a reassessment of the hypothesis that nominal wage determination involves union real wage targets whose attainment depends on the bargaining process the conventional model is augmented by the introduction of employer targets as well as nonlinear specification for relative power empirical evidence suggests that our estimates of union power can partially explain share price fluctuations

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program comment consumers enrollment decisions in medicare part d can be explained by abaluck and gruber s 2011 model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases we evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data we find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information the validation tests provide evidence against widespread psychological biases in particular we find that precluding psychological biases improves the structural model s out of sample predictions for consumer behavior

optimal health insurance for multiple goods and time periods we examine the efficiency based arguments for second best optimal health insurance with multiple treatment goods and multiple time periods correlated shocks across health care goods and over time interact with complementarity and substitutability to affect optimal cost sharing health care goods that are substitutes or have positively correlated demand shocks should have lower optimal patient cost sharing positive serial correlations of demand shocks and uncompensated losses that are positively correlated with covered health services also reduce optimal cost sharing our results rationalize covering pharmaceuticals and outpatient spending more fully than is implied by static one good or one period models

nobody s business but my own self employment and small enterprise in economic development abstract in most poor countries small firms and self employment are the dominant forms of business enterprise even in the manufacturing sector for rich countries in contrast self employed people account for very small shares of manufacturing employment and output this paper builds on lucas 1978 on the size distribution of business firms bell journal of economics 9 2 508 523 to ask whether structural changes of this kind are driven by productivity differences a model calibrated to japanese time series data is shown to mimic key features of cross country and time series data the results support the idea that changes in aggregate productivity account for much of the cross country variation in establishment size and self employment rates

alternative closures again a comment on growth distribution and inflation marglin 1984a b has recently made a most valuable contribution to the study of econ omic growth and income distribution by showing that the neoclassical neo keynesian and neo marxian approaches can be interpreted as providing alternative rules which close an underdetermined system comprising a production equation and a price equation this exercise provides simple models illustrating the essence of each tradition and allows easy comparison to be made between them however a problem with the exercise of which marglin is aware is that those partial to particular traditions may find his reading of the essence of their approach to be inadequate some of those who may loosely be identified as belonging to the neo marxian and neo keynesian tradition in particular will find some central elements of their theories having no place in marglin s models perhaps the most important concerns the possible stimulative effects of greater income equality on growth a higher real wage could increase the level of consumption in the economy increase effective demand induce firms to invest more and raise the rate of growth of the economy 1 such a story cannot be told by marglin s models in which the relationship between growth measured by the rate of growth of output and income distribution measured by the real wage is inverse criticisms of this type may imply that there may be problems inherent in marglin s comparative method or in the way his exercise is conducted i shall argue that the latter is the case and suggest how it can be rectified without damaging the nature of the exercise the problem lies in marglin s slipping in without acknowledgement strong econ omic asumption in his underdetermined model which supposedly has minimal economic

effects of pro growth policies on employment evidence of regional disparities the main objective of our research is to study the direct impact of pro growth economic policies on employment creation globally and regionally as evidence has countered policy makers expectation

historical experiences with flexible exchange rates a simulation of common qualitative characteristics abstract this paper develops an analytical model of price and exchange rate determination which formalizes the evolution of the money supply expectations process calibration and simulation of the model demonstrates its ability to replicate certain stylized facts that characterize 17 historical experiences with flexible currency prices under inflationary conditions furthermore the model proves capable of tracing actual prices and exchange rates in a number of selected historical cases rather than treating each experience as a singular historical event the paper thus constitutes a step towards a general account of the rich experience with flexible exchange rates during the last two centuries

competitive banks and the inflation tax abstract the purpose of this note is to show that the presence of a competitive banking sector has important quantitative implications for the revenue maximizing rate of inflation

financial development unemployment volatility and sectoral dynamics abstract we document a negative and significant relationship between domestic financial development and unemployment volatility in developing and emerging economies demes and the absence of such relationship in advanced economies aes a business cycle labor search model with firm heterogeneity collateral constraints and interfirm input credit capital can quantitatively rationalize these facts greater financial development is associated with lower usage of input credit capital greater bank credit and greater capital accumulation all of which make firms more resilient in the presence of financial shocks firms increased shock resiliency stabilizes employment decisions ultimately leading to smoother unemployment fluctuations then by establishing explicit linkages between firms interfirm input credit acts as an important mechanism that fosters lower volatility across firms under greater financial development as such increases in financial development have a smaller impact in stabilizing unemployment in economies with higher average bank credit gdp ratios and less input credit usage which is the case of aes compared to economies with lower average bank credit gdp ratios and more input credit usage which is the case of demes

