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This article seeks to explain the effects of credible disinflation using a simple continuous-time version of research frameworks introduced by economic scholars John Taylor and Olivier Blanchard. The results support the view that staggered adjustment is not an important impediment to disinflation. With full credibility, disinflation can occur quite quickly (although not instantly) without reducing output. Indeed, the model yields a stronger, more surprising result: a quick disinflation causes not a recession but a boom. Since this result is likely to appear counterintuitive, this paper tries to explain how one's intuition about disinflation can go wrong. The confusion about this issue arises largely from a misinterpretation of the original Taylor and Blanchard models. Taylor (1979, 1980) and Blanchard (1983, 1986) show that staggering produces inertia in the price level: prices adjust slowly to a fall in the money supply, and output falls substantially. Disinflation, however, is a change in the growth rate of money, not a one-time shock to the level. In informal discussions, analysts often assume that the inertia result carries over from levels to growth rates - that inflation adjusts slowly to a fall in money growth. In fact, changes in money and changes in money growth have very different effects. The paper contains four sections. Section I presents the basic model. Section II considers an example in which the level of money declines. Section III considers disinflation. Finally, Section IV presents the results, which concerns the specifications of price-setting.

Using an intertemporal equilibrium model, this paper analyzes how lower source-based taxes on capital income impact trade performance and international competitiveness. It shows that, depending on import shares and intertemporal and intratemporal substitution elasticities, capital accumulation may induce changes in real interest rates and the terms of trade that stimulate domestic saving -- even if financial capital is perfectly mobile internationally. Import shares appear important determinants of exchange rate effects. Numerical simulations illustrate these results. [ABSTRACT FROM AUTHOR]

Abba Lerner's paper in the Review of Economic Studies (1934) is the source of what is now referred to as the Lerner Index of monopoly power. The Lerner Index has become the standard measure of monopoly power and one of the most widely cited indexes in the discipline of economics. This paper traces the origins of the index, sets out its strengths and weaknesses, and examines its role in antitrust enforcement. The Index is a better indicator of a firm's price-setting discretion than its ability to sustain monopoly prices. [ABSTRACT FROM AUTHOR]

The article presents discussions by economists on some papers that are published in the May 1, 1970 issue of the journal "American Economic Review." The author states that a monetary indicator is a variable the value of which tells whether monetary policy is becoming more or less restrictive, given influences of current and past fiscal policy, past monetary policy and stochastic elements affecting investment, saving and portfolio balance. Presumably, advocates of the interest rate as an indicator interpret a fall in the rate as a symptom of a less restrictive monetary policy, while advocates of the money supply interpret a larger money supply or larger rate of change of the money supply as indicative of a more expansive monetary policy. However, it appears that the problem of choosing an indicator has no content over and above the problem of choosing the optimal monetary instrument. Economist Richard Zecher's paper, published in the present issue of the journal, illustrates the fact that the information needed to assess the appropriateness of alternative monetary indicators is exactly the information required to choose between alternative monetary instruments. A glance at the major points of controversy in the discussion of monetary indicators makes it clear that there is really no separate indicator problem.

In textbook expositions of the equity-premium, riskfree-rate and equity-volatility puzzles, agents are sure of the economy's structure while growth rates are normally distributed. But because of parameter uncertainty the thin-tailed normal distribution conditioned on realized data becomes a thick-tailed Student-t distribution, which changes the entire nature of what is considered “puzzling” by reversing every inequality discrepancy needing to be explained. This paper shows that Bayesian updating of unknown structural parameters inevitably adds a permanent tail-thickening effect to posterior expectations. The expected-utility ramifications of this for asset pricing are strong, work against the puzzles, and are very sensitive to subjective prior beliefs—even with asymptotically infinite data. [ABSTRACT FROM AUTHOR]

