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BIS Working Papers No 136 the Price Level, Relative Prices and Economic Stability: Aspects of the Interwar Debate by David Laidler* Monetary and Economic Department
BIS Working Papers No 136 The price level, relative prices and economic stability: aspects of the interwar debate by David Laidler* Monetary and Economic Department September 2003 * University of Western Ontario Abstract Recent financial instability has called into question the sufficiency of low inflation as a goal for monetary policy. This paper discusses interwar literature bearing on this question. It begins with theories of the cycle based on the quantity theory, and their policy prescription of price stability supported by lender of last resort activities in the event of crises, arguing that their neglect of fluctuations in investment was a weakness. Other approaches are then taken up, particularly Austrian theory, which stressed the banking system’s capacity to generate relative price distortions and forced saving. This theory was discredited by its association with nihilistic policy prescriptions during the Great Depression. Nevertheless, its core insights were worthwhile, and also played an important part in Robertson’s more eclectic account of the cycle. The latter, however, yielded activist policy prescriptions of a sort that were discredited in the postwar period. Whether these now need re-examination, or whether a low-inflation regime, in which the authorities stand ready to resort to vigorous monetary expansion in the aftermath of asset market problems, is adequate to maintain economic stability is still an open question. BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The views expressed in them are those of their authors and not necessarily the views of the BIS. -
Monetary Policy, Relative Prices and Inflation Rate: an Evaluation Based on New Keynesian Phillips Curve for the U.S
Monetary policy, relative prices and inflation rate: an evaluation based on New Keynesian Phillips Curve for the U.S. economy Tito Belchior Silva Moreira* Department of economy, Catholic University of Brasilia, Brazil: [email protected] Mario Jorge C. Mendonça Department of economics, Institute for Applied Economic Research, Rio de Janeiro, Brazil: [email protected] Adolfo Sachsida Department of economics, Institute for Applied Economic Research, Brasília, Brazil: [email protected] Paulo Roberto Amorim Loureiro Department of economics, University of Brasilia, Brasília, Brazil: [email protected] Abstract This paper investigates the direct impact of monetary policy on variation to the relative prices and, in turn, the direct effect of the change in relative prices on the inflation rate considering the New Keynesian Phillips Curve (NKPC). Thus, we analyze the indirect impact of the change of Federal Funds Rate on the inflation rate through the change in relative prices. We use GMM with instrumental variables to estimate several systems of two equations for the U.S. economy based on quarterly time-series from 1975 to 2015. The empirical results show that a change of the Funds Rate has a direct effect on change in relative prices and that, in turn, affects indirectly the inflation rate, through the change in relative prices. Hence, change in the relative prices affects directly the inflation rate via NKPC. In this context, variations of relative prices can be interpreted as a transmission channel of monetary policy. Furthermore, there are empirical evidences that the change of relative prices Granger-cause the inflation rate. Key words: Monetary policy, relative prices, inflation rate, NKPC, U.S. -
Journal of Econometrics Consumption and Labor Supply
Journal of Econometrics 147 (2008) 326–335 Contents lists available at ScienceDirect Journal of Econometrics journal homepage: www.elsevier.com/locate/jeconom Consumption and labor supply Dale W. Jorgenson a,∗, Daniel T. Slesnick b a Department of Economics, Harvard University, Cambridge, MA 02138, United States b Department of Economics, University of Texas, Austin, TX 78712, United States article info a b s t r a c t Article history: We present a new econometric model of aggregate demand and labor supply for the United States. Available online 16 September 2008 We also analyze the allocation full wealth among time periods for households distinguished by a variety of demographic characteristics. The model is estimated using micro-level data from the Consumer JEL classification: Expenditure Surveys supplemented with price information obtained from the Consumer Price Index. An C81 important feature of our approach is that aggregate demands and labor supply can be represented in D12 D91 closed form while accounting for the substantial heterogeneity in behavior that is found in household- level data. As a result, we are able to explain the patterns of aggregate demand and labor supply in the Keywords: data despite using a parametrically parsimonious specification. Consumption ' 2008 Elsevier B.V. All rights reserved. Leisure Labor Demand Supply Wages 1. Introduction employed, we impute the opportunity wages they face using the wages earned by employees. The objective of this paper is to present a new econometric Cross-sectional variation of prices and wages is considerable model of aggregate consumer behavior for the United States. The and provides an important source of information about patterns model allocates full wealth among time periods for households of consumption and labor supply. -