asset substitution money demand and the inflation process in brazil various domestic financial assets in brazil have provided relatively liquid nonmonetary alternatives monthly money demand estimates which include domestic asset opportunity costs and take account of t bill repurchase agreements in a dynamic error correction model demonstrate the importance of domestic substitutes in explaining money holdings money demand appears responsive and stable moreover t bills and indexed bonds have acted as an alternative to central bank liabilities as a source of finance for government deficits evidence indicates that the initial financing of government deficits through bonds bills and other nonmonetary liabilities may explain why money lags price shocks rather than vice versa copyright 1989 by ohio state university press

government debt and inflationary expectations as determinants of the money supply in germany 1919 23 1 he growth of the money supply has figured prom1nently in every account of germany s inflation in the 1920s the very word inftation referred more to money growth than to the rise of prices in their models of inflation especially hyperinflation recent economists treat the growth of money as an immediate and often as an exogenous cause of inflation of prices inflationary expectations play an important intermediary role and what expectations process was rational depends chiefly on what process determined the money supply sargent and wallace 1973 webb 1983 pp 443 46 unfortunately economists have rarely looked beyond the numbers at what the reichsbank did and what it left undone to investigate the money supply this paper begins with a model that reflects the central bank s own understanding of its monetary policy during the inflation period the reichsbank followed a passive policy that let the size of the money stock be determined by the government and corporate demand for credit and by the private sector s choice of the mix of debt and money in its portfolios we must see how well such a model explains money growth and whether its coefficients changed signifi

money credit and wages in hyperinflation post world war i germany an important feature of the german hyperinflation is the way in which accelerating monetization of both government and private debt by the reichsbank fueled the inflation process the stimulus to private credit demand arising from more rapid adjustment of money wages over this period is often ignored however the present empirical results strongly support the importance of wage pressures in augmenting fiscal influences on nominal money growth during 1920 1923 our findings also suggest that wage claims provided the main conduit through which higher inflationary expectations were accommodated by faster rates of monetary expansion

hyperinflations their origins development and termination abstract this paper summarizes and critically surveys research on hyperinflation appraisal and review of the literature considers the origins development termination and the lessons to be learned from hyperinflations the historical evidence as well as the econometric evidence is analyzed it is concluded that while the lessons to be learned from such episodes perhaps have been overstated a number of useful implications may be derived from studying hyperinflations such as an understanding of the forces which link monetary and fiscal policies to inflation and policy makers role in influencing individuals expectations

process consistency and monetary reform some further evidence abstract in this paper we provide additional evidence that process consistency may have materialized as a restrictive constraint on the money generation process in addition to recomputing the time series of process consistency probabilities using new data from the german case we also supply our empirical technique to the data from the other hyperinflations studied by cagan the results are consistent with our earlier conclusions in extreme hyperinflation process consistency may have materialized as a restrictive constraint on the money generation process

basic versus supplementary health insurance moral hazard and adverse selection this paper introduces a tractable model of health insurance with both moral hazard and adverse selection we show that government sponsored universal basic insurance should cover treatments with the biggest adverse selection problems treatments not covered by basic insurance can be covered on the private supplementary insurance market surprisingly the cost effectiveness of a treatment does not affect its priority to be covered by basic insurance

patient cost sharing and hospitalization offsets in the elderly in the medicare program increases in cost sharing by a supplemental insurer can exert financial externalities we study a policy change that raised patient cost sharing for the supplemental insurer for retired public employees in california we find that physician visits and prescription drug usage have elasticities that are similar to those of the rand health insurance experiment hie unlike the hie however we find substantial offset effects in terms of increased hospital utilization the savings from increased cost sharing accrue mostly to the supplemental insurer while the costs of increased hospitalization accrue mostly to medicare

optimal health insurance for prevention and treatment this paper reexamines the efficiency based arguments for optimal health insurance extending the classic analysis to consider optimal coverage for prevention and treatment separately our paper considers the tradeoff between individuals risk reduction on the one hand and both ex ante and ex post moral hazard on the other we demonstrate that it is always desirable to offer at least some insurance coverage for preventive care if individual consumers ignore the impact of their preventive care on the health premium using a utility based framework we reconfirm the conventional tradeoff between risk avoidance by risk sharing and moral hazard for insuring treatment goods uncompensated losses that reduce effective income provide a new efficiency based argument for more generous insurance coverage for prevention and treatment of health conditions the optimal coinsurance rates for prevention and for treatment are not identical

