monetarism and the us economy we take a small macroeconomic model due to stein designed to capture the essential aspects of keynesian and monetarist propositions especially on the question of crowding out we show that stein s empirical procedure is inadequate he ignores the restrictions that he imposed on the structure of his model and concentrates on single equation reduced form estimation we are able to derive complete maximum likelihood estimates of the structural parameters subject to the non linear restrictions of the model using identical data and the same specifications but with these more appropriate estimation techniques we show that conclusions opposite to those of stein may be reached

does exchange rate variability depress trade flows evidence from error correction models this paper examines the impact of exchange rate volatility on the trade flows of the g 7 countries in the context of a multivariate error correction model the error correction models do not show any sign of parameter instability the results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the g 7 countries assuming market participants are risk averse these results imply that exchange rate uncertainty causes them to reduce their activities change prices or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility this in turn can change the distribution of output across many sectors in these countries it is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series copyright 1993 by mit press

choosing winners and losers in a classroom permit trading game in many economics classes from principles to environmental economics and public finance we teach students that tradable pollution permits are an efficient way to achieve the socially optimal level of pollution this can be shown to students relatively easily using standard firm cost curves or simply by discussing how firms that can cheaply reduce their pollution can sell their rights to firms with higher pollution reduction costs it is often more difficult to convince students that for a fixed level of permits the initial allocation of permits does not affect the efficiency of the trading program but only the distribution of the financial burden of reducing pollution 2 understanding the distributional effects of trading programs is important because equity issues are what make some trading programs controversial for example the initial allocation of permits is one of the contentious issues in developing an international tradable permit program for greenhouse gas emissions to illustrate the distributional effects of a permit trading program we have developed a simple classroom game this game can also be used more generally to show how the distribution of property rights determines who internalizes an externality but does not affect whether the social optimum is achieved this game can be conducted in a 50 minute class with a short follow up discussion in the next class period and requires only a deck of playing cards index cards and copies of the instructions and record sheets in the appendix 3

the market value of outstanding government debt 1919 1975 abstract several new series on the market value of outstanding government debt are reported and their methods of construction described the new series on federal debt are compared with other existing estimates and are shown to be markedly superior to them

optimal policies and socially oriented behavior some problematic effects of an incentive compatible device mancur olson was pivotalin identifying the formal structure ofcollective action and the problems ofachieving optimal social outcomes with it using experimental methods an incentivecompatible device is introduced in a5 person prisoner s dilemma thearrangements reflect constructs of harsanyiand rawls designed to identify optimal andfair outcomes the device moves groupstowards optimality but its removalnegatively affects subsequent behavior compared to a control with no icd thisspill over problem seems to reflect aweakened connection between sociallyoriented values and behavior suggestingthat icd s may have unanticipated negativeexternalities

the effects of moral licensing and moral cleansing in contingent valuation and laboratory experiments on the demand to reduce externalities recent field experiments show that peer information can induce people to reduce their production of negative externalities related work in psychology demonstrates that inducing feelings of relative culpability in one domain can induce spillover pro social behavior in another domain we use a contingent valuation and parallel lab experiment to explore patterns of cross domain responses to norm based interventions asymmetric responses between those whose impacts are above or below the norm are found to be robust across decision settings substantial heterogeneity in responses is observed across a number of dimensions not explored in large field experiments raising questions about the universality of peer information effects and the design of such programs

the market value of u s government debt monthly 1942 1980 abstract the market value of outstanding united states treasury debt is calculated on a monthly basis using price and par value data from the treasury bulletin separate series for treasury bills bonds certificates of indebtedness notes and total treasury debt are presented along with estimates of privately held treasury debt and gross federal debt the calculated market value series is compared to par value and an existing annual market value series

neglected method of separating demand and supply in time series regression this article argues that in many markets quantity is demand determined in the short run but price is supply determined and that the dynamic restrictions between price and quantity implied by the model have been widely neglected in empirical research two examples illustrate our point the demand and supply relationships between inflation and unemployment and between the terms of trade and the trade balance in both specifying quantity as a function of lagged prices in demand and price as a function of lagged quantities in supply rather than concentrating on exogenous shift determinants is sufficient to separate demand and supply

