OPTIMAL MONETARY POLICY AND FINANCIAL STABILITY IN A NON‐RICARDIAN ECONOMY

I present a model with discontinuous asset‐market participation (DAMP), where all agents are non‐Ricardian, and where heterogeneity among market participants implies financial‐wealth effects on aggregate consumption. The implied welfare criterion shows that financial stability arises as an additional and independent target, besides inflation and output stability. Evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal, even absent inefficient supply shocks: some fluctuations in output and inflation may be optimal as long as they reduce financial instability. Ignoring the heterogeneity among market participants may lead monetary policy to induce substantially higher welfare losses.     

INSULATION IMPOSSIBLE: MONETARY POLICY AND REGIONAL DEBT SPILLOVERS IN A FEDERATION

This paper studies the effects of monetary policy in the presence of debt spillovers within a monetary union. When capital markets are integrated, the fiscal policy of any member country will generally influence equilibrium wages and interest rates across the whole union. We ask whether there exists a monetary policy which can offset these spillovers. Within a general class of monetary policy rules, there does not exist one that completely insulates agents in one region from fiscal policy in the other. These debt spillovers will affect welfare through two channels: intertemporal efficiency and redistribution.     

PUBLIC EDUCATION AND PENSIONS IN DEMOCRACY: A POLITICAL ECONOMY THEORY

A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.     

IMPROVING ATTENDANCE AT WORK IN A VOLUNTEER FOOD CO-OPERATIVE WITH A TOKEN ECONOMY

No abstract available for this article.     

COUNTRY PORTFOLIOS IN OPEN ECONOMY MACRO‐MODELS

This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro‐models. The method is widely applicable, simple to implement, and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset. It can be used in models with any number of assets, whether markets are complete or incomplete, and can be applied to stochastic dynamic general equilibrium models of any dimension, so long as the model is amenable to a solution using standard approximation methods. We first illustrate the approach using a simple two‐asset endowment economy model, and then show how the results extend to the case of any number of assets and general economic structure.     

UNEMPLOYMENT INSURANCE IN WELFARE STATES: THE IMPACTS OF SOFT DURATION CONSTRAINTS

Abstract Based on a major reform of Norwegian unemployment insurance (UI), we examine the behavioral impacts of soft and hard UI duration constraints. A constraint is interpreted as hard if a claimant cannot rely on any form of income support after exhaustion, and as soft if UI is replaced by follow‐on benefits or participation in active labor market programs (ALMP). We find that both hard and soft constraints raise the job hazard significantly, with surprisingly similar spikes at UI exhaustion. Participation in ALMP raises the probability of eventually finding a job, but at the cost of lengthening the overall job‐search period.     

A POLITICAL ECONOMY THEORY OF PARTIAL DECENTRALIZATION

We revisit the classic problem of tax competition in the context of federal nations, and derive a positive theory of partial decentralization. A capital poor median voter chooses to use redistributive capital taxes to provide public goods. The expectation of high capital taxes, however, results in a small capital stock which lowers returns to redistribution. The median voter therefore wants to commit to a lower level of capital taxes. She does so by setting a partial degree of decentralization in the Constitution. The equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results. We show that the degree of decentralization is nonmonotonic in inequality, increasing in the redistributive efficiency of public good provision, and decreasing in capital productivity. When public goods are heterogeneous in their capacity to transfer funds, all voters agree that goods with high redistributive capacity should be decentralized.     

HOUSING FINANCE AND MONETARY POLICY

We document three facts concerning how the structure of housing finance affects the monetary transmission mechanism: first, the characteristics of residential mortgage markets differ markedly across industrialized countries; second, the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable‐rate type. We then build a two‐sector DSGE model with financial constraints to rationalize those facts.     

INCREASING THE RATE OF SALESPERSON TELEPHONE CALLS WITH A MONETARY REFUND

No abstract available for this article.     