inflation in argentina stop and go since the austral plan the austral plan launched in 1985 was argentina s most recent stabilization strategy for reducing high inflation a heterodox program it combined orthodox components tight fiscal policy and monetary restraint with less conventional wage and price controls the austral plan failed to bring inflation down on a sustained basis but it provided useful lessons about the design of heterodox stabilization programs the difficulties of sustaining this type of effort and the consequences of failure

integrated insurance design in the presence of multiple medical technologies the classic theory of moral hazard concerns the insurance of a single good and predicts that co insurance is larger when the elasticity of demand is higher and when small risks are insured we extend this analysis to the insurance of multiple goods for example the simultaneous insurance of medical services and prescription drugs we show that when multiple goods are either complements or substitutes so that a change in co insurance for one service affects the demand of others the classic moral hazard results do not hold for example the single good model would predict high co payments for prescription drugs since drug demand is elastic and of modest financial risk however a model of multi good insurance suggests such drug coverage may optimally involve zero or even negative co insurance when it is a substitute to other services insured such as hospital care or physician services we summarize some of the empirical evidence in support of markets adopting optimal integrated pricing structures rather than individually optimal pricing structures this abstract was borrowed from another version of this item

cagan s model of hyperinflation under rational expectations this paper studies p cagan s model of the german hyperinflation under the hypothesis that adaptive expectations are rational it shows that inference about the key money demand elasticity parameter a is very senstitive to the specification of the dynamic interaction of the unobserved money demand shock with prices and money in particular if t j sargent s 1977 specification is modified then his basic conclusions are overturned identification of a does not require prior knowledge about the covariance of unobserved shock terms and d ata on the german hyperinflation imply a sharp not loose estimate of a which is of plausible magnitude finally informal tests indicate that modifying sargent s specification gives rise to improved model fit copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the end of the hungarian hyperinflation of 1945 1946 the rational expectations approach to macroeconomics suggests that hyperinflations were ended abruptly without significant output or unemployment costs using new evidence the author finds that while transition costs did take place following the hungarian hyperinflation of 1945 46 they were not linked to the credibility of the regime change although the evidence presented actually reinforces the rational expectations interpretation of the end of hyperinflations the paper also stresses the importance of distinguishing between an economy experiencing high inflation and one emerging from a milder inflation copyright 1989 by ohio state university press

public sector price increases credibility and welfare abstract this paper examines the dynamics of inflation and unemployment when the government increases public sector prices and wage indexation prevents the labor market from clearing in the short run credible reforms are virtually certain to be immediately deflationary and welfare improving even when the labor market clears very slowly temporary price increases however usually produce higher inflation after a short period of time and often reduce welfare when higher inflation provokes the government to reverse the reform there exist multiple self fulfilling equilibria

credit rationing and effective supply failures the topic of this paper is among the oldest and most fundamental in monetary theory how and why does monetary policy affect real economic activity traditional answers hold that the central bank can manipulate aggregate demand by engineering expansions or contractions of the medium of exchange in its monetarist variant this story posits a direct link between something called m and aggregate spending in its keynesian variant the story holds that adjustments in asset prices brought about by a change in m lead to more spending especially on capital goods in either case short run stickiness of prices is needed to translate some of the changes in demand into movements of real output in recent years these conventional stories have become increasingly implausible as stiglitz and i blinder and stiglitz i 983 have argued elsewhere with money becoming more and more difficult to define it is becoming increasingly difficult to believe that the central bank can cause a recession by contriving a shortage of an arbitrary subset of assets called m put differently the point seems both simple and compelling if there are ready substitutes for money control of money will not give the authorities much leverage over the real economy hence this paper develops an explanation for how central bank policy affects

hyperinflation the exchange rate and endogenous money post world war i germany revisited abstract we re examine the interaction of domestic and external factors in the german hyperinflation by extending frenkel s monetary model of the exchange rate to incorporate 1 endogeneity of the money supply with respect to government debt expected inflation and money wages 2 the direct impact of exchange rate depreciation on the domestic price level and 3 endogenous wage determination four equation estimates support each extension of the monetary model it appears that government deficit finance the collapse of the exchange rate and the monetary transmission of the wage price spiral were all crucial contributors to the price explosion

patient cost sharing and healthcare spending growth in this paper we explore the role patient incentives play in slowing healthcare spending growth evidence suggests that while patients do indeed respond to financial incentives cost sharing does not uniformly improve value rather cost sharing provisions must be deliberately structured and targeted to reduce care of low marginal value other mechanisms may be helpful in targeting particular populations or types of utilization the spillover effects between privately insured and publicly insured populations as well as market imperfections suggest a potential role for public policy in promoting insurance design that slows spending growth while increasing the health that each dollar buys