unemployment inflation and monetarism a further analysis comment in a recent paper in this review robert van order proposes an interesting simplification of the important model of jerome stein 1974 the purpose of this comment is to correct some errors in van order s analysis to relate his results to stein s later work 1976b c and to analyze the role of these papers in the current debate over the mechanisms and effectiveness of macroeconomic policy for the convenience of the reader and to simplify the necessary references to van order s paper his equations through 7 and relevant notation are reproduced g g actual and expected rates of inflation y real output f indicator of fiscal policy m m nominal and real money supply p w levels of prices and wages v velocity of circulation n growth rate of m x speed of adjustment of expected inflation 9 ratio of bonds to money functions p phillips curve f production function e aggregate demand s aggregate supply r reduced form of e and s van order s equations are as follows

experimental evidence on dynamic pollution tax policies abstract this paper uses laboratory experiments to provide primary empirical evidence on dynamic pollution tax policies in particular we investigate a setting where a regulator with incomplete information uses a pollution tax mechanism with a simple endogenous tax rate adjustment rule to cost effectively meet a pollution standard this mechanism provides the opportunity for firms to strategically abate in order to reduce future tax rates the experiments vary important policy design features such as the type of tax ambient or emissions the initial tax rate and the tax rate adjustment speed we find that in equilibrium the pollution standard is met on average for each of these settings the observed long run tax rates vary considerably across policy designs which can be explained with a theory that allows for a mix of strategic and myopic firms along with the recognition that the incentives generated by the policy design can influence whether an agent plays myopically or strategically

unemployment inflation and monetarism the council s report provides a look at the 1969 71 game plan to disinflate by means of retarding aggregate demand the president elect s task force on inflation recommended as a first interim step that aggregate demand be slowed so as to bring the unemployment rate back to some equilibrium region around 4 5 percent what happened was that under the cover of the expectation and acceptance of such a limited step towards re equilibration the administration gradually tightened monetary and fiscal policy so severely as gradually to send the unemployment rate whizzing past the equilibrium zone to around 6 percent to my knowledge the theory of how and how well this medicine would act to cure the patient of his inflation was never spelled out by the council of economic advisers pp 533 34

the voluntary approach to externality problems an experimental test abstract an experiment to test the two coasian propositions conducted at the university of arizona using students as subjects is reported experimental conditions included incomplete information and economic liability rules the experimental results statistically support the efficiency proposition support for the neutrality proposition arises in the case of long time negotiations behavioral findings such as altruism and other interesting results are discussed together with their practical implications

time delay complexity and support for taxation people often experience the benefits of taxation over time we design an intertemporal market experiment with negative externalities to examine how delaying the benefits of taxation affects support for taxes we find that when negative externalities occur immediately people learn to adopt pigouvian taxes which are aimed at reducing negative externalities and restoring market efficiency by contrast when negative externalities are delayed people are less receptive to taxation this effect persists over time our data reveal that the strong negative delay effect can be explained in large part by narrow bracketing and the increased perceived complexity of the environment rather than by time discounting per se we argue and demonstrate that increasing the transparency of intertemporal tradeoffs can effectively promote support for taxation

cooperation in and out of markets an experimental comparison of public good games and markets with externalities experimental studies have compared cooperation across different nonmarket social dilemma settings but the experimental literature has largely overlooked comparing cooperation across market and nonmarket settings this paper reports the results from an experiment that compares behavior in theoretically equivalent public good games and market games with externalities both positive and negative external effects are considered results indicate that people tend to be less cooperative in the marketplace relative to the nonmarket setting whether the external effect is positive or negative most striking is the finding that the combination of a positive external effect in a nonmarket setting i e the standard public good game stands apart from the other market and nonmarket settings

the multiple unit double auction the note outlines institutional features of an open outcry market that permit multiple unit or block trades the purpose of the note is to introduce the process as a tool to be used in economics experiments the detailed rules governing the multiple unit double auction muda are stated for the case where offers are tendered by voice as opposed to through a computer the results of markets that use the rules are reported as a demonstration that convergence to equilibrium price traditionally observed in experimental markets remains with the use of the muda process

