MIGRATION,MEDICAL AID AND WELFARE*

This paper constructs a simple rural‐urban migration model that explicitly incorporates the interactions between the individual's migration decision, the risk of incurring an infectious disease and unemployment. We show that providing a subsidy for health investment in urban regions in the form of medical aid does not improve individual welfare. This is because it induces further urban migration, increases the risk of infection and unemployment, and offsets completely the positive cost‐reduction effect.     

Optimal Monetary Policy and Transparency under Informational Frictions

This paper examines the optimal monetary policy and central bank transparency in an economy where firms set prices under informational frictions. The economy is subject to two types of shocks determining the efficient output level and firms' desired markups. To minimize the welfare‐reducing output gap and price dispersion between firms, the central bank controls firms' incentives and expectations by using a monetary instrument and disclosing information on the realized shocks. This paper shows that an optimal policy comprises the disclosure of a linear combination of the two shocks and the adjustment of monetary instruments contingent on the disclosed information.     

GEOGRAPHICAL SPACE AND EFFECTIVE DEMAND UNDER STAGNATION

This paper investigates the adjustment mechanism between geographical space and effective demand under stagnation by constructing a spatial model with stagnation included. The model takes the idea of stagnation in Ono (2001) and combines it with the spatial model of Perera-Tallo (2003) . The spatial model features local monopolists that import intermediate goods from other monopolists at a cost that can be decreased through investment. Using the integrated model, we reach the following conclusion: the wider the geographical space, the lower the effective demand under stagnation. This mechanism is explained as follows. Under stagnation, where demand has reached an upper bound, a decrease in the marginal cost of reaching distant intermediate suppliers reduces employment. The reason is 'love of variety' in production: for given final output, more variety of available intermediate inputs crowds out per-variety demand of intermediates and thus employment. Decreases in employment then lead to a decrease in the rate of time preference through a rise in the deflation rate, and thereby decrease the desire for consumption, consequently cutting effective demand.     

PROFIT TAX AND FIRM MOBILITY IN A THREE‐COUNTRY MODEL

We construct a three‐country model that incorporates international relocation by imperfectly competitive firms and examine both the effects of each country's profit tax reduction on the consumption and welfare of all countries, and the incentive for the countries to decrease the profit tax. In such a model, both the terms of trade and international relocation of firms offer the key to understanding the impacts of one country's profit tax policy. In particular, we note that the relocation of firms from the other two countries is positively related to the wage incomes of the third country through a shift in labour demand, and the terms‐of‐trade improvement is not only positively related to the wage incomes, but also negatively related to profit incomes through a shift in world consumption demand. We show that (i) in a three‐country world economy, regardless of the reduction's source, the profit tax reduction of each country leads to relocation of firms away from foreign countries toward its own economy and deteriorates the terms of trade of its economy and (ii) this becomes a ‘beggar‐thy‐neighbour’ policy in the sense that it lowers the welfare of the other foreign countries.