Real wage index numbers have been used to measure movements in the standard of living of the typical worker. This paper describes some of these indicators for the United States and England. A new real wage index is proposed that resembles the sliding scale used to adjust wages in certain industries years ago. This new index is applied to US manufacturing industry and it implies a fall in real wages by about 40 percent since 1960. Workers' distributional position in US manufacturing has deteriorated considerably. [ABSTRACT FROM AUTHOR]

Most indexes in the Consumer Price Index (CPI) use a form of the ''matched-model'' approach. It is frequently assumed that this approach accurately reflects inflation for items that have no major trend in quality. In this paper we investigate that hypothesis using CPI data for retail food items. We find that CPI analysts may be correct on average when they decide that new and replacement items are similar in quality. We also find, however, that when sample items are replaced by items of significantly different quality the CPI imputation procedures may underestimate price change and overstate quality change. [ABSTRACT FROM AUTHOR]

In this article the authors examine the process of dating business cycles. The central focus of the article is on the process of aggregating real economic activity information related to a business cycle and dating it using 270 monthly economic indicators. A number of topics are addressed including the dating and aggregating processes employed by the U.S. National Bureau of Economic Research and its Business Cycle Dating Committee and a similar committee employed by Center for Economic and Policy Research.

The article discusses research which was conducted to investigate the impact that climate shocks such as global warming had on economic activity, including the gross domestic product and the export trade, of poor and rich countries. Researchers evaluated data sets on national climate, exports to the United States and exports to the broader world for several countries. They found that higher temperatures in poor countries led to large negative impacts on the growth of their exports and gross domestic product, with the largest impacts being seen in agricultural exports and light manufacturing exports. They found that higher temperatures seemed to have no effect on rich countries.

This paper shows that the recent evidence that disaggregated prices are volatile does not necessarily challenge the hypothesis of price rigidity used in a large class of macroeconomic models. We document the effect of macroeconomic and sectoral disturbances by estimating a factor-augmented vector autoregression using a large set of macroeconomic indicators and disaggregated prices. Our main finding is that disaggregated prices appear sticky in response to macroeconomic and monetary disturbances, but flexible in response to sector-specific shocks. The observed flexibility of disaggregated prices reflects the fact that sector-specific shocks account on average for 85 percent of their monthly fluctuations. (JEL E13, E31, E32, E52) [ABSTRACT FROM AUTHOR]

The article focuses on economic forecasting when the subject of the forecast is influenced by the forecast. It has been argued that when forecasts influence economic behavior they may serve as an instrument of control, and that in such instances, the numerical accuracy of forecasts loses its relevance. What is relevant in such instances is the self-reinforcing power of the forecast, that is, the power of the forecast to make the variable in question move in the direction of the forecasted change. But surely all that really matters, from the point of view of control, is the discrepancy between the desired or target value of the forecast variable and its actual or recorded value. A forecast which is successful in terms of the above mentioned discrepancy may be self-nullifying, self-reinforcing, or neither. Whether the forecast is self-reinforcing or sell-nullifying is, in fact, quite irrelevant to the problem of economic control. Economists Emile Grunberg and Franco Modigliani have demonstrated that, if upper and lower bounds are imposed on the forecast variable, an accurate forecast is always possible.

Recent analyses of unemployment -- vacancy series suggest that aggregate shocks, rather than sectoral shocks, are the primary factors responsible for unemployment fluctuations. This inference follows from two widely held beliefs: sectoral shocks induce only positive unemployment -- vacancy comovements, while negative comovements are necessarily the result of aggregate demand shocks. This paper describes an equilibrium matching model that identifies plausible circumstances in which neither assumption is correct, thus suggesting that unemployment -- vacancy data are inconclusive. Interestingly, this model's novel results are due to standard features in the contracting literature: firms experience relative price shocks and negotiate contracts that prescribe temporary layoffs. [ABSTRACT FROM AUTHOR]

