Research Database

We study economies where government currency and electronic money, drawn from interest bearing deposits in private financial intermediary institutions, are full substitutes. We analyze the impact of competition on policy outcomes under different assumptions regarding: the objectives of the central bank, the ability of the monetary authorities to commit to future policies, and the legal restrictions—in the form of reserve requirements—on financial intermediaries. Electronic money competition can discipline a revenue maximizing government and result in lower equilibrium inflation rates, even when there is imperfect commitment. The efficient Friedman rule policy, of zero nominal interest rates, is only implemented if the government maximizes households preferences, in which case, electronic money competition may either have no role, or weaken the incentive effects of the “reputational mechanism.” We also show how an independent choice of the reserve requirements can be an effective policy rule to enhance the disciplinary role of electronic money competition.

This article studies the extent to which governments produce goods for the market (that is, the extent of public enterprise production). It concludes that the current literature dramatically understates the role of public enterprises in many low-productivity countries. The current literature focuses on the total value of goods produced by public enterprises. This article focuses on the types of goods they produce. While the total value of goods produced by public enterprises (as a share of total output) differs a bit across countries, the types of goods they produce differ much more dramatically. In many low-productivity countries, the government produces a large share of the country's manufactured goods. In nearly all high-productivity countries, the government stays out of the manufacturing sector altogether. Therefore—and because the manufacturing sector plays a special role in economies—this article concludes that public enterprises play a very large role in many low-productivity countries.

This model extends one originally constructed by Robert Litterman in 1980 and used continuously since then to prepare quarterly forecasts. The current version is 3 variables larger than Litterman’s original model, and it now allows time variation in coefficients, predictable time variation in forecast error variance, and non-normality in disturbances. Despite this elaboration the model in a sense has just 12 parameters free to fit the behavior of 9 variables in 9 equations. The paper reports the model structure and summarizes some aspects of its recent forecasting performance.

We study a representative agent, open economy in which government-provided services that enter the domestic production function must be financed with distortionary taxes, and focus on the optimal size of government and the associated optimal tax rate. If the government can precommit its actions, it maximizes individual welfare by announcing and implementing a constant tax rate, which we label the “orthodox” tax rate. This tax rate is time inconsistent, and under discretion the government implements a tax that maximizes each period’s output. We label this the “populist” tax rate. It may be higher or lower than the “orthodox” rate, depending on whether the elasticity of substitution in production between private and public inputs is below or above one. We also characterize the second-best tax rate that can be sustained through trigger strategies. This best sustainable tax rate is constant and lies between the “orthodox” and “populist” extremes.

This article is largely a description of inequality of earnings, income, and wealth in the United States in 2007 as measured by the Survey of Consumer Finances (SCF). We look at inequality in relation to various characteristics such as age, education, employment status, marital status, and whether households are late payers or include bankruptcy filers. We also look at economic mobility. We compare these variables in 2007 with their values in our earlier study in 1998.