Inflation and Innovation in a Schumpeterian Economy with North–South Technology Transfer

This study analyzes how inflation affects innovation and international technology transfer via cash‐in‐advance constraints on R&D. We consider a North–South quality‐ladder model that features innovative Northern R&D and adaptive Southern R&D. We find that higher Southern inflation causes a permanent decrease in technology transfer, a permanent increase in the North–South wage gap, and a temporary decrease in the Northern innovation rate. Higher Northern inflation causes a temporary decrease in the Northern innovation rate, a permanent decrease in the North–South wage gap, and ambiguous effects on technology transfer. Finally, we calibrate the model to China–U.S. data to perform a quantitative analysis.     

Trend Inflation, Taylor Principle, and Indeterminacy

Positive trend inflation shrinks the determinacy region of a basic New Keynesian dynamic stochastic general equilibrium model when monetary policy is conducted by a contemporaneous interest rate rule. Neither the Taylor principle, which requires the inflation coefficient to be greater than one, nor the generalized Taylor principle, which requires that the nominal interest rate to be raised by more than the increase in inflation in the long run, is a sufficient condition for local determinacy of equilibrium. This finding holds for different types of Taylor rules, inertial policy rules, and price indexation schemes. Therefore, regardless of the theoretical setup, the monetary literature on interest rate rules cannot disregard average inflation in both theoretical and empirical analyses.     

Determinants of Regular and Occasional Consumers' Intentions to Buy Organic Food

This study analyzes the impact of ethical motivations, food safety and health‐related concerns on purchasing intentions of habitual and less frequent consumers of organic food. A sample of 291 subjects was surveyed through a paper‐and‐pencil questionnaire and classified either as “regular” or “occasional” purchasers of organic food according to their buying frequency. Results show different determinants of intention for the two groups of subjects: ethical motivations affect the purchase intentions of regular consumers, whereas food safety concerns influence the purchase intentions of occasional consumers. Implications are discussed.     

Entrepreneurs,formalization of social ties,and trustbuilding in Europe (fourteenth to twentieth centuries)1

The establishment of trust is a key component of economic activity and social ties can make business dealings work better. However, we do not know much about how economic actors created new social ties deliberately in order to pursue their objectives. This article analyses the way in which merchants and entrepreneurs used specific rituals to establish formal social ties, with the intent of protecting their business relationships. It focuses on relational instruments that until now had been neglected, particularly godparenthood and marriage witnessing. It shows that formalization, ritualization, and publicity of ties were used by entrepreneurs to establish trust with their business associates, for example when information was asymmetric or when institutions were perceived as inefficient in guaranteeing mutual good behaviour. The analysis covers a long period, from the late middle ages to today. It pays particular attention to the consequences of the Reformation in the sixteenth and seventeenth centuries and of the industrial revolution in the nineteenth. Contrary to the received wisdom, it suggests that formal social ties such as godparenthood continued to play an important role in economic activity during and after the industrial revolution. New databases on early modern Italy and nineteenth‐century France are used.     

A Note on Progressive Taxation and Cooperation

This paper shows that marginally progressive taxation may help independent agents to sustain cooperation in a repeated prisoners' dilemma setting. It is suggested that political support for progressive taxation schemes may be affected by the desire to promote more cooperation among individuals.     

Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development

This study explores the effects of patent protection in a research and development (R&D)-based growth model with financial frictions. We find that whether stronger patent protection stimulates or stifles innovation depends on credit constraints faced by R&D entrepreneurs. When credit constraints are nonbinding (binding), strengthening patent protection stimulates (stifles) R&D. The overall effect of patent protection on innovation follows an inverted-U pattern. By relaxing the credit constraints, financial development stimulates innovation. Furthermore, patent protection is more likely to have a positive effect on innovation under a higher level of financial development. We consider cross-country panel regressions and find supportive evidence for this result.     

Sovereign Defaults,Credit to the Private Sector,and Domestic Credit Market Institutions

Sovereign defaults are associated with declines in foreign and domestic credit to the domestic private sector. This paper analyzes theoretically whether sovereign defaults can lead to this decline, even if domestic agents do not hold sovereign debt. It also studies whether the quality of domestic financial institutions affect the magnitude of this effect. In order to address these issues, the paper embeds the traditional sovereign borrower/foreign creditors relationship of the sovereign debt literature in a macromodel where widespread individual financial constraints limit a country's ability to reallocate resources. The paper finds that sovereign defaults can indeed generate a decline in foreign and domestic credit even if domestic agents do not hold sovereign debt, and that stronger domestic financial institutions can amplify this effect. These findings constitute a new step toward understanding the costs of sovereign defaults.     

Real Wage Rigidities and the Cost of Disinflations

This paper analyzes the cost of disinflations under real wage rigidities in a micro-founded New Keynesian model. The conventional view is that real wage rigidities can be a useful mechanism to generate a slump in output after a credible disinflationary policy because they prevent the immediate adjustment of inflation. This view is flawed, since it depends on analyzing the model in a linearized framework. Once nonlinearities are taken into account, the results change both qualitatively and quantitatively. Disinflations actually lead to a permanently higher level of output, and real wage rigidities increase the output during the adjustment to the new steady state.