The 1970s were associated with very low real interest rates and a large drop in equity values relative to dividends and earnings. This paper explores the possible roles of increased risk and reduced productivity growth in accounting for the behavior of bond and stock prices in a simple general equilibrium model. Both disturbances unambiguously lower the riskless interest rate, but may cause the stock market to respond perversely depending on the degree of aversion to intertemporal substitution and the share of the corporate sector in total wealth. [ABSTRACT FROM AUTHOR]

The article compares the economic development achievements of China and India. This paper is based on my own firsthand research in the People's Republic of China and India during the second half of the 196O's, as well as information derived from numerous other sources. Economic development performance is reflected in such conventional indicators as gross national product and per capita income growth rates, industrial and agricultural output, etc. China has done considerably better than India in the last twenty-five years or so with regard to most indicators of economic development. The central thesis of this paper is that the willingness and ability of people to work relatively hard and effectively on a national scale for goals that inspire them are perhaps the most important factors in explaining a country's economic development, and that such willingness and ability stem chiefly from a country's social development, as defined above. The paper will focus on a number of aspects and indicators of social development which clearly seem to be associated with and highly relevant to explaining differences in the economic performance of these two countries. In fact, it appears that a good case can be made that there is a causative as well as a correlative relationship between various key aspects of social development and economic development performance.

The article discusses the effects of disasters on economic uncertainty and welfare. The article explores lognormality assumption may be reduced without sacrificing tractability. Details are provided regarding i.i.d lognormal consumption growth rates, equity premiums, riskless rates, consumption-wealth ratios, and mean consumption growth rates. Topics include stochastic processes, Brownian motion, Poisson processes, discrete time, Lévy processes, and plausible parameters. Also discussed are the economists Timothy Cogley, Robert J. Barro, John H. Cochrane, Robert E. Lewis Jr., Ian W.R. Martin, and Thomas A. Rietz.

This paper considers the problem of how to construct and reconcile price indexes across space and time. A general taxonomy of panel price index methods, containing four broad classes, is proposed, along with five criteria for discriminating between them. Methods from each of the four classes are then used to compute spatial and temporal price indexes for the 15 countries of the European Union (EU) over the period 1995-2000. Using these panel price indexes, I test whether or not price levels and relative prices converged across the EU over this period. [ABSTRACT FROM AUTHOR]

This paper analyzes productivity growth in 17 OECD countries over the period 1979-1988. A nonparametric programming method (activity analysis) is used to compute Malmquist productivity indexes. These are decomposed into two component measures, namely, technical change and efficiency change. We find that U.S. productivity growth is slightly higher than average, all of which is due to technical change. Japan's productivity growth is the highest in the sample, with almost half due to efficiency change. [ABSTRACT FROM AUTHOR]

This paper takes an alternative approach to the topic of money and growth by developing a model in which the effects of sustained capital accumulation on an evolving system of payments, in addition to the conventional effects of sustained inflation on growth, are examined. While the effects of inflation on growth are small, the effects of growth on the monetary system are substantial. The results are consistent with ideas about money and growth contained in work that predates that of Tobin and Sidrauski, as well as with evidence that money and asset demands vary systematically within economies as they develop. [ABSTRACT FROM AUTHOR]

This paper estimates and evaluates monetary policy rules within the context of a structural open economy macroeconomic model of the United States under flexible exchange rates. The major result is that a monetary policy rule which stabilizes the rate of growth of nominal GNP receives considerable empirical support. The rule provides a better fit than a number of alternatives, including strict inflation stability, strict output stability, and real exchange rate stabilization. [ABSTRACT FROM AUTHOR]

