The commodity-consumer price connection: fact or fable?

The recent surge in commodity prices has rekindled interest in their power to predict consumer price inflation. But is this interest warranted? In examining the empirical relationship between commodity prices and consumer price inflation, this article finds that commodities' reputation as useful leading indicators of inflation is actually based more on fable than fact. Testing eight commonly used indexes, the authors conclude that although commodities had some predictive power in the past, the commodity-consumer price connection has broken down in the more recent period. They argue that this shift primarily reflects the diminished role of traditional commodities in U.S. production and the "sterilization" of some inflation signals by offsetting monetary policy actions.Prices ; Consumer price indexes ; Inflation (Finance)

Is the political business cycle for real?

This paper's macroeconomic model combines features from both real and political business cycle models. It augments a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic presidents and contracts early under Republican presidents. Second, that presidents whose parties successfully retain the presidency have stronger-than-average growth in the second half of their terms. The model generates both of these features in conformity with U.S. post-World War II data.Business cycles

Is the Political Business Cycle for Real?

This paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models. We augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic Presidents and contracts early under Republican Presidents. Second, that Presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms. The model generates both of these features that conform to U.S. Post World War II data.Political business cycle

The War In Iraq And IMF Reform

IMF is largely failing in its mission to address economic stability. However, the Commission unanimously supported a proposal maintaining that the IMF continues to restrict short-term crises assistance. Why limit IMF assistance? Since the IMF provides funds to countries in need, the expectation of such assistance creates moral hazard or incentives that encourage reckless behavior and bad policies for countries. In other words, countries may not make necessary economic reforms because they believe that the IMF will bail them out during difficult times, especially if there is an important strategic interest in preventing a country from economic crisis. good economic policy is sacrificed when the political cost is too great. In the remainder of my essay, I lay out strategies for effective IMF reform that were largely ignored in the past and conclude with possible reasons why such reform was not made

The (After) Life-Cycle Theory of Religious Contributions

We construct and estimate an economic model of religious giving. We employ a dynamic consumer optimization model with mortality in which intra-temporal utility stems from both consumption and religious contributions. Individuals also decide how to allocate resources between religious contributions (which have both a this-life consumption value and an after-life investment value) and other consumption expenditures. If religious contributions do not have an after-life investment value, the ratio of contributions to consumption expenditures should be unrelated to the probability of death. However, if there is an investment value from religious giving, individuals should allocate a greater share of their income to religious contributions as their probability of death increases. We estimate the model using data from the Consumer Expenditure Survey on the consumption and religious contribution patterns of a repeated cross-section of households and of a synthetic cohort panel. We find strong evidence that individuals behave as if religious contributions have a value in the after-life, in a manner consistent with the after life-cycle model. The estimates of the structural parameters of the model also imply that while after-life investment considerations (i.e. impending death) are an important determinant of the life-cycle profile of religious contributions, within-life (i.e. religious consumption) factors pin down a household’s average level of religious contributions over a lifetime.god, life-cycle, consumption, religion, tithing

Terrorism From Within: An Economic Model of Terrorism

In this paper, we develop and explore the implications of an economic model that links the incidence of terrorism in a country to the economic circumstances facing that country. We briefly sketch out a theory, in the spirit of Tornell (1998), that describes terrorist activities as being initiated by groups that are unhappy with the current economic status quo, yet unable to bring about drastic political and institutional changes that can improve their situation. Such groups with limited access to opportunity may find it rational to engage in terrorist activities. The result is then a pattern of reduced economic activity and increased terrorism. In contrast, an alternative environment can emerge where access to economic resources is more abundant and terrorism is reduced. Our empirical results are consistent with the theory. We find that for democratic, high income countries, economic contractions (i.e. recessions) can provide the spark for increased probabilities of terrorist activities.Growth; Terrorism; Political Economy

The Macroeconomic Consequences of Terrorism

We perform an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence. Our analysis is based on a rich unbalanced panel data set with annual observations on 177 countries from 1968 to 2000, which brings together information from the Penn World Table dataset, the ITERATE dataset for terrorist events, and datasets of external and internal conflict. We explore these data with cross-sectional and panel growth regression analysis and a structural VAR model. We find that, on average, the incidence of terrorism may have an economically significant negative effect on growth, albeit one that is considerably smaller and less persistent than that associated with either external wars or internal conflict. As well, terrorism is associated with a redirection of economic activity away from investment spending and towards government spending. However, our investigation also suggests important differences both regarding the incidence and the economic consequences of terrorism among different sets of countries. In OECD economies, in particular, terrorist incidents are considerably more frequent than in other nations, but the negative influence of these incidents on growth is smaller.growth, conflict, terrorism

Estimating the Macroeconomic Consequence of 9/11

We perform an empirical investigation to estimate the macroeconomic cost of September 11 attacks on the United States economy. We estimate the impact of the attacks to be approximately a 0.50 percentage point decrease in GDP growth or $60 billion. Our upper bound estimate of the impact of September 11 is approximately twice that or$125 billion

Book Chapter: The Lexus and the Olive Branch: Globalization, Democratization and Terrorism

This chapter provides an original study into how democratization and globalization influence terrorism, examining the motives of terrorists and how democratic institutions and international integration influence nonstate economic actors

How Much Does Violence Tax Trade?

We investigate the empirical effect of violence, as compared to other trade impediments, on trade flows. Our analysis is based on a panel data set with annual observations on 177 countries from 1968 to 1999, which brings together information from the Rose data set, the iterate data set for terrorist events, and data sets of external and internal conflict. We explore these data with traditional and theoretical gravity models. We calculate that, for a given country year, the presence of terrorism together with internal and external conflict is equivalent to as much as a 30% tariff on trade. This is larger than estimated tariff-equivalent costs of border and language barriers and tariff-equivalent reduction through generalized systems of preference and WTO participation