A uniqueness proof for monetary steady state

The framework in Lagos and Wright (2005) [20] combining decentralized and centralized markets is used extensively in monetary economics. Much is known about that model, but there is a loose end: only under special assumptions about bargaining power or decentralized market preferences has it been shown that the monetary steady state is unique. For general decentralized market utility and bargaining, I prove uniqueness for generic parameters with fiat money, and for all parameters with commodity money. As a corollary, I get monotone comparative statics.     

THE INADEQUACY OF UNIT VALUE INDEXES AS PROXIES FOR CANADIAN INDUSTRIAL SELLING PRICE INDEXES*

This paper considers the adequacy of unit value indexes as proxies for industrial selling price indexes in Canada, in light of the considerations raised in the Searle report for the United States (summarized elsewhere in this issue). Some 3,237 regressions are run using the industrial selling price index for a commodity group as the dependent variable and the corresponding unit value index as the independent variable. The unit value indexes perform poorly as predictors of the I.S.P.I.; the overall tendency is for the unit value index to overestimate changes in the I.S.P.I.; and to explain on average only about 30 percent of the total variance of the I.S.P.I.     

Using distance functions to understand interest taxation

One of Terence Gorman's insights was that if one wants to derive rules about optimal commodity tax rates (or prices) one should treat quantities consumed as the instruments. This paper builds on Angus Deaton's development of this idea using distance functions. I identify necessary and sufficient conditions for uniform commodity taxation in a static model and the efficiency of various tax structures in a life‐cycle model. One implication is that the optimal interest tax rate may be higher when ordinary or compensated labour supply elasticities are lower.     

A market game approach to differential information economies

In this paper we recast a differential information economy as a strategic game in which players propose net trades and prices. Pure strategy Nash equilibria are strong and determine both consumption plans and commodity prices that coincide with the Walrasian Expectations equilibria of the underlying economy. The authors acknowledge support by research grants BEC2003-09067-C04-01 (Ministerio de Educación y Ciencia and FEDER), PGIDT04XIC30001PN (Xunta de Galicia) and SA070A05 (Junta de Castilla y León). JP Torres-Martínez is also grateful to CNPq-Brazil and University of Vigo for financial support. We are indebted to N.C. Yannelis for helpful comments and insights.     

Stock exchange mergers and weak form of market efficiency: The case of Euronext Lisbon

This exploratory paper is among the first to examine the impact of stock exchange mergers on informational market efficiency. We focus on the merger of Bolsa de Valores de Lisboa e Porto (Portuguese Stock Exchange) with Euronext in 2002 (that created Euronext Lisbon). To investigate this question we perform numerous statistical tests: serial correlation test (ACF test), runs test, unit root test (Kwiatkowski, Philips, Schmidt, & Shin, 1992), multiple variance ratio test (Chow & Denning, 1993) and ranks and signs test (Wright, 2000).The results indicate that the Portuguese Equity Market is inefficient in weak form during pre-merger period implying that investors possessed an opportunity to earn abnormal returns though small in magnitude. The results, sensitive to the methodology used, indicate a mixed evidence of improvement in market efficiency during the post-merger period. Although the findings are mixed, yet most tests show a tendency of improved efficiency.     

Essential interest-bearing money

I examine optimal monetary policy in a Lagos and Wright [R. Lagos, R. Wright, A unified framework for monetary theory and policy analysis, J. Polit. Economy 113 (2005) 463-484] model where trade is centralized and all exchange is voluntary. I identify a class of incentive-feasible policies that improve welfare beyond what is achievable with zero intervention. Any policy in this class necessarily entails a non-negative inflation rate and a strictly positive nominal interest rate. Despite the absence of a lump-sum tax instrument, there exists an incentive-feasible policy that implements the first-best allocation.     

The welfare economics of the socialization of commodities

Socialization is defined for the purpose of this paper as the acquisition by the goverment of the total output of a commodity such as medical services and redistribution of that commodity equally to all citizens. Simple general equilibrium models are constructed to show that when decisions are reached by majority rule a commodity is more likely to be socialized the greater the inequality of income in the community and the less diverse the tastes of individuals for that commodity. The interests of producers of commodities are also taken into account, and strategic aspects of voting about socialization are discussed.     

More on money as a medium of exchange

Summary We extend the analysis of Kiyotaki and Wright, who study economies where the commodities that serve as media of exchange (or, commodity money) are determined endogenously. Kiyotaki and Wright consider only steady-state, pure-strategy equilibria; here we allow dynamic and mixed-strategy equilibria. We demonstrate that symmetric, steady-state equilibria in mixed-strategies always exist, while sometimes no such equilibria exist in pure-strategies. We prove that the number of symmetric steady-state equilibria is generically finite. We also show, however, that for some parameter values there exists a continuum of dynamic equilibria. Further, some equilibria display cycles.We thank the National Science Foundation and the University of Pennsylvania Research Foundation for financial support, as well as seminar participants at Stanford University, the London School of Economics, the Econometric Society World Congress in Barcelona, and the Conference on Monetary Theory and Financial Institutions at the Federal Reserve Bank of Minneapolis for their comments or suggestions. Alberto Trejos provided research assistance. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.     