Prior to the present decade, the deficiencies of the financial system gave rise to uneconomical lending terms and to excessive rates of interest on home loans. The pronounced and continued upward sweep of the secular trend during the twenties deferred the inevitable consequences, but the ensuing crisis brought the shortcomings into sharp focus. The repercussions were national in scope and set into action various measures of reform to give relief to home owners. This paper presents a summary of the activities of the Federal Home Loan Bank System, the Home Owners' Loan Corporation, the Federal Savings and Loan System, and the Federal Housing Administration. The influence of these agencies on interest rates is discussed, followed by an analysis of the justification of the existing rate level. It is shown that present rates are no longer the result of free market activity but are governed primarily by the rate established on FHA insured loans. There is now some question of the adequacy of rates to cover the attending costs of home-financing institutions. [ABSTRACT FROM AUTHOR]

The increasing discussion of the importance of inflexible prices in the American economy has been somewhat stimulated by previous articles by the present writer. In one of these, material was presented on inflexible administered prices and their importance for monetary policy. This same material with its implications for industrial policy was contained in a confidential report which was comrnnndeered by the last U.S. Senate and published as a Senate document. The present article attempts to bring up to date the material on prices, to clarify its meaning, and to further indicate its implications. The first section will present price indexes which show the difference in price behavior of flexible and inflexible prices in a period of business recovery. These series have particular relevance to the question of money inflation. The second section will discuss the validity of these figures in the light of criticisms which have been leveled at the earlier figures. The final section will take up the implications of inflexible prices. In the previously published papers on inflexible prices, the results derival from applying a new type of analysis to the best available supply of wholesale price data were reported. This new approach consisted of taking a series of price data for an individual commodity and counting the number of price changes in a given time period. This approach was applied to the bulk of the items underlying the Bureau of Labor Statistics Wholesale Price Index. The number of times the price of an item changed over its price in the previous month was counted for an eight-year period. This gave a basis for classifying items according to frequency of price change.

This article aims to investigate the effect of a hypothetical major budget decision on both stabilization and allocation variables over a five-year planning horizon. First, the endogenous nature of many budget outlays is recognized by defining relationships between outlays and general macroeconomic variables. Second, a framework is established for estimating the net allocative effect of the budget. Finally, the paper uses a simple macroeconomic model to trace out the effect of a choice between two alternative budgets on both stabilization and allocation and thus attempts to synthesize the aspects of budget policy.

The importance of foreign aid and its relationship to economic development will not be denied by either theoretician or practitioner. In recent years, however, the work of Chenery and his associates, culminating in the recent article by Chenery and Strout in this Review, has promised to deliver "a theoretical framework designed to analyze the process of development with external assistance in quantitative terms." It is the purpose of this paper to examine rigorously this framework, and to evaluate its validity and operational usefulness. The essence of the Chenery-Strout paper is a proposed method for the estimation of the foreign aid "needed" by a typical less developed society in the course of growth. The two main building blocks of their theory are, first, the recognition that foreign aid can be used to fill either a saving gap or a foreign exchange gap and second, the proposition that the typical less developed country must move through three distinct consecutive stages of growth characterized by a difference in the gap-filling function of aid.

The separate performance of major sectors of the economy has engaged the attention of many students of Soviet economic growth. In the case of transport, the aggregative aspects of performance have been neglected because neither the official measures nor the various non-Soviet estimates of output growth have contributed an index. The purpose of this paper is to summarize results of an attempt to construct and use output indexes for transport and communications. This paper presents indexes and their growth rate implications and compares the output increases with increases in the capital and employment. Over the 1928-63 period as a whole, output has increased by much more than the increase in either employment or capital and therefore, by much more than the increase in combined factor inputs regardless of the input weights. For Soviet transport and communications and its indicated components, rates of output increase in 1958-63 are substantially below than those of in 1951-58 or 1953-58.

The article presents a paper on economic-demographic interactions and long swings in economic growth. The paper building on the work of numerous predecessors, suggests that one of the mechanisms responsible for long swings in economic growth may involve interactions among aggregate demand, labor-market conditions, and household growth, with a feedback effect from the last to the first. An upswing in the growth of aggregate demand and the growing labor-market tightness induced thereby engenders accelerated marriage, migration, and household growth. These are critical decision points in the life cycle, entailing spending commitments extending over several years as a new home is established and a family started or settled. In effect, such commitments are geared to a notion of permanent income and thus tend to be relatively insensitive to short term income changes. A bunching of such commitments serves to cushion the economy against the usual business cycle and becomes exhausted only gradually. Such a bunching of long term spending commitments may be the key to Kuznets cycle phenomena.

