Stores

Summary There is scope and incentive for stores to endogenously arise in an exchange economy when agents possess different levels of bargaining power and coalition formation is costly. In the absence of stores, agents face a trading lottery where the expected outcome for an individual agent depends upon his relative bargaining strength. By setting appropriate, preannounced prices, a store can profitably offer relatively weak bargainers trading opportunities which they prefer to the trading lottery. While relatively weak bargainers are attracted to the store, relatively strong bargainers prefer the trading lottery to the store. Thus, the simultaneous existence of barter and mediated trade is explained.The work reported here was conceived while both authors were visiting the University of Southern California. We thank Martine Quinzii and two anonymous referees for helpful comments.     

Economic Transition in Central and Eastern Europe: Comparisons and Lessons

Abstract
There are three features which distinguish the global transition in Central and Eastern Europe: both economic and political systems are the focus of radical transformation, this institutional revolution has been largely peaceful, and a pluralistic political system emerged faster than capitalism in the economic sphere. The initial conditions, for example the inherited economic structure, the macroeconomic situation and the type of economic system, have an important impact upon the pace and effects of the subsequent market-oriented reform. There are four important reasons why the state should concentrate its activity on the sphere of its natural competence. These reasons are even more important in economies of transition. The speed of the subordinate processes of transition differs which gives rise to important issues of phasing. Macroeconomic stabilisation, microeconomic liberalisation and privatisation should be implemented at a speed close to maximum. The Polish economic reform shows that a radical and comprehensive economic program introduced in an initially socialist economy, under extremely difficult macroeconomic conditions, can be successful in spite of powerful external shocks .     

新常态下我国宏观经济政策框架的重构*

我国宏观经济政策“微刺激”效果下降,而“强刺激”带来了严重后遗症,导致这种状况的关键原因是政策框架在整体上出了问题。重构我国宏观政策框架的战略定位应该包括以下内容：（1）短期应对不断加剧的宏观经济和金融风险;（2）中期应对结构调整的负面冲击;（3）长期构建高效的、可持续的和动态一致的宏观调控模式。重构政策框架的原则性要求包括：（1）宏观经济及金融的稳定性与国际收支平衡应该成为显性目标;（2）财政政策主要指向结构调整期的短期阵痛,货币政策指向宏观经济及金融稳定性;（3）宏观政策应该遵循市场化、可预期的操作模式。在具体策略上可以选择国债市场作为突破口,通过改变国债发行规模和方式,推动国债市场的大发展和大开放,以此拓展整个金融市场的深度和开放程度。     

Political entrepreneurs and electoral capital: the case of the Israeli State Economy Arrangement Law

This article looks at a specific institutional change in Israel. In 1985, Israeli politicians adopted the “State Economy Arrangement Law” (SEAL), commonly regarded as part of the budgetary legislation in Israel. This law became an alternative channel through which applicants could circumvent the necessity of applying to the Israeli parliament (the Knesset) for the implementation of certain policies. This law enabled an accelerated, flexible regulatory process that short circuited democratic discussion in the Knesset and obviated the intervention of Israeli consumer organizations. This article suggests that this institutional change should be analyzed as part of a process where institutional reality influences individual and collective beliefs, thus triggering an individual and collective learning process that eventually leads to institutional change, specific policies and outcomes in terms of economic performance. The article also claims that the SEAL legislation is an equilibrium that results from the actions of political entrepreneurs (or agents of change) who operate to maximize their own electoral capital against the backdrop of certain structural and cultural conditions, both local and international. They operate in an environment characterized by the inability of the government to function effectively (non-governability) and the development of an alternative political culture.

Fiscal crisis and fiscal reform in developing countries

In recent years, policy-makers in developing countries haveresponded to crisis of macroeconomic instability with two setsof measures: conventional stabilisation policies and policiesof economic liberalisation. The fiscal implications of thisdouble agenda are set out, following three lines of enquiry.First, how can policies be kept consistent, when some liberalisationmeasures have large adverse fiscal consequences? Second, cana fiscal deficit be reduced without damaging the provision ofpublic services vital for growth and poverty alleviation? Finally,since lack of tax revenue is usually the binding constrainton government intervention, how can this most easily be relaxed?     