investment incentives under emission trading an experimental study this paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits we consider three allocation auction policies auctioning off costly permits through an ascending clock auction grandfathering permits with re allocation through a single unit double auction and grandfathering with re allocation through an ascending clock auction our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering we nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment it affects the static efficiency from permit trading

efficiency of nonpoint source pollution instruments an experimental study in nonpoint source pollution problems the regulator does not observe each polluter s individual emission which prevents him from using the conventional policy instruments therefore new instruments have been designed to regulate this type of pollution in an experiment we compare the efficiency of some of these instruments an input based tax an ambient tax subsidy an ambient tax and a group fine we assume that polluters themselves are affected by environmental damages a control session without any regulation is also carried out in order to study the status quo situation our experimental data show that the input tax and the ambient tax are very efficient and reliable and the group fine is fairly efficient and reliable these instruments improve social welfare with respect to the status quo on the contrary the ambient tax subsidy decreases social welfare with respect to the status quo and its effect is very unreliable

pricing and regulating affect environmental ethics effluent charges and tradeable permits are economically efficient but rarely used a new explanation for this discrepancy is offered pricing may crowd out environmental ethics in the pricing and via spillovers also in non pricing sectors pricing may therefore increase pollution providing a reason why decision makers tend to reject environmental pricing five propositions showing the conditions for counterproductive effects are advanced they are consistent with available empirical evidence regulation by setting standards and subsidies damage environmental ethics less than pricing because pollution is condoned damaging environmental ethics may prevent political action in favor of the environment

overexploitation of renewable resources the role of misperceptions abstract numerous renewable resources have been exploited beyond limits for sustainable and economic development at times over exploitation has been observed even in cases where management regimes have been in place thus it seems pertinent to search for explanations beyond the theory of the commons an experiment is performed where subjects set reindeer quotas in a district where lichen has been severely depleted by preceding overgrazing all subjects err on the side of over exploitation behavior seems to be dominated by inappropriate static mental models and inefficient heuristics hence a subtle information problem is revealed

time varying structural vector autoregressions and monetary policy a corrigendum this note shows how to apply the procedure of kim et al 1998 to the estimation of var dsge factor and unobserved components models with stochastic volatility in particular it revisits the estimation algorithm of the time varying var model of primiceri 2005 the main difference of the new algorithm is the ordering of the various mcmc steps with each individual step remaining the same

a keynesian macro econometric model of the uk 1955 1984 summary in this paper we present a small keynesian macro economic model in which wage price determination is linked to the working of goods and money markets by explicitly treating the keynes effect we derive a general expression for the employment money supply elasticity and draw the is lm loci in the employment interest rate space our empirical specification allows for short run disequilibrium dynamic adjustments around the static long run relations predicted by the theoretical model by careful use of our specification search strategy we obtain a statistically sound econometric model which exhibits sensible long run properties a remarkable finding implied by our estimates is that equilibrium unemployment is negatively affected by both money supply and incomes policy

designing organizations for trading pollution rights regulators and academicians have recently become interested in using a marketable permits program as a new way to control aggregate pollution emissions our research focuses on choosing a permit trading mechanism that is both economically efficient and politically viable we consider an organized trading process and a revenue neutral auction both of which involve an initial allocation of permits based on past history each is tested in a competitive and in a non competitive environment to determine which mechanism performs best the results of our research suggest that overall the organized trading process outperforms the revenue neutral auction

money and inflation the case of western developed countries 1960 80 1990 money and inflation the case of western developed countries 1960 80 applied economics vol 22 no 7 pp 863 869