VERTICAL RELATIONS UNDER CREDIT CONSTRAINTS

We model the impact that credit constraints and market risk have on the vertical relationships between firms in the supply chain. Firms which might face credit constraints in future investments become endogenously risk averse when accumulating pledgable assets. In the short run, the optimal supply contract involves risk sharing, so inducing double marginalization. Credit constraints thus result in higher retail prices, and this is true whether the firm is debt or equity funded. Further, we offer a new theory of supplier finance arms as we show an intrinsic complementarity between supply and lending which reduces financing inefficiencies created by informational asymmetries. The model offers: a theory of countervailing power based on credit constraints; a transmission mechanism linking the cost of borrowing with retail prices; and a motive for outsourcing supply (or distribution) in the face of market risk.     

BANK NETWORKS AND MONETARY POLICY TRANSMISSION

This paper argues that the existence of bank networks is important for banks' reactions to monetary policy. For the example of Germany, it is found that small banks access the interbank market indirectly through the large head institutions of their respective network organizations. The interbank flows within these networks allow smaller banks to manage their funds in a fashion that helps them in keeping their loan portfolio with nonbanks relatively unaffected after a monetary contraction. This implies that tests for a bank‐lending channel in countries with comparable bank networks should not rely on a size criterion only, and explains why several recent contributions have found a prominent role for banks' liquidity positions. (JEL: C32, E52, G21)     

THE POLITICAL ECONOMY OF REGULATION IN MARKETS WITH NAÏVE CONSUMERS

In a model of a competitive industry selling base goods and add‐ons, we investigate the conditions under which citizen‐consumers will support policies that eliminate behavioral inefficiencies induced by naïve consumers. Unregulated competitive markets have two effects: they produce deadweight losses, and they redistribute income away from biased consumers. Both unbiased and naïve consumers believe that they benefit from this redistribution (the naïve consumers are wrong), so support for efficiency‐improving regulation is limited. Extending our model to consumers with partial sophistication about their naïveté, we predict patterns of regulation consistent with the form and timing of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009.     

PRODUCTION SMOOTHING UNDER ENVIRONMENTAL CONSTRAINTS

This is an investigation into how optimal production rates and optimal price levels react to the introduction of an environmental tax on emissions. While, in the case of perfect competition, a linear tax has no effect, I show that in the monopolistic case the optimal production and emissions rates decrease in all instances-without an additional smoothing effect. The desirable effect, emissions peaks being cut off, is only achieved when a progressive tax is imposed.     

THE INTERNATIONAL DIMENSION OF PRODUCTIVITY AND DEMAND SHOCKS IN THE US ECONOMY

This paper analyzes the cross‐country effects of productivity and demand disturbances in the United States identified with sign restrictions based on standard theory. Productivity gains in US manufacturing increase US consumption and investment vis‐à‐vis foreign countries, resulting in a trade deficit and higher international prices of US goods, despite the rise in their supply. Financial adjustment works via a higher global value of US equities, real dollar appreciation, and an expansion of US gross foreign liabilities as well as assets. Positive demand shocks to US manufacturing also increase investment and cause a real dollar appreciation, but have limited effects on the trade balance and net foreign assets. Our findings emphasize the importance for macroeconomic interdependence of endogenous fluctuations in aggregate demand across countries in response to business cycle shocks.     

UNDER PRESSURE: GENDER DIFFERENCES IN OUTPUT QUALITY AND QUANTITY UNDER COMPETITION AND TIME CONSTRAINTS

Gender gaps in the workplace are widespread. One explanation for gender inequality stems from the effects of the interaction between competition and two pressure sources, namely, task stereotypes and time constraints. This study uses a laboratory experiment to find that the gender gap in performance under competition and preferences for competition can be partly explained by the differential responses of men and women to the above pressures. In particular, while women underperform the men in a high‐pressure math‐based tournament, women greatly increase their performance levels and their willingness to compete in a low‐pressure verbal environment, such that they actually surpass the men. This effect appears largely due to the fact that extra time in a verbal competition improves the quality of women’s work, reducing their mistake share. On the other hand, men use this extra time to increase only the quantity of work, which results in a greater relative number of mistakes. A labor market study suggests that the nature of the job and the stress level are correlated with the gender gap in the labor market in a manner consistent with the results of my experiment.     