An evolutionary theory of the convergence towards low inflation rates

This paper presents an evolutionary interpretation of Barro-Gordons monetary policy game. The model describes a multi-country setup where governments and private agents are boundedly rational players. The behavioral rule of players decisions leads to the imitation of the strategy giving the highest payoff. In this evolutionary monetary policy game, we show how a low inflation state is reached from an international context dominated by inflationary policies. The analysis explains the convergence towards low inflation rates observed during the past twenty years. Moreover, the low inflation state appears to be the long-run equilibrium of the game under some conditions featuring the observed macroeconomic context.JEL Classification: E5, C72, C73 Correspondence to: A. dArtigues     

On disequilibrium savings and public consumption

Conclusions A particular aspect of the present paper is the introduction of specific policy measures for the government, whose behavior on the goods market was described in earlier work as purely exogenous, like in Malinvaud. In our context, the government appears as an active economic agent, acting at absorbing any excess supply or reducing any excess demand on the goods market. Though this behavior may look somewhat arbitrary, it has the advantage to force the state of the economy towards a SME if combined with natural endogenous behavior of the other agents! Furthermore, it does not contradict observed policies through which governments stimulate or restrain economic activity via purchases or fiscal and monetary policies. Perhaps alternative policies, like direct actions on the labor market by supplying (non-productive) jobs or unemployment compensations, could have done as well: this remains an open door for further research. The preceding feature also contrasts with the recent work done by V. Böhm (1978) in a macroeconomic set up. In this paper, he studies the stability of stationary Keynesian unemployment or stationary repressed inflation states but without imposing a particular policy on the government. Comparing his work with ours, it is easily verified that if the government would keep its consumption at the levelg ^*, the SME would be stable if the economy starts out in Keynesian unemployment and unstable if the economy starts out in repressed inflation, confirming Böhm's result.Our analysis is related to an earlier work of Archibald and Lipsey (1958), dealing with the adjustment of the economy to a Stationary Equilibrium after a change in real balances. The Quantity Theory of Money postulates that along a SME, a change in the price and the wage rate from (p,w) to (p,w) leads to an adjustment in the level of stationary money holdings from m_i ^* to m_i ^*, m_i ^*=_i ^* (p,w). In this paper, Archibald and Lipsey suggest that the economy follows a sequence of temporary market equilibria: Starting from a change in real balances,prices adjust at each period through a tâtonnement process so as to match supply and demand. Our paper proposes an alternative path: At each period,quantities adjust through a tâtonnement process at constant prices.This paper is a revised version of CORE Discussion Paper 7701. We wish to thank Paul Champsaur, Jacques Drèze, Werner Hildenbrand and Reinhard John for stimulating discussions. We are grateful to Volker Böhm for valuable comments and criticisms.Research supported by the Fonds National Belge de la Recherche Scientifique.     

Life During Growth

A remarkable diversity of indicators shows quality of life across nations to be positively associated with per capita income. At the same time, the changes in quality of life as income grows are surprisingly uneven. Either in levels or changes, moreover, the effect of exogenous shifts over time is surprisingly strong compared to growth effects. This article reaches this conclusion with a panel dataset of 81 indicators covering up to four time periods (1960, 1970, 1980, and 1990). The indicators cover seven subjects: (1) individual rights and democracy, (2) political instability and war, (3) education, (4) health, (5) transport and communications, (6) inequality across class and gender, and (7) bads. With a SUR estimator in levels, income per capita has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 32 out of 81 indicators. With a fixed-effects estimator, growth has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 10 out of 81 indicators. With a first-differences IV estimator, growth has a causal impact on the quality of life that is significant, positive, and more important than exogenous shifts for six out of 69 quality of life indicators. The conclusion speculates about such explanations for the pattern of results as (1) the long and variable lags that may come between growth and changes in the quality of life and (2) the possibility that global socioeconomic progress is more important that home-country growth for many quality-of-life indicators.     

Giffen goods and market making

Summary. This paper shows that information effects per se are not responsible for the Giffen goods anomaly affecting traders demands in multi asset noisy, rational expectations equilibrium markets. The role that information plays in traders strategies also matters. In a market with risk averse, uninformed traders, informed agents have a dual trading motive: speculation and market making. The former entails using prices to assess the effect of error terms; the latter requires employing them to disentangle noise traders demands within aggregate orders. In a correlated environment this complicates the signal extraction problem and may generate upward sloping demand curves. Assuming (i) that competitive, risk neutral market makers price the assets or that (ii) uninformed traders risk tolerance coefficient grows unboundedly, removes the market making component from informed traders demands rendering them well behaved in prices.Received: 30 April 2002, Revised: 3 December 2003, JEL Classification Numbers: G100, G120, G140.Support from the Barcelona Economics Program of CREA and the Ente per gli Studi Monetari e Finanziari Luigi Einaudi, are gratefully acknowledged. I thank Anat Admati, Jordi Caballé, Giacinta Cestone, and Xavier Vives for useful suggestions. The comments provided by the Associate Editor and an anonymous referee greatly improved the papers exposition.     