economic prescriptions for environmental problems how the patient followed the doctor s orders o ne of the dangers with ivory tower theorizing is that it is easy to lose sight of the actual set of problems which need to be solved and the range of potential solutions as one who frequently engages in this exercise i can attest to this fact in my view this loss of sight has become increasingly evident in the theoretical structure underlying environmental economics which often emphasizes elegance at the expense of realism in this paper i will argue that both normative and positive theorizing could greatly benefit from a careful examination of the results of recent innovative approaches to environmental management the particular set of policies examined here involves two tools which have received widespread support from the economics community marketable permits and emission charges pigou 1932 dales 1968 kneese and schultze 1975 both tools represent ways to induce businesses to search for lower cost methods of achieving environmental standards they stand in stark contrast to the predominant command and control approach in which a regulator specifies the technology a firm must use to comply with regulations under highly restrictive conditions it can be shown that both of the economic approaches share the desirable feature that any gains in environmental quality will be obtained at the lowest possible cost baumol and oates 1975 until the 1960s these tools only existed on blackboards and in academic journals as products of the fertile imaginations of academics however some countries have recently begun to explore using these tools as part of a broader strategy for managing environmental problems

measuring the natural rate of interest international trends and determinants abstract u s estimates of the natural rate of interest the real short term interest rate that would prevail absent transitory disturbances have declined dramatically since the start of the global financial crisis for example estimates using the laubach williams 2003 model indicate the natural rate in the united states fell to close to zero during the crisis and has remained there into 2016 explanations for this decline include shifts in demographics a slowdown in trend productivity growth and global factors affecting real interest rates this paper applies the laubach williams methodology to the united states and three other advanced economies canada the euro area and the united kingdom we find that large declines in trend gdp growth and natural rates of interest have occurred over the past 25 years in all four economies these country by country estimates are found to display a substantial amount of comovement over time suggesting an important role for global factors in shaping trend growth and natural rates of interest

the monetarist versus the neo keynesian views on inflation abstract this empirical inquiry investigates the relative merits of the monetarist and the neo keynesian hypotheses regarding the behavior of inflation in the italian economy over the 1955 1983 period based on testing three alternative dynamic models that have been proposed in the literature the empirical results support the monetarist proposition that unemployment has an insignificant impact upon inflation a finding that is at odds with the neo keynesian hypothesis indeed consistent with the monetarist hypothesis the results suggest that the rate of monetary expansion is a prime determinant of the rate of inflation and its acceleration in italy

further evidence on alternative theories of inflation and unemployment the scandination countries the objective of this study is to estimate the inflation and unemployment models of various of macroeconomics as suggested by sargent stein and rea and to test the validity of their propositions using the data of four scandinavian countries namely denmark finland norway and sweden the results provide some support for the new classical models on unemployment but the monetory variables as monetarists argue have a significant effect on unemployment with regard to inflation the data of the scandinavian countries do not support the monetarist proposition that inflation is always and everywhere a monetary phenomenon however the results support keynesian propositions that economic slack represented by unemployment is important in explaining the rate of inflation

monetarism and the aggregate economy some longer run evidence a simple macro model is used to investigate various monetarist propositions over the period 1923 82 initial tests indicate a structural break over this period and the subperiods 1923 60 and 1961 82 are analyzed separately results obtained for the latter period support the monetarist propositions put forward by stein and others however upon closer investigation it appears that the crucial long run neutrality that characterizes these findings is essentially generated by government policy and is not necessarily an intrinsic property of the economy over that period by contrast results obtained for the period 1923 60 are much less supportive of these same propositions

international transmission of us macroeconomic policy and the inflation record of western europe abstract the interaction between monetary policy government budget deficits and inflation is examined for the four largest western european economies comprising france italy the united kingdom and west germany in order to assess the possible impact of us macroeconomic policy past us monetary base growth deficits and inflation rates are included in the set of explanatory variables for each of the european countries empirical results for the 1962 2 1985 4 sample period reveal interplay between domestic monetary and fiscal policy to be augmented by a significant impact of the us variables across all four countries in the sample

opportunity cost for free allocations of emissions permits an experimental analysis an important feature of emissions trading is how emissions permits are allocated the choice between an auction and free allocation should not influence firms production choices nor consumer prices according to economic theory however many parties expect the method of allocation to affect product prices this paper describes an experimental investigation into price determination under a cap and trade program with different allocation methods participants initially display diverse pricing strategies however given a simple economic setting in which earnings depend on behavior we find that subjects learn to consider the opportunity cost of permits and overall behavior moves toward the economic prediction