Commodity prices as payment vehicles in valuation experiments

Many contingent valuation experiments use commodity prices as the payment vehicle. In this note it is shown, in general, that this approach does not allow the investigator to extract the respondent's willingness to pay. However, it is also shown how the valuation question can be formulated so as to yield a commodity price payment vehicle which is equivalent to a lump sum payment.The idea for this paper came while teaching the Royal Economic Society Easter School in Birmingham (March/April 1995). I am grateful to my students for stimulating discussions and comments on the subject. Kerry Smith provided me with (as always) insightful comments on an     

Stationarity without degeneracy in a model of commodity money

We develop a model of macroeconomic heterogeneity inspired by the Kiyotaki–Wright (J Polit Econ 97:924–954, 1989) formulation of commodity money, with the addition of linear utility and idiosyncratic shocks to savings. We consider two environments. In the benchmark case, the consumer in a meeting is chosen randomly. In the auctions case, the individual holding more money can be selected to be the consumer. We show that in both environments socially optimal trading decisions (that are individually acceptable) are stationary and solve a tractable static optimization problem. Savings decisions in the benchmark case are remarkably invariant to mean-preserving changes in the distribution of shocks. This result is overturned in the auctions case.     

Do Natural Resources Depress Income Per Capita?

Most evidence for the resource curse comes from cross‐country growth regressions suffers from bias originating from the high and ever‐evolving volatility in commodity prices. These issues are addressed by providing new cross‐country empirical evidence for the effect of resources in income per capita. Natural resource dependence (resource exports) has a significant negative effect on income per capita, especially in countries with bad rule of law or bad policies, but these results weaken substantially once we allow for endogeneity. However, the more exogenous measure of resource abundance (stock of natural capital) has a significant negative effect on income per capita even after controlling for geography, rule of law and de facto or de jure trade openness. Furthermore, this effect is more severe for countries that have little de jure trade openness. These results are robust to using alternative measures of institutional quality (expropriation and corruption instead of rule of law).     

Stipulated settlements,the consumer advocate and utility regulation in Florida

US utility regulation is evolving. Negotiated or stipulated settlements have begun to replace or supplement litigation, but relatively little seems to be known about this practice. This paper presents evidence from Florida. During 1976–2002, 30% of earnings reviews were settled by stipulations involving the Office of Public Counsel but only 7% of company requests. The mean value of a rate reduction was eight times larger with a stipulation than without; the median value was more than 50 times larger. Over three quarters of the rate reductions associated with earnings reviews derived from these stipulations; excluding one exceptional case the proportion was 94%. Sanford Berg and Paul Sotkevitz kindly briefed me on stipulations and introduced me to the Florida Public Service Commission. I am particularly indebted to Dale Mailhot of the Commission for explaining the regulatory processes, allowing me access to the database, and patiently clarifying the details and background. I am grateful to Bonnie Davis, Jack Shreve and Scheff Wright for enlightening discussions in Tallahassie; to Dan Fessler and Steven Weissman for discussion of this topic in California; to Ashley Brown, Robert Burns, Joseph Doucet, Guy Holburn, Mark Jamison, Paul Joskow, Paul Sotkevitz, Pablo Spiller and James Wilson for related discussion and comments; and to two referees for helpful suggestions. I thank the Judge Business School and the TSEC grant to the Electricity Policy Research Group at Cambridge University for facilitating this research. None of the above is responsible for views expressed herein. Some outline results of the early research were given in Littlechild (2003). For more detail on the topics of this paper see the working paper Littlechild (2006).     

Stock Prices and Exchange Rates in Australia: Are Commodity Prices the Missing Link?

There are still significant gaps in our knowledge of the relationship between stock prices and exchange rates; not least, the ambiguity about the sign of the coefficient linking them. One explanation which we explore in the Australian context in this paper is the omission of commodity prices. We show that a relationship which omits commodity prices performs poorly but, once commodity prices are added, our results are plausible and robust. We also throw light on the commodity‐currency issue: the link from the exchange rate to commodity prices is stronger and more consistent than that in the opposite direction.     

新自由主义市场拜物教批判——马克思《资本论》的当代启示

新自由主义是导致当前国际金融危机的西方主流经济理论。新自由主义对市场的过度颂扬和崇拜,可称之为市场拜物教。马克思对这种颠倒人与物关系的市场拜物教,曾作过深刻的揭露和批判。马克思充分肯定资本主义市场和市场经济的巨大历史进步作用,但也指出,现代市场、市场经济和世界上任何事物一样,具有二重性。马克思在《资本论》中关于资本主义市场和市场经济存在十个方面内在缺陷的论述,具有重要的理论意义和现实意义。在社会主义市场经济条件下,市场拜物教是无法消除的,但是我们可以采取积极的措施,限制其作用的范围,化解其产生的矛盾,消除其恶劣的影响,防范其潜在的危机。     

The economic consequences of substituting carbon payments for crop subsidies in U.S. agriculture