Homo Oeconomicus Returns: Neoliberalism,Socio-Political Uncertainty and Economic Policy

The aim of this paper is to discuss how neoliberal policy is changing the way people conceive of the economy and of society. After a brief outline of the main features of neoliberal policies, it argues that neoliberalism does not consist in a mere set of wrong economic theories or in the plain reflection of vested interests. It is a full-fledged view of how society should be organized. The paper then argues that these policies and the ideology that backs them up determine major institutional changes which affect economic, social and polity-related variables but also the general understanding that peo-ple have of the economy and of society. More specifically, it enhances uncertainty about one’s future and favors a non-solidaristic view of social relations. These changes tend to prejudge the effectiveness of employment policies and to reinforce the neolib-eral consensus. The conclusion is that it is not possible to conceive of an appropriate macroeconomic policy unless institutional changes are taken into account that trans-cend macroeconomics as such and re-establish the social underpinnings for that policy. These include changes in how the economy is coordinated but also changes in the bar-gaining power of workers and citizens relative to business.     

Economic Distance and Cross-Country Spillovers

Rates of long-run economic growth are not independent across countries. To account for this dependence we decompose the spatial covariance function of growth rates into a function of each countrys own observable characteristics, its unobservable characteristics, and cross-country spillovers. We use original data on economic distance to structure observed variation in countries long term growth rates. We use this structure to estimate the magnitude of economic interdependence among nations, and to give a nonparametric characterization of the relationship between economic distance and the magnitude of cross-country spillovers. These spillovers turn out to be quite important, accounting for more of the spatial covariance in growth rates than unobservable variables, and by some measures rivalling the importance of the countrys own observable characteristics.     

Explaining Russia's Currency and Financial Crisis

The paper attempts to sketch a framework for understanding Russia's August 1998 financial and currency crises with reference to the main theories put forward so far. Our thesis is that, while not fitting easily into any pre-existing framework, the Russian crises shares many features of first-generation models inasmuch as it was largely due to inconsistencies among an overvalued peg, tight money, and an evident inability to address the fiscal deficit. In other terms, it derived from the incompatibility between standard IMF stabilisation policies and the difficulties that Russia was facing as a transition economy. On the other hand, by touching both currency markets and the banking sector, the Russian Episode shares also important features of the twin crises framework.The analysis considers the role of exchange rate movements and capital flows on Russia's rising vulnerability, fiscal problems and the building up of the public debt. It assesses the state of the Russian Banking sector and discusses the contagion effects of the Asian crisis and policy response. It shows how the core of the Russian crises lies in an unsound, IMF-backed, defence of the rouble, which in 1998 had become increasingly unsustainable.     

Institutions and industrial policy in Brazil after two decades: have we built the needed institutions?

ABSTRACT

This paper aims to examine the design and implementation of industrial policy in Brazil based on their capacity to affect the prevailing institutions. We argue that the main reason for the failure of policies in Brazil, and in Latin America, is their inability to induce persistent changes in firms’ innovative behavior. Based on the analysis of national innovation indicators, and on previous empirical studies, we demonstrate that the Brazilian industrial policy was not able to change the prevailing conventions. The main problems related to this fragility are: institutional problems and related to industrial policy development conventions; serious coordination problems; maintaining a macroeconomic policy that is not convergent toward industrial policy efforts; policy instruments that were not able to change prevailing conventions, such as low R&D and innovative expenditures; a set of strategic choices that are inconsistent with innovation, technological catch-up and structural change.     

Liberalisation and de-regulation of the public sector in the transition from plan to market

The above analysis allows several conclusions to be drawn:

Varieties of Economic Crisis,Varieties of Ideational Change: How and Why Financial Regulation and Macroeconomic Policy Differ

One of the principal tasks facing post-crash academic political economy is to analyse patterns of ideational change and the conditions that produce such change. What has been missing from the existing literature on ideational change at times of crises however, is a sense of how processes of persuasive struggle, and how the success of those ‘norm entrepreneurs’ arguing for ideational change is shaped by two contextual variables: the most immediate material symptoms and problems that a crisis displays (the variety of crisis); and the institutional character of the policy subsystem that agents have to operate within to affect change. Introducing these two variables into our accounts of persuasive struggle and ideational change enables us to deepen our understanding of the dynamics of ideational change at times of crisis. The article identifies that a quite rapid and radical intellectual change has been evident in the field of financial regulation in the form of an embrace of a macroprudential frame. In contrast in the field of macroeconomic policy – both monetary and fiscal policy, many pre-crash beliefs remain prominent, there is evidence of ideational stickiness and inertia, and despite some policy experimentation, overarching policy frameworks and their rationales have not been overhauled. The article applies Peter Hall's framework of three orders of policy changes to help illuminate and explain the variation in patterns of change in the fields of financial regulation and macroeconomic policy since the financial crash of 2008. The different patterns of ideational change in macroeconomic policy and financial regulation in the post-crash period can be explained by timing and variety of crisis; sequencing of policy change; and institutional political differences between micro policy sub systems and macro policy systems.     