explaining collective action with rational models we note the failure of a rational egoist model of human behavior to generate successful predictions of important economic and political behaviors including collective action alternative models are presented that combine rational utility maximizing features with concerns about collective welfare the performance of these models in explaining contributing behavior in an experimentally induced public goods game is compared to the performance of a rational egoist and collective welfare model the results indicate that a model in which subjects are presumed to trade off benefits to self with benefits to others provides a better explanation of actual contributing behavior than either the rational egoist or collective welfare models but still explains only a small amount of the individual variance in contributing behavior

production trade prices exchange rates and equilibration in large experimental economies we study market equilibration in laboratory economies that are larger and more complex than any that have been studied experimentally to date complexity is derived from the fact that the economies are international in economic structure with multiple input output and foreign exchange markets in operation the economies have twenty one markets and due to the fact that they have roughly fifty agents the economies are characterized by several hundred equations in spite of the complexity and interdependence of the economy the results demonstrate the substantial power of the general equilibrium model of perfect competition to predict the direction of movement of market level variables empirical patterns in the convergence process are explored and described

payments or persuasion common pool resource management with price and non price measures we use lab experiments to study policies that address common pool resource overuse we look at a price mechanism specifically a pigouvian subsidy and four non price interventions the non price policies are information alone information with a normative message communication alone and normative messages with communication allowed in all experiment sessions no intervention occurs in the first seven and last seven rounds allowing us to examine the effects of introducing and taking away a policy the subsidy leads to near efficient extraction but surprisingly leads groups that were not over extracting to also reduce extraction this over compliance decreases efficiency although on net the subsidy is the most efficiency enhancing intervention information provision communication normative appeals and normative appeals combined with communication all reduce over extraction though by less than the subsidy without exacerbating over compliance however the effects of information alone and communication alone are small and not robust the non price policies cause a decline in over extraction of from 0 549 information to 11 441 normative appeals with communication these effects are of the same order of magnitude as the effects seen in major field studies of conservation messaging the subsidy has the worst persistence properties after the intervention ceases while normative messages with communication have the best

testing the theory of emissions trading experimental evidence on alternative mechanisms for global carbon trading abstract simulation models and theory prove that emission trading converges to market equilibrium this paper sets out to test these results using experimental economics three experiments are conducted for the six largest carbon emitting industrialized regions two experiments use auctions the first a single bid auction and the second a walrasian auction the third relies on bilateral sequential trading the paper finds that in line with the standard theory both auctions and bilateral sequential trading capture a significant part 88 to 99 of the potential cost savings of emission trading as expected from trade theory all experiments show that the market price converges although not fully to the market equilibrium price in contrast to the theory the results also suggest that not every country might gain from trading in both the bilateral trading experiment and the walrasian auction one country actually is worse off with trade in particular bilateral sequential trading leads to a distribution of gains significantly different from the competitive market outcome this is due to speculative behavior imperfect foresight and market power

complete systems methods of estimating models with rational and adaptive expectations a case study abstract this paper examines the use of complete fully efficient systems methods to compare model estimates under rational and adaptive schemes of expectations generation to do this we employ a small well known model designed to distinguish monetarist from keynesian macroeconomic structures

the policy ineffectiveness proposition some further tests abstract this study investigates for denmark the relative merits of the new classical versus the monetarist hypotheses regarding the role of monetary policy in stabilizing real economic activity the results do not reject the monetarist contention that anticipated systematic monetary policy has a significant effect on real output in the short run a finding that is inconsistent with the new classical policy ineffectiveness proposition

tell the truth or not the montero mechanism for emissions control at work abstract we experimentally test the truth telling mechanism proposed by montero 2008 for eliciting firms abatement costs we compare this mechanism with two well known alternative allocation mechanisms free and costly allocation of permits at the pigouvian price controlling for the number of firms and the firms maximal emissions we find that in line with the theoretical predictions firms over report their maximal emissions under free allocation of permits and under report these under costly allocation of permits under montero s mechanism by contrast firms almost always report their maximal emissions truthfully however in terms of efficiency the difference between montero s mechanism and costly allocation disappears with industries including more than one firm