Public Goods in Everyday Life
Public Goods in Everyday Life By June Sekera A GDAE Teaching Module on Social and Environmental Issues in Economics Global Development And Environment Institute Tufts University Medford, MA 02155 http://ase.tufts.edu/gdae Copyright © June Sekera Reproduced by permission. Copyright release is hereby granted for instructors to copy this module for instructional purposes. Students may also download the reading directly from https://ase.tufts.edu/gdae Comments and feedback from course use are welcomed: Global Development And Environment Institute Tufts University Somerville, MA 02144 http://ase.tufts.edu/gdae E-mail: [email protected] PUBLIC GOODS IN EVERYDAY LIFE “The history of civilization is a history of public goods... The more complex the civilization the greater the number of public goods that needed to be provided. Ours is far and away the most complex civilization humanity has ever developed. So its need for public goods – and goods with public goods aspects, such as education and health – is extraordinarily large. The institutions that have historically provided public goods are states. But it is unclear whether today’s states can – or will be allowed to – provide the goods we now demand.”1 -Martin Wolf, Financial Times 1 Martin Wolf, “The World’s Hunger for Public Goods”, Financial Times, January 24, 2012. 2 PUBLIC GOODS IN EVERYDAY LIFE TABLE OF CONTENTS 1. INTRODUCTION .........................................................................................................4 1.1 TEACHING OBJECTIVES: ..................................................................................................................... -
The Soft Budget Constraint
Acta Oeconomica, Vol. 64 (S1) pp. 25–79 (2014) DOI: 10.1556/AOecon.64.2014.S1.2 THE SOFT BUDGET CONSTRAINT An Introductory Study to Volume IV of the Life’s Work Series* János KORNAI** The author’s ideas on the soft budget constraint (SBC) were first expressed in 1976. Much progress has been made in understanding the problem over the ensuing four decades. The study takes issue with those who confine the concept to the process of bailing out loss-making socialist firms. It shows how the syndrome can appear in various organizations and forms in many spheres of the economy and points to the various means available for financial rescue. Single bailouts do not as such gener- ate the SBC syndrome. It develops where the SBC becomes built into expectations. Special heed is paid to features generated by the syndrome in rescuer and rescuee organizations. The study reports on the spread of the syndrome in various periods of the socialist and the capitalist system, in various sectors. The author expresses his views on normative questions and on therapies against the harmful effects. He deals first with actual practice, then places the theory of the SBC in the sphere of ideas and models, showing how it relates to other theoretical trends, including institutional and behav- ioural economics and theories of moral hazard and inconsistency in time. He shows how far the in- tellectual apparatus of the SBC has spread in theoretical literature and where it has reached in the process of “canonization” by the economics profession. Finally, he reviews the main research tasks ahead. -
CONSUMER CHOICE 1.1. Unit of Analysis and Preferences. The
CONSUMER CHOICE 1. THE CONSUMER CHOICE PROBLEM 1.1. Unit of analysis and preferences. The fundamental unit of analysis in economics is the economic agent. Typically this agent is an individual consumer or a firm. The agent might also be the manager of a public utility, the stockholders of a corporation, a government policymaker and so on. The underlying assumption in economic analysis is that all economic agents possess a preference ordering which allows them to rank alternative states of the world. The behavioral assumption in economics is that all agents make choices consistent with these underlying preferences. 1.2. Definition of a competitive agent. A buyer or seller (agent) is said to be competitive if the agent assumes or believes that the market price of a product is given and that the agent’s actions do not influence the market price or opportunities for exchange. 1.3. Commodities. Commodities are the objects of choice available to an individual in the economic sys- tem. Assume that these are the various products and services available for purchase in the market. Assume that the number of products is finite and equal to L ( =1, ..., L). A product vector is a list of the amounts of the various products: ⎡ ⎤ x1 ⎢ ⎥ ⎢x2 ⎥ x = ⎢ . ⎥ ⎣ . ⎦ xL The product bundle x can be viewed as a point in RL. 1.4. Consumption sets. The consumption set is a subset of the product space RL, denoted by XL ⊂ RL, whose elements are the consumption bundles that the individual can conceivably consume given the phys- L ical constraints imposed by the environment. -
CHOICE – a NEW STANDARD for COMPETITION LAW ANALYSIS? a Choice — a New Standard for Competition Law Analysis?
