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Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 234 Abstract:
Current approaches to monetary theory and policy owe much to the "quantity theory of money." However, recent theoretical developments suggest that the manner in which money is introduced is more important, even for price level movements, than the quantity of money. Colonial American experience provides a laboratory for discriminating between these views. It is shown here that the nature of backing, rather than the quantity of money, determined its value. Large secular inflations were ended by changing the nature of backing despite the continuance of large note issues (and despite the absence of a metallic standard). Extremely large note issues and note withdrawals are shown not to have produced inflation (currency depreciation) or deflation (currency appreciation).
Mot-clé: Fiat money, Quantity theory, Currency, and Colonial America Assujettir: N11 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: Pre-1913, E52 - Monetary Policy, and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 522 Abstract:
We consider a two country growth model with international capital markets. These markets fund capital investment in both countries, and operate subject to a costly state verification (CSV) problem. Investors in each country require some external finance, but also provide internal finance, which mitigates the CSV problem. When two identical (except for their initial capital stocks) economies are closed, they necessarily converge monotonically to the same steady state output level. Unrestricted international financial trade precludes otherwise identical economies from converging, and poor countries are necessarily net lenders to rich countries. Oscillation in real activity and international capital flows can occur.
Mot-clé: CSV, Open economy, International lending, Costly state verification, Capital investment, Closed economy, Credit rationing, International capital markets, and Credit Assujettir: F34 - International Lending and Debt Problems and O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Creator: Krusell, Per and Ríos-Rull, José-Víctor Series: Conference on economics and politics Abstract:
Some economic policies and regulations seem to have only one purpose: to prevent technological development and economic growth from occurring. In this paper, we attempt to rationalize such policies as outcomes of voting equilibria. In our environment, some agents will be worse off if the economy grows, since their skills are complementary to resources that can be allocated to growth-stimulating activities. In the absence of arrangements where votes are traded, we show that for some initial skill distributions, the economy may stagnate due to growth-preventing policies. Different initial skill distributions, however, lead to voting outcomes and policies in support of technological development, and to persistent economic growth. In making our argument formally, we use a dynamic model with induced heterogeneity in agents' skills. In their voting decisions, agents compare how they will be affected under each policy alternative, and then vote for the policy that maximizes their welfare.
Assujettir: O41 - One, Two, and Multisector Growth Models and O31 - Innovation and Invention: Processes and Incentives
Creator: Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 405 Abstract:
A model is constructed where banks provide access to a communication technology which facilitates trade. Bank liabilities may coexist with alternative means of payment in equilibrium, and there exist regions of the parameter space where banking dominates the payments system and where physical exchange media dominate. The model is consistent with some observations concerning the role of the banking system in economic development, and with characteristics of banking crises. In particular, in early stages of economic development: 1) rapid output growth is accompanied by an increasing share of banking in transactions activity and 2) there are recurrent banking "panics" where reductions in measured aggregate output coincide with increases in the use of alternative means of payment relative to bank liabilities. In later stages of development, growth slackens off, the share of banking in the payments system stabilizes and the economy is less likely to be subject to banking panics.
Mot-clé: Financial panic, Banks, Banking panics, Communication cost, and Communication technology Assujettir: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and O33 - Technological Change: Choices and Consequences; Diffusion Processes
Creator: Gertler, Mark and Rogoff, Kenneth S. Series: International perspectives on debt, growth, and business cycles Abstract:
Across developing countries, capital market inefficiencies tend to decrease and external borrowing tends to sharply increase as national wealth rises. We construct a simple model of intertemporal trade under asymmetric information which provides a coherent explanation of both these phenomenon, without appealing to imperfect capital mobility. The model can be applied to a number of policy issues in LDC lending, including the debt overhang problem, and the impact of government guarantees of private debt to foreign creditors. In the two-country general equilibrium version of the model, an increase in wealth in the rich country can induce a decline in investment in the poor country via a "siphoning effect". Finally, we present some new empirical evidence regarding the link between LDC borrowing and per capita income.
Assujettir: F43 - Economic Growth of Open Economies and O11 - Macroeconomic Analyses of Economic Development
Creator: Huggett, Mark. and Ospina, Sandra. Series: Productivity and the industrial revolution Abstract:
A number of theoretical models of technology adoption have been proposed that emphasize technological switching, loss of expertise and subsequent technology-specific learning. These models imply that measured productivity may initially fall and then later rise after the adoption of a new technology. This paper investigates whether or not this implication is a feature of plant-level data from the Colombian manufacturing sector. We regress measures of productivity growth at the plant level on a plant-specific measure of technology adoption and its lagged values. We find that...
Mot-clé: Manufacturing, Embodied, Colombia, South America, Productivity, Technology, and Latin America Assujettir: D24 - Production and organizations - Production ; Cost ; Capital and total factor productivity ; Capacity, O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology, L60 - Industry Studies: Manufacturing: General, and O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes
Creator: Goodfriend, Marvin. and McDermott, John H. Series: Economic growth and development Abstract:
We explain how a long period of slow pre-industrial development triggers an Industrial Revolution that leads to modern balanced growth. Development in the preindustrial period is driven by increasing returns to specialization made possible by a growing population. Increasing access to specialized intermediate goods eventually makes fundamental technological innovation possible. Innovation initiates the Industrial Revolution, after which productivity grows endogenously regardless of population growth. Industrialization reconciles the crucial role of population early on with its weak relation to per capita product in developed economies. Faster population growth speeds early development, though if it results from a highly productive primitive technology, the consequences for development are ambiguous.