The article focuses on aggregate production functions and medium-range growth projections in the U.S. The conceptual basis for believing in the existence of a simple and stable relationship between a measure of aggregate inputs and a measure of aggregate output is uncertain at best. Yet an aggregate production function is a very convenient tool for theoretically exploring some determinants of economic growth; and it has served as a framework for some interesting empirical studies. Moreover, in an attempt to assess the growth prospects for an economy, to identify variables that are likely to determine the growth rate and to examine policies affecting growth, the explicit or implicit use of an aggregate production function is almost indispensable. In recent years, economists have developed a variety of aggregate production functions. Several of these models are quite similar in basic conception but focus on different variables or make different assumptions about the interrelationships of variables. The purpose of this paper is to try to place several of these models within a general framework so that their assumptions and implications can be compared and evaluated.

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This paper is a review of the Final Report and supporting monographs that are the published product of the Royal Commission on Canada's Economic Prospects. The task of the Commission, in the language of the relevant Privy Council order of June 1955, was to inquire into and report upon the long-term prospects of the Canadian economy, that is to say, upon the probable economic development of Canada and the problems to which such development appears likely to give rise. The order then lists without limiting the generality of the foregoing, specific topics, to wit: first, developments in the supply of raw materials and energy sources; second, the growth to be expected in the population of Canada and the changes in its distribution; third, prospects for growth and change in domestic and external markets for Canadian productions; fourth, trends in productivity and standards of living; and fifth, prospective requirements for industrial and social capital.

The article presents information regarding the annual business meeting. The sixty-seventh annual business meeting of the association was held in Wayne on December 30, 1954. The business meeting was considered an appropriate time to publicize them. A brief discussion of the relation of the Association to economic education from the floor followed the presentation of these reports. Brief mention was also made of matters relating to the status of the profession. Academic freedom in its various aspects continues to be of concern to the officers of the Association. Attention is being given to the subject of freedom of teaching, research and publication. A proposal that the Association embark on a series of republication volumes on economic growth was discussed at length and the consensus seemed to be that the Committee be encouraged to reformulate its proposals, not along the line of publishing a series of six volumes, but of presenting a prospectus of one volume of readings or possibly two. This proposal, in effect, would widen the purposes of the Committee in that it involves not only the encouragement of research efforts but their direction as well.

Forecasting is unavoidable in economic research because administrative wheels grind slowly. It takes as many months to put through appropriations. The various committees likewise authorize changes in defense schedules slowly. Only an emergency would induce a President to call a special session. That is politically possible if business is in a tailspin, if unemployment is developing rapidly, bankruptcies rising and the stock market failing. The needs of the times would communicate to the President and Congress what had to be done. It is much less likely that the President would call a special session to combat inflation, if higher taxes were needed, say, to check a roaring excursion into overfull employment and a price boom which might ultimately degenerate into a business bust. Not only do differences develop about how to achieve maximum production and employment, but differences develop over the methods for detecting changes in the level and quality of business. Some economists study the behavior of business indicators, such as business failures, steel operations, new orders, sensitive commodity prices, new incorporations, paper board production, lumber production, housing starts and so on. By analyzing each series, they hope to detect declines or upturns in business early enough to permit government action to prevent either inflation or deflation. And among this group, there are differences over the relative importance of the so-called barometers.