GO TO TABLE OF CONTENTS GO TO TABLE OF CONTENTS CHOICE – A NEW STANDARD FOR COMPETITION LAW ANALYSIS? a Choice — A New Standard for Competition Law Analysis? Editors Paul Nihoul Nicolas Charbit Elisa Ramundo Associate Editor Duy D. Pham © Concurrences Review, 2016 GO TO TABLE OF CONTENTS All rights reserved. No photocopying: copyright licenses do not apply. The information provided in this publication is general and may not apply in a specifc situation. Legal advice should always be sought before taking any legal action based on the information provided. The publisher accepts no responsibility for any acts or omissions contained herein. Enquiries concerning reproduction should be sent to the Institute of Competition Law, at the address below. Copyright © 2016 by Institute of Competition Law 60 Broad Street, Suite 3502, NY 10004 www.concurrences.com [email protected] Printed in the United States of America First Printing, 2016 Publisher’s Cataloging-in-Publication (Provided by Quality Books, Inc.) Choice—a new standard for competition law analysis? Editors, Paul Nihoul, Nicolas Charbit, Elisa Ramundo. pages cm LCCN 2016939447 ISBN 978-1-939007-51-3 ISBN 978-1-939007-54-4 ISBN 978-1-939007-55-1 1. Antitrust law. 2. Antitrust law—Europe. 3. Antitrust law—United States. 4. European Union. 5. Consumer behavior. 6. Consumers—Attitudes. 7. Consumption (Economics) I. Nihoul, Paul, editor. II. Charbit, Nicolas, editor. III. Ramundo, Elisa, editor. K3850.C485 2016 343.07’21 QBI16-600070 Cover and book design: Yves Buliard, www.yvesbuliard.fr Layout implementation: Darlene Swanson, www.van-garde.com GO TO TABLE OF CONTENTS ii CHOICE – A NEW STANDARD FOR COMPETITION LAW ANALYSIS? Editors’ Note PAUL NIHOUL NICOLAS CHARBIT ELISA RAMUNDO In this book, ten prominent authors offer eleven contributions that provide their varying perspectives on the subject of consumer choice: Paul Nihoul discusses how freedom of choice has emerged as a crucial concept in the application of EU competition law; Neil W. -
Approximate Nash Equilibria in Large Nonconvex Aggregative Games
Approximate Nash equilibria in large nonconvex aggregative games Kang Liu,∗ Nadia Oudjane,† Cheng Wan‡ November 26, 2020 Abstract 1 This paper shows the existence of O( nγ )-Nash equilibria in n-player noncooperative aggregative games where the players' cost functions depend only on their own action and the average of all the players' actions, and is lower semicontinuous in the former while γ-H¨oldercontinuous in the latter. Neither the action sets nor the cost functions need to be convex. For an important class of aggregative games which includes con- gestion games with γ being 1, a proximal best-reply algorithm is used to construct an 1 3 O( n )-Nash equilibria with at most O(n ) iterations. These results are applied in a nu- merical example of demand-side management of the electricity system. The asymptotic performance of the algorithm is illustrated when n tends to infinity. Keywords. Shapley-Folkman lemma, aggregative games, nonconvex game, large finite game, -Nash equilibrium, proximal best-reply algorithm, congestion game MSC Class Primary: 91A06; secondary: 90C26 1 Introduction In this paper, players minimize their costs so that the definition of equilibria and equilibrium conditions are in the opposite sense of the usual usage where players maximize their payoffs. Players have actions in Euclidean spaces. If it is not precised, then \Nash equilibrium" means a pure-strategy Nash equilibrium. This paper studies the approximation of pure-strategy Nash equilibria (PNE for short) in a specific class of finite-player noncooperative games, referred to as large nonconvex aggregative games. Recall that the cost functions of players in an aggregative game depend on their own action (i.e. -
A Stated Preference Case Study on Traffic Noise in Lisbon
The Valuation of Environmental Externalities: A stated preference case study on traffic noise in Lisbon by Elisabete M. M. Arsenio Submitted in accordance with the requirements for the degree of Doctor of Philosophy University of Leeds Institute for Transport Studies August 2002 The candidate confirms that the work submitted is his own and that appropriate credit has been given where reference has been made to the work of others. Acknowledgments To pursue a PhD under a part-time scheme is only possible through a strong will and effective support. I thank my supervisors at the ITS, Dr. Abigail Bristow and Dr. Mark Wardman for all the support and useful comments throughout this challenging topic. I would also like to thank the ITS Directors during my research study Prof. Chris Nash and Prof A. D. May for having supported my attendance in useful Courses and Conferences. I would like to thank Mr. Stephen Clark for the invaluable help on the computer survey, as well as to Dr. John Preston for the earlier research motivation. I would like to thank Dr. Hazel Briggs, Ms Anna Kruk, Ms Julie Whitham, Mr. F. Saremi, Mr. T. Horrobin and Dr. R. Batley for the facilities’ support. Thanks also due to Prof. P. Mackie, Prof. P. Bonsall, Mr. F. Montgomery, Ms. Frances Hodgson and Dr. J. Toner. Thanks for all joy and friendship to Bill Lythgoe, Eric Moreno, Jiao Wang, Shojiro and Mauricio. Special thanks are also due to Dr. Paul Firmin for the friendship and precious comments towards the presentation of this thesis. Without Dr. -