alternative modes of deficit financing and endogneous monetary and fiscal policy in the u s a 1923 1982 this paper first investigates the effects of alternative modes of deficit financing on the unemployment rate the inflation rate and the real interest rate within the framework of a small complete macroeconomic model secondly it examines the nature of monetary and fiscal reaction functions the two periods 1923 1960 and 1961 1982 are considered with substantial differences in behaviour and policy being shown to exist between them the most important conclusion is that long run monetary neutrality properties shown to exist over the latter period are not intrinsic to the u s economy but rather are the result of the stabilization policies being conducted over that period

do you not like pigou or do you not understand him tax aversion and revenue recycling in the lab tax aversion reduces the likelihood that price rationing can be a politically viable tool for environmental protection we examine the case of the classic pigouvian tax to control a negative externality and consider how recycling the revenues labeling of the tax and information about its purpose affects the support for taxation we test the support for taxation within a single price market experiment in which purchases by some buyers impose external costs on others observing behavior consistent with tax aversion we also find that recycling the revenues to more narrowly targeted groups seems to increase support for taxation in the absence of narrow revenue recycling labeling a pigouvian instrument as a tax may significantly lower the likelihood of voter support

measuring the natural rate of interest of china a time varying perspective abstract i propose the 5 year forecast of ex ante real interest rate in the time varying parameter vector autoregression model with stochastic volatility as a measure of the natural rate of interest of china the natural rate of china varied around 1 6 before 2010 when the 4 trillion rmb stimulus ended and then exhibited an obvious descending trend from around 1 8 to recent 0 4 this is similar to the descending trend found in the studies of advanced economies

comparing regulations to protect the commons an experimental investigation in a laboratory experiment we test three regulations imposed on a common pool resource game with heterogeneous users an access fee and subsidy scheme transferable quotas and non transferable quotas we calibrate the game so that all regulations improve users profits compared to free access extraction we compare the regulations according to five criteria resource preservation individual profits profit difference pareto improvement from free access and sorting of the most efficient users one of the main findings is that even though it performs better in sorting out the most efficient subjects the fee and subsidy scheme is not more profitable than tradable quotas

the efficient estimation of econometric models with rational expectations the efficient estimation of econometric models with rational expectations by the substitution method usually entails the use of a non linear simultaneous equations estimator and hence is not very attractive computationally it is shown that for a wide class of problems efficient estimates can also be obtained with standard estimation methods if instead an errors in variables approach is used for many other problems although not providing fully efficient estimates because rationality is not imposed the errors in variables method will still have a strong appeal because otherwise it uses all of the structural information in the model unlike the substitution method when an incomplete information set is used it guarantees consistent estimates and it is easy to compute

the natural rate of interest and its usefulness for monetary policy we estimate a state of the art dsge model to study the natural rate of interest in the united states over the last 20 years the natural rate is highly procyclical and fell substantially below zero in each of the last three recessions although the drop was of comparable magnitude across the three recessions the decline was considerably more persistent in the great recession we discuss the usefulness and limitations particularly due to the zero lower bound of the natural rate for the conduct of monetary policy

externalities and corrective policies in experimental markets this paper reports on the behaviour of simple laboratory markets which have an externality experiences with these markets provide some help in answering two broad questions 1 do markets with externalities behave in accordance with the law of supply and demand 2 how do the pollution tax pollution standard and pollution licenses compare as methods for correcting the externality

toward enhancement of the contribution of theory to environmental policy theory can be helpful to policy makers by pointing out surprising relationships unlikely to be recognized by unaided common sense by noting significant exeptions to principles widely accepted and by offering generalizations of its own the paper argues that theorists may not have done enough of the first two and may have overstressed the last giving insufficient warnings of pitfalls examples of each of the three are provided the first is illustrated by a theorem which shows that any new energy source such as gasohol which is supplied only because of a subsidy prospectively uses up more energy than it creates the important exception application is illustrated by showing that subsidies which reward reduced emissions by the firm tend to increase pollution by the industry finally the paper discusses inadvertent bias in the empirical evidence reasserting the superior performance of fiscal incentives for reduced environmental damage as compared to direct controls thus casting doubt on the allegedly universal superiority of incentives