The purpose of this paper is to explore the theoretical possibility of equilibrating adjustments in the capital coefficient in a growing economy. In an automatically and fully adjusting economy, the capital output ratio would always assume the value corresponding to the postulate that all voluntary savings plus whatever tax payments there are must be absorbed by the planned private capital formation plus whatever government expenditures are made. The economy is not fully adjusting in this sense. But it should not be assumed that the economy is fully non-adjusting in the same sense. In general theory of economic growth, we could not simply take it for granted that the atomistic decisions of individual entrepreneurs would provide all increments to the labor force with equipment in the optimum ratio. Indeed, this might constitute a major part of the adjustment problem in an automatically adjusting economy. But an adjustment in the capital coefficient is not the appropriate remedy when unbalanced growth results from a failure of capital widening to proceed at the rate warranted by the growth of the labor force. If, for example, in an otherwise balanced situation, the actual rate of widening fell short of the warranted rate, resulting in a chronic deficiency of demand, a rise in the capital-labor ratio would reduce the deficiency of demand without eliminating growing unemployment.

In the article, the author identifies some of the concrete conditions to which economic retardation is attributed in International Bank for Reconstruction and Development mission reports and, presents and evaluates some of the means described therein as suited to remove or to dissipate these development-preventing conditions. The reports on which this paper is based include an implemented development-producing program on Ceylon, Colombia, Guatemala, Iraq, Jamaica, Nicaragua, Surinam, and Turkey and that on Cuba in which recommendations but not a public investment plan are set down, and one on Mexico in which an economy's post-1939 progress is subjected to statistical analysis and projected into the future. While these reports vary greatly with respect to literary quality, expositive skill, mode of organization, amount and solidity of data included, and rigor of economic and sociological analysis, they deal with various subjects common to all, they include numerous solutions which most of the missions appear to approve, and they are at one in seeking dissolution of forces making for economic backwardness.

The growth of individual firms to great size through merger with rivals is an outstanding development of modern economic history. The life history of the firm in late 1890s was viewed as a silhouette of that of man in an age of high infant mortality: the firm began as a small venture; if it survived the early years, it straggled along or grew at a rate governed by the entrepreneur's ability-occasionally reaching large size if his ability was extraordinary or his children's abilities great--but eventually it languished into obscurity and then into oblivion. The whole process usually took place, one infers, in one or two generations. An anthropomorphic theory of the growth of the firm, however, scarcely fits modern giants. There are no large companies in the U.S., that have not grown somewhat by merger, and probably very few that have grown much by the alternative method of internal expansion. The present paper seeks to summarize some of the major episodes in the development of the merger movement, with special reference to the question of monopoly. The discussion is restricted to so-called "horizontal" combinations, which are quantitatively much the most important form of merger.

The article presents the 2010 annual report of the Committee on Statistics of the American Economic Association (AEA). Topics discussed in the report include the committee's membership, its role in organizing events at the annual conference of the AEA and collaboration between the committee and the Committee on Government Relations.

The article presents reply of the author to comments by James Price, in a paper titled "The Changing Cyclical Behavior of Wages and Prices, 1890-1976: Comment," published in the December 1982 issue of the journal "American Economic Review." The article by Price comments on an article by the author related to price inflation. According to the author, in his earlier paper, he showed that various wage and price data for 1890-1976 indicate a decline in the cyclical responsiveness of inflation after 1949. This hypothesis is supported, to a varying extent, by labor earnings and compensation measures. According to Price, gross national product (GNP) deflator does not support the author's hypothesis. Economist Charles Schultze has recently provided more evidence in support of the hypothesis for several inflations measures, but like Price, rejects the hypothesis using the private, non-farm implicit price deflator. Though the evidence with GNP deflator conflicts with the author's earlier results, the author does not believe that it overturns those results. According to the author, there are good reasons to believe that GNP deflator is a poor year-to-year indicator of inflation before 1930.