Lecture Notes General Equilibrium Theory: Ss205
LECTURE NOTES GENERAL EQUILIBRIUM THEORY: SS205 FEDERICO ECHENIQUE CALTECH 1 2 Contents 0. Disclaimer 4 1. Preliminary definitions 5 1.1. Binary relations 5 1.2. Preferences in Euclidean space 5 2. Consumer Theory 6 2.1. Digression: upper hemi continuity 7 2.2. Properties of demand 7 3. Economies 8 3.1. Exchange economies 8 3.2. Economies with production 11 4. Welfare Theorems 13 4.1. First Welfare Theorem 13 4.2. Second Welfare Theorem 14 5. Scitovsky Contours and cost-benefit analysis 20 6. Excess demand functions 22 6.1. Notation 22 6.2. Aggregate excess demand in an exchange economy 22 6.3. Aggregate excess demand 25 7. Existence of competitive equilibria 26 7.1. The Negishi approach 28 8. Uniqueness 32 9. Representative Consumer 34 9.1. Samuelsonian Aggregation 37 9.2. Eisenberg's Theorem 39 10. Determinacy 39 GENERAL EQUILIBRIUM THEORY 3 10.1. Digression: Implicit Function Theorem 40 10.2. Regular and Critical Economies 41 10.3. Digression: Measure Zero Sets and Transversality 44 10.4. Genericity of regular economies 45 11. Observable Consequences of Competitive Equilibrium 46 11.1. Digression on Afriat's Theorem 46 11.2. Sonnenschein-Mantel-Debreu Theorem: Anything goes 47 11.3. Brown and Matzkin: Testable Restrictions On Competitve Equilibrium 48 12. The Core 49 12.1. Pareto Optimality, The Core and Walrasian Equiilbria 51 12.2. Debreu-Scarf Core Convergence Theorem 51 13. Partial equilibrium 58 13.1. Aggregate demand and welfare 60 13.2. Production 61 13.3. Public goods 62 13.4. Lindahl equilibrium 63 14. -
Product Differentiation
Product differentiation Industrial Organization Bernard Caillaud Master APE - Paris School of Economics September 22, 2016 Bernard Caillaud Product differentiation Motivation The Bertrand paradox relies on the fact buyers choose the cheap- est firm, even for very small price differences. In practice, some buyers may continue to buy from the most expensive firms because they have an intrinsic preference for the product sold by that firm: Notion of differentiation. Indeed, assuming an homogeneous product is not realistic: rarely exist two identical goods in this sense For objective reasons: products differ in their physical char- acteristics, in their design, ... For subjective reasons: even when physical differences are hard to see for consumers, branding may well make two prod- ucts appear differently in the consumers' eyes Bernard Caillaud Product differentiation Motivation Differentiation among products is above all a property of con- sumers' preferences: Taste for diversity Heterogeneity of consumers' taste But it has major consequences in terms of imperfectly competi- tive behavior: so, the analysis of differentiation allows for a richer discussion and comparison of price competition models vs quan- tity competition models. Also related to the practical question (for competition authori- ties) of market definition: set of goods highly substitutable among themselves and poorly substitutable with goods outside this set Bernard Caillaud Product differentiation Motivation Firms have in general an incentive to affect the degree of differ- entiation of their products compared to rivals'. Hence, differen- tiation is related to other aspects of firms’ strategies. Choice of products: firms choose how to differentiate from rivals, this impacts the type of products that they choose to offer and the diversity of products that consumers face. -
What Role Does Consumer Sentiment Play in the U.S. Economy?
The economy is mired in recession. Consumer spending is weak, investment in plant and equipment is lethargic, and firms are hesitant to hire unemployed workers, given bleak forecasts of demand for final products. Monetary policy has lowered short-term interest rates and long rates have followed suit, but consumers and businesses resist borrowing. The condi- tions seem ripe for a recovery, but still the economy has not taken off as expected. What is the missing ingredient? Consumer confidence. Once the mood of consumers shifts toward the optimistic, shoppers will buy, firms will hire, and the engine of growth will rev up again. All eyes are on the widely publicized measures of consumer confidence (or consumer sentiment), waiting for the telltale uptick that will propel us into the longed-for expansion. Just as we appear to be headed for a "double-dipper," the mood swing occurs: the indexes of consumer confi- dence register 20-point increases, and the nation surges into a prolonged period of healthy growth. oes the U.S. economy really behave as this fictional account describes? Can a shift in sentiment drive the economy out of D recession and back into good health? Does a lack of consumer confidence drag the economy into recession? What causes large swings in consumer confidence? This article will try to answer these questions and to determine consumer confidence’s role in the workings of the U.S. economy. ]effre9 C. Fuhrer I. What Is Consumer Sentitnent? Senior Econotnist, Federal Reserve Consumer sentiment, or consumer confidence, is both an economic Bank of Boston.