Tradeoff between Inflation Stabilization and Growth Maximization

This paper analyzes monetary policy implication in an endogenous growth model in which the average growth rate is inefficiently low and in which the capital accumulation technology is concave. This paper does two exercises. First, we derive the utility-based welfare criterion of the model. The welfare measure suggests that even if the natural rate of growth moves parallel to its efficient rate, the increase of inflation volatility may improve welfare through the increase of average growth. Second, we test this hypothesis numerically and show that in our calibrated model the tradeoff between inflation stabilization and average growth maximization exists. In addition, the tradeoff is resolved by highly growth-stimulating (investment stabilization) policy. The reason is the existence of concavity in the capital accumulation technology, through which investment stabilization rises average growth.Endogenous Growth; Monetary Stabilization Policy

Optimal operational monetary policy rules in an endogenous growth model: a calibrated analysis

We construct an endogenous growth model with new Keynesian-type sticky prices and wages. In this model, monetary policy affects long-run output growth. We characterize the optimal operational monetary policy rule in this economy. We find that even though stabilization of output growth increases long-run output growth, the optimal monetary policy rule is the rule that makes interest rate respond to price and wage actively and output growth mutely, similar as in exogenous growth models. We also find that the optimal monetary policy rule virtually maximizes mean growth. These results suggest that although long-run growth is important for welfare, new Keynesian's claim that monetary policy should stabilize nominal variables is highly robust.Monetary policy; Sticky price and wage; Business cycle fluctuations; Productivity growth

Optimal Operational Monetary Policy Rules in an Endogenous Growth Model: a calibrated analysis

This paper constructs an endogenous growth New Keynesian model and considers growth and welfare effect of Taylor-type (operational) monetary policy rules. The Ramsey equilibrium and optimal operational monetary policy rule is also computed. In the calibrated model, the Ramseyoptimal volatility of inflation rate is smaller than that in standard exogenous growth New Keynesian model with physical capital accumulation. Optimal operational monetary policy rule makes nominal interest rate respond strongly to inflation and mutely to real activity, as in standard New Keynesian model. Growth-maximizing operational monetary policy is not identical to optimal operational monetary policy. Welfare cost of responding to real activity is two or three times larger than that of exogenous growth New Keynesian model.Monetary policy, Sticky price, Endogenous growth

Long-run relationship between inflation and growth in a New Keynesian framework

This study examines the steady-state growth effect of inflation in an endogenous growth model in which Calvo-type nominal rigidity with endogenous contract duration and monetary friction via wage-payment-in-advance constraint are assumed. On the balanced-growth path in this model, the marginal growth effect of inflation is weakly negative or even positive at low inflation rates because the effect on average markup offsets the negative marginal growth effect through the monetary friction, but the growth effect of inflation is negative and convex at higher inflation rates because the frequency of price adjustment approaches that of the flexible-price economy and the growth effect through the nominal rigidity is dominated by the growth effect through the monetary friction. With a plausible calibration of the structural parameters, this model generates a relationship between inflation and growth that is consistent with empirical evidence, particularly in industrial countries.

Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework

This paper estimates the economic value in the 1980s and 1990s of corporate as sets in Japan,including both tangible and intangible as sets, based on the neo-classical framework of McGrattan and Prescott(2005). Our estimates use anew micro-data set that comprises the accounting statements of all listed, non-financial companies in Japan. We find that in 1981-86, a period that immediately preceded Japan's so-called "bubble economy", our assessed value of corporate productiveas-sets, net of the value of corporate debt,is approximately equal to the actual stock market value of Japanese corporate equity. The fnding differs from previous results based on studies of aggregated at a sets or based on studies of micro data sets that neglected intangible capital. We also show that the Japanese ratio of the amount of intangible capital stock to the amount of tangible capital stock is comparable to the analogous ratios for the U.S. and U.K.

Deference to the Executive

This chapter examines the practice of deference to the executive, by national courts, in the context of interpreting treaties. When faced with an issue of treaty interpretation, to what extent must a national court engage in its own independent analysis, and to what extent ought the court give weight to interpretations advanced by the executive branch? And if deference to the executive is permissible as a matter of international doctrine, what considerations ought to guide the manner of deference, and the determination of how much deference is appropriate? I argue that international law does not formally preclude national judicial deference to the executive. However the deeper question of how much weight is appropriate is more complicated, and raises serious questions of judicial policy

The Logic of Contract in the World of Investment Treaties

Investment treaties protect foreign investors who contract with sovereign states. It remains unclear, however, whether parties are free to contract around these treaty rules, or whether treaty provisions should be understood as mandatory terms that constrain party choice. While investment treaties clearly apply to contracts in some way, they are silent as to how these instruments ultimately interact. Moreover, arbitral jurisprudence has varied wildly on this point, creating significant problems of certainty, efficiency, and fairness—for states and foreign investors alike. This Article reappraises the treaty/contract issue from the ex ante perspective of contracting states and foreign investors. I advance three main claims: one conceptual, one descriptive, and one normative. First, I argue that investment treaties must be understood as having generated a rudimentary, yet broad, law of contracts—governing agreements between states and foreign investors on pivotal issues, from substantive rights and duties, to damages and forum selection. Second, I argue that this emerging international law of contracts has developed sporadically, irregularly, and inconsistently, due in part to a tendency among tribunals to confuse the logics of contract and property. As a result, it remains undecided whether contracting parties should understand background treaty norms as defaults, sticky defaults, or mandatory terms—leaving the meaning of their contracts under a cloud of doubt. Third, I argue that the best way to resolve this problem for both states and investors, ex ante, is generally to privilege their contractual arrangements over background treaty rules. Even when these parties have different interests and values at stake, the treaty/contract problem is not zero-sum. Both sides usually stand to benefit from the freedom to negotiate around treaty rules as mere defaults—though I explore certain cases where treaty norms might justifiably exert a greater pull. In general, prioritizing party choice is not only optimal from the economic standpoint—it also provides states with the tools to secure their future capacities to regulate in the public interest

Treaty Interpretation and Constitutional Transformation: Informal Change in International Organizations

This Article presents an argument about the constitutional transformation of international organizations through the judicial interpretation of their constituent instruments. The organizations at issue are public institutions, established by international agreement and charged with the exercise of transnational governmental power. They are, on one view, essentially treaty-based organizations that derive authority from the consent of the Parties. At the same time, these organizations must be understood as constitutional bodies, constituted with substantial delegated powers and varying degrees of independence vis-a-vis their constituent Member States. Some have developed the capacity to evolve over time, informally and autonomously. I argue that the judicial organs of certain organizations have transformed their material constitutions by engaging in particularly liberal approaches to the interpretation of their constituent instruments. The analysis focuses on one particular technique of interpretation: the doctrine of interpretation on basis of the subsequent practice of the States Parties. I trace the use of this doctrine by three judicial bodies: the World Trade Organization Appellate Body, the International Court of Justice (ICI), and the European Court of Human Rights (ECtHR). The first organ represents a control, implementing a strict approach to subsequent practice. By contrast, I suggest that the ICJ and ECtHR have each adopted radically expansive approaches to subsequent practice, with the effect of transforming the powers and autonomy of the organizations to which they belong