The article focuses on the most important sources of the of the economic growth. The author recommends that the tangible capital formation is only one of the important sources of economic growth. The most liberal of the economic growth is that the policymakers define investments in a broader sense, and expect that measures to create a more favorable climate and incentives for tangible investment will also help to stimulate research and development outlays and human investments, particularly in education and training. After 1966, the decline in the rate of advance of technological knowledge, that reflected a sharp drop in the R&D/ GNP ratios, was clearly a factor reducing the rate of growth in real capital stocks per worker. Finally the author discusses the relationship between capital formation and economic growth.

Using micro-level data, we construct a credit spread index with considerable predictive power for future economic activity. We decompose the credit spread into a component that captures firm-specific information on expected defaults and a residual component-- the excess bond premium. Shocks to the excess bond premium that are orthogonal to the current state of the economy lead to declines in economic activity and asset prices. An increase in the excess bond premium appears to reflect a reduction in the risk-bearing capacity of the financial sector, which induces a contraction in the supply of credit and a deterioration in macroeconomic conditions. [ABSTRACT FROM AUTHOR]

Existing indicators of technical change are plagued by shortcomings. I present new measures based on books published in the field of technology that resolve many of these problems and use them to identify the impact of technology shocks on economic activity. They are positively linked to changes in R&D and scientific knowledge, and capture the new technologies' commercialization dates. Changes in information technology are found to be important sources of economic fluctuations in the post-WWII period, and total factor productivity, investment, and, to a lesser extent, labor are all shown to increase following a positive technology shock. (JEL E22, E23, E32, O33, O34, O47) [ABSTRACT FROM AUTHOR]

The modern definition of unemployment emerged in the late 1930s from research conducted at the Works Progress Administration and the Census Bureau. According to this definition, people who are not working but actively searching for work are counted as unemployed. This concept was first used in the Enumerative Check Census, a follow-up sample for the 1937 Census of Unemployment, and continued with the Monthly Report on the Labor Force survey, begun in December 1939 by the Works Progress Administration. A similar definition is now used to measure unemployment around the world. [ABSTRACT FROM AUTHOR]

In this article the authors discuss aspects of investor confidence risk and asset prices. The central focus of the article is on the contention of the authors that large moves in the price of assets occurred once every 18 months and are not associated with current or future price moves in macro variables. A number of other topics are addressed including the role played by investor confidence in determining asset price, economic forecasts from the Survey of Professional Forecasters, and the distribution of returns.

The article reports on research which was conducted to investigate the substantial economic gains that countries get from being open to international trade, multinational production and the diffusion of ideas. In doing their research, researchers considered the semi-endogenous growth model developed by Charles I. Jones, Samuel S. Kortum and Jonathan Eaton. Researchers found that countries did receive substantial gains from being open to international trade and multinational production and found that the gains were increased when the countries were willing to adopt and accept foreign ideas.

The article discusses the U.S. financial crisis and develops a stylized model to demonstrate how global imbalances has driven the U.S. securitization boom and bust. The period up to the end of the year 2006 where the growth in asset demand pushes up asset prices and lowers risk and interest rates is examined. The foreign demand for debt instruments increases the equilibrium level of leverage of the U.S. financial sector. When the shock turns negative, as in the post-2006 period, the foreign demand turns toxic with high leverage leading to an economic downturn and rising risk. The behavior of leverage and the demand for U.S. assets are discussed.

The article discusses the ability of U.S. policymakers to offer useful economic forecasts. The article describes how monetary policymaking is driven by the appropriate division of labor between the staff of the central bank and the appointed policymakers. The case of the Federal Open Market Committee (FOMC) is discussed in relation to the staff's responsibility to provide information and forecasts so policymakers can make proper decisions. The Board of Governors of the Federal Reserve System is examined in order to measure the success of policymakers' contribution to economic forecasting. The study concludes that policymakers do not offer useful information in forecasting.

