The Optimum Quantity of Money in a Stochastic Economy: A Comment.

In a 1989 paper, B. Taub showed, contrary to T. Bewley's conjecture, that when income is subject to an aggregate shock, inflation may be the optimal policy. This paper shows that the inflation result is due to an algebraic mistake in the calculation of the first-order condition. When income is subject to an aggregate shock, deflation is always the optimal policy if the driving process has an AR(1) representation. Moreover, for a stationary AR(1) process, the rate of deflation exceeds the rate of time preference, as Bewley conjectured. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Idea generation: the performance of U.S. States 1997–2007

Regional economic growth, Patents, Innovation, Shift-share analysis, O33, R11,

National and regional repercussions of regional reallocations of federal expenditures and public services

This paper considers the problem of regional allocation of government funds in a two-region, two-good economy in which production of each good requires labor, capital, and a local public good. Changes in regional allocation of federal expenditures and public services are found to significantly impact the national economy in addition to the regional economies. For example, output of both regions and the national economy may decrease (or increase) as a result of such reallocation. This is because, output of a region directly depends on the fraction of federal funds spent in that region, and indirectly on output of the other region. Thus even if the proportion of government funds increases for a region, its output may actually decline if the fall in the fraction of government resources for the other region significantly decreases production there. Our results demonstrate that in addition to the amount of government expenditures and public services, an economy's capital accumulation, production, and factor returns are significantly influenced by how these government expenditures and public services are regionally allocated.