New Scale and Scope for Industrial Policies in the 1990s

A central hypothesis of this paper is to consider that changes in the economic and political environment invite us to appraise the status that industrial policies can have in the making of contemporary macroeconomic policies. This perspective is first referred to the post-war debate on standard and radical Keynesianisms. The main trends in the fields of public interventions up to the 80s are recalled. It helps to stress the change of context in the 80s and 90s, especially regarding the forms of competition prevailing on product markets. All of which set opportunities to reshape industrial policies and all the more so given that macroeconomic policies are losing momentum. Despite their renewed legitimacy and efficiency, the question of the macroeconomic impact of these coordinated industrial policies remains open, still depending on the scale that central and local authorities are willing to give us to these new schemes.     

Exchange Rate Uncertainty, Sociopolitical Instability and Private Investment: Empirical Evidence from Latin America

Using exchange rate uncertainty (ERU) and sociopolitical instability (SPI) as measures of macroeconomic imbalances and political disorder, respectively, we investigate the link between these two factors and private investment in Latin America. The analysis shows that while ERU and SPI negatively impact private investment jointly, the individual impact of ERU is much greater than that of SPI. Our results should prove useful both to policymakers and others interested in understanding the impact of uncertainty on private investment. Most importantly, macroeconomic policies that limit excess volatility in relative prices should lessen an economy’s general level of investment risk leading to enhanced private investment. Further, though lesser in degree, institutional reforms that reduce social tensions and strengthen property rights should also stimulate private investment. Finally, structural reforms that combine these two are likely to foster a robust market for private investment thus contributing to an economy’s growth potential.     

Structural change and macroeconomic policy: the case of Greece (1981–85)

This article examines one aspect of ‘alternative economic strategies’ which seek to introduce planning and other interventionist economic policies in order to promote structural change. Experience has shown, most recently in France and Greece in the 1980s, that such strategies are often abandoned because of macro-economic imbalances, such as current account crises. Thus it seems that a crucial aspect of such strategies should be the co-ordination of short-term, or macro-economic, policies with longer-term supply-side policies. The interest in the Greek experiment (1981–85) lies in the fact that the Greek socialists were aware of the need for such co-ordination and their strategy for ‘stabilization through development’ and ‘gradual adjustment’ was formulated for this purpose. This article looks at the economic theory underlying this approach and the implementation of the strategy. However it is argued that the degree of control necessary for the successful implementation of the strategy was lacking. The failure of macroeconomic policy once more contributed to the abandonment of an alternative economic strategy. I investigate the reasons behind this failure and draw some lessons of more general relevance for the successful co-ordination of macroeconomic and supply-side policies.

Accumulation involves a process of continual structural transformation, a qualitative change, in which the scale, content and location of economic activity are progressively transformed. There is no automatic mechanism ensuring that this takes place in a desirable manner or at a desirable pace (Eatwell and Green, 1984: 202).     

New techniques for estimation of rational expectation models and Volcker deflation

Multivariate autoregressive moving average models are used to form the “reduced forms” of Muth's rational expectation models. One implication of the modern macroeconomic theory is that economic agents' expectations should change in the presence of major policy changes. This paper proposes a simple method for directly comparing the formulation of expectations, and illustrates it by considering the impact of a recent policy change in the US under Paul Volcker of the Federal Reserve Bank. Many new interpretations are based on transfer functions, “gain” calculations, Green's function matrices from solutions of difference equations, and complex conjugate roots to measure cyclical phenomena. Furthermore, the traditional distributed lag models are criticized for arbitrarily assuming that the gain is unity. We provide an equation for minimum mean squared error regulation, and indicate the role played by rational two-step ahead speculations made by economic agents, along with changes therein emanating from the policy change.     

Information structure and coordination in technology policy

The main purpose of our paper is to present a model which allows a comparison of different types of technology policies to be made. It appears that there is a kind of model which is appropriate to that purpose but which belongs to the theory of the firm. Indeed, one of the characteristics of technology policies is the degree of centralization of decision; as it is in the design of firm organization. It seems that a model like AOKI's (1986) presents sufficient properties to be used in our context. The aim of this exercise is to compare vertical and horizontal institutional frameworks for technology policies, more precisely diffusion and mission oriented policies. This framework will be applied to the case of some technology policies in the Federal Republic of Germany (before re-unification): programmes in production technologies and the Transrapid programme.Financial support by the E. C. for the SPES-project Comparative Economics of R & D: the case of France and Germany is gratefully acknowledged. We would like to thank all participants to the SPES-project (involving the Universities of Ausburg and Tübingen, the IFO Institute Munich, the CNRS teams LATAPSES in Nice and BETA in Strasbourg and the Ecole Centrale Paris) for helpful comments. We also profited from comments by A. Arundel, R. Cowan, P. A. David, C. Freeman and L. Soete, and by two anonymous referees. An initial version of this paper is published as Foray and Llerena, 1992.