1,721,057 research outputs found
The Optimal Quantity of Money Consistent with Positive Nominal Interest Rates
Full text linkThe Friedman rule is strongly immune to most model modifications although it has not actually been observed. The Friedman rule implicitly assumes that a government is perfectly under the control of the representative household. This paper shows that, if a government is not perfectly under the control of the representative household, but also pursues political objectives, the optimal quantity of money generally is accompanied by positive nominal interest and inflation rates through the simultaneous optimization of government and the representative household. The fact that nominal interest and inflation rates are usually positive conversely implies that a government usually pursues political objectives.The Optimal Quantity of Money; The Friedman rule; Inflation; The fiscal theory of the price level; Leviathan
Why should central banks be independent?
Full text linkMost explanations for the necessity of an independent central bank rely on the time-inconsistency model and therefore assume that governments are weak, foolish, or untruthful and tend to cheat people. The model in this paper indicates, however, that an independent central bank is not necessary because governments are weak or foolish. Central banks must be independent because governments are economic Leviathans. Only by severing the link between the political will of a Leviathan government and economic activities is inflation perfectly guaranteed not to accelerate. A truly independent central bank is necessary because it severs this link.Central Bank Independence; Inflation; The Fiscal Theory of the Price Level; Leviathan; Monetary Policy
A Mechanism of Inflation Differentials and Current Account Imbalances in the Euro Area
Full text linkThis paper examines the mechanism of persistent inflation differentials, current account imbalances, and fiscal deficits in the euro area by constructing a multi-country model in which the optimization behaviors of governments as well as those of households, firms, and the European Central Bank are explicitly incorporated. The model indicates that governments can temporarily adhere to their own intrinsic preferences because fiscal policies are not unified in the euro area. This behavior generates problems, such as inflation differentials, and the stability and growth pact does not appear to be sufficiently effective in preventing such deviations. The results in this paper imply that the balance between national sovereignty and economic stability should be shifted more to the side of stability and that the euro area has to become more politically unified. In addition, the inflation differentials provide clear evidence that inflation acceleration is not caused by monetary policies but by government behavior because monetary policies are unified in the euro area whereas fiscal policies are not.The euro; Monetary union; Inflation; Inflation differential; Current account imbalance; Fiscal deficit; Time preference; The European Central Bank; The stability and growth pact
A Microfounded Mechanism of Observed Substantial Inflation Persistence
Full text linkRecently, it has been argued that trend inflation may be the solution to the puzzle of inflation persistence in the New Keynesian Phillips curve (NKPC). However, incorporating trend inflation into the NKPC raises another serious problem—it lacks a microfoundation. The paper presents a microfoundation for trend inflation, which indicates that trend inflation is a natural consequence of simultaneous optimization by the government and households. A purely forward-looking model is constructed based on the microfoundation presented. The model enables a unified explanation for various types of inflation. It also indicates that, if inflation is assumed to follow an autoregressive process without considering trend inflation, many measures of inflation persistence will spuriously indicate that inflation is intrinsically substantially persistent and has a backward-looking property.Inflation persistence; The New Keynesian Phillips curve; Central bank independence; Trend inflation; The fiscal theory of the price level
Trade Liberalization and Heterogeneous Time Preference across Countries: A Possibility of Trade Deficits with China
Full text linkStrategies for trade liberalization in developing countries when time preference rates are heterogeneous across countries are examined in the context of endogenous growth. The paper concludes that the best strategy for a developing country with the higher rate of time preference is generally the strategy of free trade with wielding market power if the country is large enough to wield market power, because all the optimality conditions are satisfied and markets are not distorted. By this strategy, the country generally accumulates current account surpluses, which implies a possibility that China implicitly has taken this strategy.Trade Liberalization; The rate of time preference; Heterogeneity; Trade deficits; China
A Model of Total Factor Productivity Built on Hayek’s View of Knowledge: What Really Went Wrong with Socialist Planned Economies?
Full text linkBecause Hayek’s view goes beyond the Walrasian framework, his descriptive arguments on socialist planned economies are prone to be misunderstood. This paper clarifies Hayek’s arguments by using them as a basis to construct a model of total factor productivity. The model shows that productivity depends substantially on the intelligence of ordinary workers. The model indicates that the essential reason for the reduced productivity of a socialist economy is that, even though human beings are imperfect and do not know everything about the universe, they are able to utilize their intelligence to innovate. Decentralized market economies are far more productive than socialist economies because they intrinsically can fully utilize human beings’ intelligence, but socialist planned economies cannot, in large part because of the imagined perfect central planning bureau that does not exist.Hayek; Market economy; Socialist planned economy; Total factor productivity; Innovation; Experience curve effect; China
The Ultimate Source of Inflation: A Microfoundation of the Fiscal Theory of the Price Level
Full text linkThe paper explores a fundamental mechanism of inflation by explicitly including a governmentfs optimization problem into a general equilibrium model assuming a Leviathan government. The result is clear- cut and beautiful: inflation is caused by the difference of the time preference rates between a government and households. This is an inevitable consequence of heterogeneity in time preference rates between a government and households. The model can be seen as a unified model that explains various types of inflation, e.g. hyperinflation, chronic inflation, disinflation and deflation, by this single mechanism. The model shows that inflation has the intrinsic nature of persistence, i.e. inflation rates have a unit root.Inflation; Deflation; The Fiscal Theory of the Price Level; Demand for Money
Going Beyond Counting First Authors in Author Co-citation Analysis
Full text linkThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
An Asymptotically Non-Scale Endogenous Growth Model
Full text linkThis paper presents an endogenous growth model in which the economy grows without either scale effects or population growth. The key mechanism is substitution between investments in capital and technology when firms face increasing uncompensated knowledge spillovers. The model indicates that, as population increases, firms invest more in capital than in technology because there are more uncompensated knowledge spillovers as a result of both Marshall-Arrow-Romer and Jacobs externalities. Consequently, scale effects asymptotically diminish as population increases and disappear at a sufficiently large population while the economy can grow without population growth. In present-day industrialized economies, therefore, both scale effects and population growth have little influence over economic growth
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