A non-Normative Theory of Inflation and Central Bank Independence.

We study monetary policy under different central bank constitutions when the labor-market insiders set the nominal wage so that outsiders are involuntarily unemployed. If the insiders are in the majority, the representative insider will be the median voter. We show that an independent central bank, if controlled by the median voter, does not produce a systematic inflation bias, albeit equilibrium employment is too low from a social welfare point of view. A dependent central bank, in contrast, is forced by the government to collect seigniorage and to take the government's re-election prospects into account. The predictions of our theory are consistent with the evidence that central bank independence decreases average inflation and inflation variability, but does not affect employment variability.INFLATION ; MONETARY POLICY ; CENTRAL BANKS

Openness and Urbanization: The Case of the People's Republic of China

Urbanization usually occurs with structural transformation driven by a "push" from agricultural productivity growth and a "pull" from industrial productivity growth, and usually the former exceeds the latter. This paper presents a simple model to illustrate how the open policy in the People's Republic of China (PRC) since 1979 reversed the pattern such that the "pull" effect dominated the "push" effect during the PRC's structural transformation and urbanization. This model helps explain why the PRC, whose industrial productivity growth exceeds its agricultural productivity growth, has experienced a standard pattern of structural transformation. The paper also demonstrates how a developing country's business services intensity increases with its urbanization

Catching-up in the global factory: analysis and policy implications

MNEs shape the location of activities in the world economy, linking diverse regions in what has been called the global factory. This study portrays the evolution of incomes and employment in the global factory using a quantitative input–output approach. We find emerging economies forging ahead relative to advanced economies in income derived from fabrication activities, handling the physical transformation process of goods. In contrast, convergence in income derived from knowledge-intensive activities carried out in pre- and post-fabrication stages is much slower. We discuss possible barriers to catching-up and policy implications for emerging economies in developing innovation capabilities, stressing the pivotal role of MNEs

Social Security Reform in the US: Lessons from Hungary

The partial privatization of the US Social Security system was clearly the top economic policy priority for the new Bush administration. While many famous economists, publicists and politicians support, others reject the partial privatization of the Social Security system. The international comparisons have been quite infrequent, concentrated on few countries (Chile, Great Britain and Sweden) and left out similar reforms introduced in similar situations, like in Hungary, Poland and other ex-communist countries. In this article I try to make up for this omission and outline the lessons from the Hungarian reform, started in 1998. The conclusion is simple: such a reform is possible but does not solve the problems of social security