Working papers results
We examine whether standard monetary general equilibrium models with benevolent monetary authorities acting under discretion can generate persistent episodes of high and low inflation. Specifically, we ask whether private agents expectations of high or low inflation can lead them to take actions which then make it optimal for monetary authorities to validate these expectations. We find that this is the case for a large class of economies and that the result depends importantly on the properties of money demand.
In fact, the vast majority of the empirical evidence is based on the estimation of single-equation models and on the assumption that realized returns are a valid proxy for expected returns. A recent strand of the macroeconomic literature has analyzed monetary policy by including the central bank reaction function in small empirical macro models.
By simulating these models forward it is possible to derive the full forward path of short-term interest rates and hence to construct any long-term yields using model based forecasts. A test of the theory can then be performed by comparing observed long-term yield with those simulated and the associated 95 per cent confidence interval.
The application of this framework to the analysis of US term structure in the nineties does not
lead to the rejection of the expectations mode
Early retirement represents a persistent policy response to the appearance of a mass of redundant elderly workers, not entitled to a pension transfer. This distortionary policy reduces the incentive to accumulate human capital, and thus decreases economic growth. Why was it adopted? We suggest that alternative non-persistent policies, which do not introduce long-term distortions, but impose a larger cost on the current young generation of workers, were blocked by the political opposition of the high income workers, who did not plan to retire early, butsought to reduce the current tax burden, and of the middle income workers, who expect to retire early. What is the future of early retirement? We argue that, as the process of population aging reduces then performance of the PAYG system, the number of early retirees will diminish until, eventually, the political support in favor of this provision will disappear.
This paper studies kinship band networks as capital market institutions. It explores two of the channels through which membership in a community where individuals are genealogically linked, such as a kinship group, can affect their access to informal credit. The first is that incentives to default are lower for community members who can expect retaliation to fall on their offspring as well as on themselves (social enforcement). The second is that lenders prefer to lend to those members from whom they can expect reciprocation in the form of future loans for themselves or for their children (reciprocity). These two effects are incorporated in a theoretical framework with overlapping generations and tested using household-level data from Ghana.
When a firing litigation is taken to court, only the characteristics of the employees misconduct should be relevant for the judges decision. Using data from an Italian bank this paper shows that, instead, local labor market conditions influence the courts decision: the same misconduct episode may be considered sufficient for firing in a tight labor market but insufficient otherwise. We reach this conclusion after taking carefully into consideration the non-random selection of firing litigations for trial. Although these results refer to the specific situation considered, they raise more general issues. For macroeconomists they suggest that higher unemployment rates may increase firing costs via the effect on courts decision criteria; thus, the real extent of firing rigidities cannot be assessed without considering the role of courts. For labor law scholars, these findings are important because, following traditional principles, the law should be applied in the same way for all citizens and over the entire national territory.
This paper proposes a representation of (possibly) probabilistically unsophisticated preferences whereby (1) beliefs are jointly represented by a finitely additive probability measure and a vector-valued measure; (2) uncertain prospects are ranked according to the difference between a baseline expected utility evaluation and an adjustment term; and (3) the latter is the norm of the vector-valued expected utility of the prospect under consideration.Vector-valued measures are employed to represent the extent to which ambiguity about different events "cancels out" or "adds up", as revealed by the decision maker's preferences. The proposed representation, vector-adjusted expected utility (VEU), is shown to be consistent with the maxmin-expected utility model (MEU). A necessary and sufficient condition characterizing the class of VEU preferences within the MEU family of preferences is provided.
We wish to analyze the consequences of strategically sophisticated bidding without assuming equilibrium behavior. As a first step, we characterize interim rationalizable bids in first-price auctions with interdependent values and affiliated signals. We show that (1) every non-zero bid below the equilibrium is rationalizable, (2) some bids above the equilibrium are rationalizable, (3) the upper bound on rationalizable bids of a given player is a continuous, non-decreasing function of her signal/valuation. In the special case of symmetric bidders with independent signals and quasi-linear valuation functions, (i) the least upper bound on rationalizable bids is increasing and concave; hence (ii) rationalizability is consistent with substantial shading for high valuations, but only little shading for low valuations. Our main technical contribution is to show that the set of rationalizable bids is essentially determined by iteratively solving a simple one-dimensional optimization problem. We argue that our theoretical analysis may shed some light on experimental findings about deviations from the risk-neutral Nash equilibrium.
We investigate the effect of electoral rules and political regimes on fiscal policy outcomes in a panel of 61 democracies from 1960 and onwards. In presidential regimes, the size of government is smaller and less responsive to income shocks, compared to parliamentary regimes. Under majoritarian elections, social transfers are smaller and aggregate spending less responsive to income shocks than under proportional elections. Institutions also shape electoral cycles: only in presidential regimes is fiscal adjustment delayed until after the elections, and only in proportional and parliamentary systems do social transfers expand around elections. Several of these empirical regularities are in line with recent theoretical work; others are still awaiting a theoretical explanation.