There is a growing body of literature on the costs of sequestering carbon. However, no studies have examined the interplay between farm commodity programs and carbon sequestration programs. This study investigates two dimensions of the interaction between farm commodity programs and afforestation programs, using a price-endogenous sector model of agriculture in the United States. First, this study compares the fiscal and welfare costs of achieving specific carbon targets through afforestation, with and without current farm programs. Second, it examines the welfare, fiscal, and carbon consequences of replacing existing farm subsidies, wholly or in part, with payments for carbon. Two approaches, Hicksian and Marshallian, are investigated. In the first, the sector model is used to quantify the carbon consequences and fiscal costs associated with various combinations of farm commodity and carbon sequestration programs that leave consumers and producers in the U.S. agricultural sector no worse off than under existing farm programs. The second approach focuses on the carbon and welfare consequences of various farm commodity and carbon sequestration programs that hold total program fiscal costs constant at current levels. Althouth the methodology and data are applied to the United States, the issues addressed are common in a number of developed nations, particularly within the European Union (EU). Adapting existing sector models in these nations to perform similar analyses would provide policy makers with more precise information about the nature of the trade-offs involved with second-best policies for replacing farm commodity subsidies with tree planting subsidies.The research reported in this paper was partially funded by the United States Environmental Protection Agency under contract number 68W90077. It does not reflect the official position of that agency. Mention of trade names does not constitute endorsement.     

AVOIDING THE INFLATION TAX*

I study the effects of inflation on the purchasing behavior of buyers in the Lagos–Wright monetary economy. The standard framework fails to capture the long‐standing intuition that when inflation increases, agents try to spend their money holdings speedily. I propose a simple, realistic extension in which buyers can rebalance their money holdings only sporadically (i.e., not every period). I show that, in such a case, higher inflation can induce buyers to spend their money faster by frontloading their consumption and searching more intensively for transactions. These trade distortions have, traditionally, been associated with the economic costs of inflation.     

Asymmetric Regulation of Access and Price Discrimination in Telecommunications*

Suppose that a strong and a weak operator compete in a telecommunications market. To terminate a call operators need access to the competitor’s network if the call is off-net. Operators set two-part tariffs and price-discriminate according to termination of a call. Suppose as a benchmark that access prices are regulated at costs. I show that the weak operator’s profit and consumer welfare increase if the regulator sets a higher price to access the weak operator’s network. However, total surplus decreases even locally. *I received helpful comments from Mark Armstrong, Toker Doganoglu, Tommaso Valletti, Julian Wright, and, in particular, two referees and the editor Michael Crew. I gratefully acknowledge financial support from the Deutsche Forschungsgemeinschaft (Heisenberg Fellowship).     

Commodity futures contracts: Furnishing an elastic currency in the nineteenth century

In this paper, I show that nineteenth century US interest rates are relatively more volatile before 1874 and I propose, and demonstrate how, commodity futures trading is the likely principal proximate explanation for this change in behavior. Borrowing from Turnovsky [Econometrica 51 (1983) 1363], I model the optimizing behaviors of risk averse producers and risk neutral speculators in the absence and presence of futures contracts and I show that, so long as one party to a futures contract was risk averse, futures markets would have quelled interest rate volatility caused by variations in planting and harvesting conditions.     

Optimal redistribution when different workers are indistinguishable

Abstract.  Using the standard non linear income and commodity taxation framework, we examine the optimal policy to be adopted when the same labour disutility can receive two opposite interpretations: taste for leisure and activity limitation. In the absence of complete information about individual characteristics, an income tax does not allow distinguishing lazy from handicapped individuals. One may rely, however, on a combination of commodity and income taxes to redistribute from the former to the latter when they differ in their preferences for commodities. JEL Classification: H21, H41
Redistribution optimale quand les divers travailleurs sont indistincts.  A l'aide du cadre d'analyse conventionnel de fiscalité non linéaire sur les revenus et les biens, ce mémoire examine la politique optimale à adopter quand le même niveau de désutilité du travail peut être interprété de deux manières opposées : goût pour le loisir et souffrance attribuable à une infirmité. En l'absence de renseignements complets à propos des caractéristiques des individus, un impôt sur le revenu ne permet pas de distinguer les individus paresseux de ceux qui sont handicapés. On peut cependant compter sur une combinaison de taxes sur les revenus et les biens pour redistribuer du premier groupe vers le second quand leurs préférences pour les biens diffèrent.     

Pricing flexibility under rate-of-return regulation: Effects on network infrastructure investment

When a commodity market relies upon a regulated network service industry—e.g., telecommunications, electricity, or natural gas transmission—economic efficiency in that commodity market is a crucial consideration for regulatory design. This is because insufficient infrastructure investment relative to network demand results in congestion. The extraction of associated rents has distortionary effects on commodity spot market prices. Greater regulatory flexibility in network pricing can alleviate such issues by cultivating the incentives needed for stakeholders to invest in transmission capacity. To illustrate this effect I derive and numerically solve stylized optimality conditions for access and usage prices for a gas pipeline operator under alternative regulatory models. My results have general implications for regulation in network infrastructure industries, as energy and telecommunications markets are expected to expand considerably over the coming decades.