Mot-clé: Growth and Industrial Revolution Assujettir: N10 - Macroeconomics and monetary economics ; Growth and fluctuations - General, international, or comparative and O11 - Economic development - Macroeconomic analyses of economic development
Creator: Rivera-Batiz, Luis. and Romer, Paul Michael, 1955- Series: Modeling North American economic integration Abstract:
In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolations, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector.
Assujettir: F43 - Economic Growth of Open Economies, O41 - One, Two, and Multisector Growth Models, and F15 - Economic Integration
Creator: Bergoeing, Raphael., Hernando, Andrés., and Repetto, Andrea. Series: Advances in dynamic economics Abstract:
We estimate the effects of policy distortions on aggregate productivity. Based on a model of plant production and productivity uncertainty and heterogeneity, and using Chilean manufacturing data, we focus on the effect of taxation on the exit behavior of plants. We find that taxes do distort the liquidation decisions of firms, suggesting that policy distortions reduce the extent to which factors are reallocated towards the most productive plants. Our results have important consequences for growth and development, as policies that alter the measure of plants that operate in equilibrium change the short-run response of output to exogenous shocks and the long run level of aggregate TFP. In particular, we find that the amount of productivity lost due to excessive plant shutdowns are very large.
Mot-clé: South America, Exit behavior of firms, Chile, Latin America, Taxation policy, and Total factor productivity Assujettir: H25 - Taxation, subsidies and revenue - Business taxes and subsidies and E23 - Macroeconomics : Consumption, saving, production, employment, and investment - Production
Creator: Grossman, Gene M. and Helpman, Elhanan. Series: International perspectives on debt, growth, and business cycles Abstract:
We construct a model of the product cycle featuring endogenous innovation and endogenous technology transfer. Competitive entrepreneurs in the North expend resources to bring out new products whenever expected present discounted value of future oligopoly profits exceeds current product development costs. Each Northern oligopolist continuously faces the risk that its product will be copied by a Southern imitator, at which time its profit stream will come to an end. In the South, competitive entrepreneurs may devote resources to learning the production processes that have been developed in the North. There too, costs (of reverse engineering) must be covered by a stream of operating profits. We study the determinants of the long-run rate of growth of the world economy, and the long-run rate of technological diffusion. We also provide an analysis of the effects of exogenous events and of public policy on relative wage rates in the two regions.
Mot-clé: North-South trade, Product cycles, Imitation, Long-run growth, Technological change, and Innovation Assujettir: O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes, F11 - Trade - Neoclassical models of trade, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
Creator: Greenwood, Jeremy, 1953- and Jovanovic, Boyan, 1951- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 446 Abstract:
A paradigm is presented where both the extent of financial intermediation and the rate of economic growth are endogenously determined. Financial intermediation promotes growth because it allows a higher rate of return to be earned on capital, and growth in turn provides the means to implement costly financial structures. Thus, financial intermediation and economic growth are inextricably linked in accord with the Goldsmith-McKinnon-Shaw view on economic development. The model also generates a development cycle reminiscent of the Kuznets hypothesis. In particular, in the transition from a primitive slow-growing economy to a developed fast-growing one, a nation passes through a stage where the distribution of wealth across the rich and poor widens.
Mot-clé: Kuznets curve, Rate of return, Income gap, Income distribution, Growth rate, and Financial intermediation Assujettir: G00 - Financial Economics: General and O11 - Macroeconomic Analyses of Economic Development
Creator: Azariadis, Costas. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Finance, fluctuations, and development Abstract:
We study a variant of the one-sector neoclassical growth model of Diamond in which capital investment must be credit financed, and an adverse selection problem appears in loan markets. The result is that the unfettered operation of credit markets leads to a one-dimensional indeterminacy of equilibrium. Many equilibria display economic fluctuations which do not vanish asymptotically; such equilibria are characterized by transitions between a Walrasian regime in which the adverse selection problem does not matter, and a regime of credit rationing in which it does. Moreover, for some configurations of parameters, all equilibria display such transitions for two reasons. One, the banking system imposes ceilings on credit when the economy expands and floors when it contracts because the quality of public information about the applicant pool of potential borrowers is negatively correlated with the demand for credit. Two, depositors believe that returns on bank deposits will be low (or high): these beliefs lead them to transfer savings out of (into) the banking system and into less (more) productive uses. The associated disintermediation (or its opposite) causes banks to contract (expand) credit. The result is a set of equilibrium interest rates on loans that validate depositors' original beliefs. We investigate the existence of perfect foresight equilibria displaying periodic (possibly asymmetric) cycles that consist of m periods of expansion followed by n periods of contraction, and propose an algorithm that detects all such cycles.
Mot-clé: Interest rates, Equilibrium, Credit markets, and Business cycles Assujettir: E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E44 - Money and interest rates - Financial markets and the macroeconomy, O41 - One, Two, and Multisector Growth Models, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Bertola, Giuseppe. Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Assujettir: E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, O41 - One, Two, and Multisector Growth Models, and E25 - Aggregate Factor Income Distribution
Creator: Lin, Lizbie Gee-Sun Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 000 La description:
This paper was published with no issue number.
Simultaneously published as part of the Ninth District Economic Information Series.
Mot-clé: Technical colleges, Community colleges, Students, and Colleges and universities Assujettir: R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes, H52 - National Government Expenditures and Education, and I22 - Educational Finance; Financial Aid