This article examines non-accelerating-inflation rate of unemployment (NAIRU) uncertainty and nonlinear policy rules in the U.S. Core inflation in the U.S. declined from the end of 1995 through the end of 1999 and has remained modest thereafter despite persistent above-trend growth and a decline in the unemployment rate to a level well below earlier estimates of the (NAIRU). It has been suggested that episodes of heightened uncertainty about the NAIRU may warrant a nonlinear policy response to changes in the unemployment rate. In such circumstances, policy makers initially attenuate their response to changes in the unemployment rate, but return to a more aggressive policy response when the unemployment rate falls far enough that policymakers regain confidence that it lies below the NAIRU. In the article, the authors attempt to formalize such a nonlinear policy rule and test its performance when there is heightened uncertainty about the NAIRU. To illustrate the basic point of the paper without introducing unnecessary complications, the authors use a simple backward-looking model.

The article focuses on differences in relative prices and international differences in growth rates. The new growth literature, has formulated models in which growth rates can differ systematically across countries. A large empirical literature has used cross-sectional techniques to examine the cause of international differences in growth rates. This paper examines whether this work has used data which have been constructed in such a way as to introduce inadvertently a spurious correlation between growth and income levels. This effect occurs because relative prices evolve because of different rates of technological progress in different industries. Many of the new growth models assume single goods or goods produced by the same technology, so this phenomenon has so far escaped analysis. If technological progress is more rapid in some sectors than others, relative prices will change during the process of development. The change of relative prices has two effects on measured growth rates. First, the choice of base prices affects the growth rate.

We provide a theoretical interpretation of two features of international data: the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in the terms of trade, but positively correlated with past movements. We document the same properties in a two-country stochastic growth model in which trade fluctuations reflect, in large part, the dynamics of capital formation. We find that our general-equilibrium perspective is essential: the relation between the trade balance and the terms of trade depends critically on the source of fluctuations. [ABSTRACT FROM AUTHOR]

In a recent paper published in the 1993 issue of the journal "The American Economic Review, researchers Olivier J. Blanchard and Danny Ouah (1989) propose a method to identify the dynamic effects of supply and demand disturbances on real GNP. This article shows that a very simple and natural dynamic modification in the macroeconomic model underlying Blanchard and Quah's econometric work may lead in a moving-average representation with zeros on the wrong side of the unit circle. As for the restrictions imposed by Blanchard and Quah, the matrix P is identified by requiring orthogonality of the components of e(t), one of the components of e(t) has no long-run effect on output, unit variance of the components of e(t). The introduction of a learning-by-doing process has produced less-trivial dynamics in the model. Moreover, the determinant is identical to the learning-by-doing polynomial d(L) and therefore has the zeros of d(L).

The prevalence of labor contracts with fixed duration seems surprising. Why is a fixed duration preferred to a stochastic duration that depends on the consumer price index? In this paper, the specification of the contract duration is determined endogeneously. The wage rate can be indexed to the consumer price but there is a loss since the indexation must be the same for different types of shocks. This loss increases with the variability of the contract duration. Since the loss due to the contracting cost depends on the expected discounted duration only, a fixed duration is chosen. [ABSTRACT FROM AUTHOR]

This paper examines inflationary expectations in order to investigate whether the deflation of 1930-1932 could have been anticipated. The major conclusion is that beginning in late 1930, and possibly as early as late 1929, deflation could have been anticipated at horizons of 3-6 months. This implies, in mm, that short-run ex ante real interest rates were very high during the initial phases of the Great Depression. These results provide further support for the proposition that monetary contraction was the driving force behind the economic decline. [ABSTRACT FROM AUTHOR]

This paper reexamines observed international differences in the price of services and the positive correlation of these with per capita GDP differences. Using a general trade model with a nontraded sector, we find that differences in countries' factor endowments, populations, trade policies, and trade balances will have ambiguous and sometimes opposite effects on their service prices and real incomes. Estimating the service-price equation using and capital, large trade deficits, and higher prices for tradables increase service prices. Conversely, larger populations and labor forces reduce service prices. [ABSTRACT FROM AUTHOR]