A SIMULATION AND STATISTICAL ANALYSIS OF STOCHASTIC VEHICLE ROUTING WITH TIMING CONSTRAINTS

This paper examines a generalization of the vehicle-dispatch problem in which time constraints as well as stochastic demand and travel times are considered. The objective is to minimize total travel time subject to vehicle load capacities and sequencing restrictions, meaning that certain points may be serviced only in specified time intervals. Intra-city travel times are estimated via multiple regression, and an effective heuristic is tested on single-estimate travel times. A GPSS simulation is used to evaluate the heuristic on stochastic travel times and also to examine the effects of other decision variables such as route configuration. Computational experience with an actual refuse collection problem involving 163 points per day is reported.     

A POLITICAL ECONOMY THEORY OF FISCAL POLICY AND UNEMPLOYMENT

This paper presents a political economy theory of fiscal policy and unemployment. The underlying economy is one in which unemployment can arise but can be mitigated by tax cuts and increases in public production. Such policies are fiscally costly, but can be financed by issuing government debt. Policy decisions are made by a legislature consisting of representatives from different political districts. With the available policies, it is possible for the government to completely eliminate unemployment in the long run. However, with political decision making, the economy always has unemployment. Unemployment is higher when the private sector experiences negative shocks. When these shocks occur, the government employs debt‐financed fiscal stimulus plans which involve both tax cuts and public production increases. When the private sector is healthy, the government contracts debt until it reaches a floor level. Unemployment levels are weakly increasing in the economy's debt level, strictly so when the private sector experiences negative shocks. Conditional on the level of workers employed, the mix of public and private output is distorted.     

UNILINGUAL VERSUS BILINGUAL EDUCATION: A POLITICAL ECONOMY ANALYSIS

We consider an economy with two language groups, where only agents who share a language can produce together. Schooling enhances the productivity of students. Individuals attending a unilingual school end up speaking the language of instruction only, whereas bilingual schools render individuals bilingual atthe same cost. The politically dominant group (not necessarily the majority) chooses the type(s) of schools accessible to each language group, and then individuals decide whethertoattend school. Weshow that the dominant either choose laissez‐faireor restrict access to schools in the language of the dominated. Instead, the dominated favour the use of their own language. Thus, although agents do not derive utility from speaking their mother tongue, language conflicts of the expected type endogenously arise. Democracy (majority rule) always leads to the implementation of a socially optimal education system, whereas restrictions to the use of the language of the dominated are implemented too often under minority rule. The model is consistent with evidence from Belgium, France, and Finland. (JEL: I2, J15)     

CAPACITATED REMANUFACTURING WITH SERVICE LEVEL CONSTRAINTS*

This research examines production planning and control for a remanufacturer that can sell returned items on a graded as‐is basis or remanufacture the returned items. Using a GI/G/1 queuing network, we model the firms decision to remanufacture an optimal product mix over the long run that maximizes profits while maintaining a desired service level. We further use simulation to explore dispatching heuristics that can be used at the shop‐floor level to achieve the desired optimal product mix, while meeting the service level constraint. Our research is grounded in actual practice and the results provide key insights into the decision‐making process required to maximize profits and minimize average flow times for remanufactured products.     

HEURISTICS FOR INTEGER PROGRAMMING USING SURROGATE CONSTRAINTS

This paper proposes a class of surrogate constraint heuristics for obtaining approximate, near optimal solutions to integer programming problems. These heuristics are based on a simple framework that illuminates the character of several earlier heuristic proposals and provides a variety of new alternatives. The paper also proposes additional heuristics that can be used either to supplement the surrogate constraint procedures or to provide independent solution strategies. Preliminary computational results are reported for applying one of these alternatives to a class of nonlinear generalized set covering problems involving approximately 100 constraints and 300–500 integer variables. The solutions obtained by the tested procedure had objective function values twice as good as values obtained by standard approaches (e.g., reducing the best objective function values of other methods from 85 to 40 on the average. Total solution time for the tested procedure ranged from ten to twenty seconds on the CDC 6600.