Monetary Neutrality

Prize Lecture to the memory of Alfred Nobel, December 7, 1995.Money neutrality;

Trade and the Diffusion of the Industrial Revolution

A model is proposed to describe the evolution of real GDPs in the world economy that is intended to apply to all open economies. The five parameters of the model are calibrated using the Sachs-Warner definition of openness and time-series and cross-section data on incomes and other variables from the 19th and 20th centuries. The model predicts convergence of income levels and growth rates and has strong but reasonable implications for transition dynamics.

Financial Innovation and the Control of Monetary Aggregates: Some Evidence from Canada

This paper presents an empirical test of the proposition that control of a monetary aggregate will generate a rise in its velocity.The test is carried out utilizing the Canadian experience of controlling Ml growth from 1975:3 to 1982:3. Section One of the paper presents evidence of the instability of the Canadian demand from Ml money since 1975:3. Section Two develops a specific form of the proposition which emphasizes the role of asset substitution between classes of chartered bank deposits. A relative asset demand equation is derived from a wealth maximization model subject to a technological transactions constraint and this equation is estimated from 1961 through 1982.The results lend support to the proposition that central bank control of Ml generated a rise in Ml velocity.

General Equilibrium Analysis of the Eaton-Kortum Model of International Trade

We study a variation of the Eaton-Kortum model, a competitive, constant-returns-to-scale multicountry Ricardian model of trade. We establish existence and uniqueness of an equilibrium with balanced trade where each country imposes an import tariff. We analyze the determinants of the cross-country distribution of trade volumes, such as size, tariffs and distance, and compare a calibrated version of the model with data for the largest 60 economies. We use the calibrated model to estimate the gains of a world-wide trade elimination of tariffs, using the theory to explain the magnitude of the gains as well as the differential effect arising from cross-country differences in pre-liberalization of tariffs levels and country size.

Effciency and Equality in a Simple Model of Unemployment Insurance

This paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance. We impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward, and show, with this feature added, that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility. The paper thus provides a simple prototype model suited to the study of the normative question: what is the tradeoff between equality and efficiency in resource allocation?

Money and Interest in a Cash-in-Advance Economy

In this paper we analyze an aggregative general equilibrimi model in which the use of money is motivated by a cash-in-advance constraint, applied to purchases of a subset of consumption goods. The system is subject to both real and monetary shocks, which are economy-wide and observed by all. We develop methods for verifying the existence of, characterizing, and explicitly calculating equilibria. A main result of the analysis is that current money growth affects the current real allocation only insofar as it affects expectations about future money growth, i.e., only through its value as a signal.