Real oil prices surged from 2009 through 2014, comparable to the 1970's oil shock period. Standar... more Real oil prices surged from 2009 through 2014, comparable to the 1970's oil shock period. Standard explanations based on monopoly markup fall short since in ‡ation remained low after 2009. This paper contributes strong evidence of Granger (1969) predictability of nominal factors to oil prices, using one adjustment to monetary aggregates. This adjustment is the subtraction from the monetary aggregates of the 2008-2009 Federal Reserve borrowing of reserves from other Central Banks (Swaps), made after US reserves turned negative. This adjustment is key in that Granger predictability from standard monetary aggregates is found only with the Swaps subtracted.
The paper presents the welfare cost of inflation in a banking time economy that models exchange c... more The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a [Lucas, Robert Jr. E. 2000. “Inflation and Welfare.” Econometrica 68 (2): 247–274.] shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. A zero rate is statutorily specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.
The worldwide …nancial crisis of 2007 to 2009 caused bankruptcy and bank failures in the US and m... more The worldwide …nancial crisis of 2007 to 2009 caused bankruptcy and bank failures in the US and many other parts such as Europe. Recent empirical evidence suggests that this simultaneous drop in output was strongest in countries with greater …nancial ties to the US economy with important cross border deposit and lending. This paper develops a two-country framework to allow for banking structures within an international real business cycle model. The banking structure across countries is modelled using the production approach to …nancial intermediation. We allow both countries'banks to be able to take deposits both locally and internationally. We analyze the transmission mechanism of both goods and banking sector productivity shocks. We show that goods total factor productivity (TFP) and bank TFP have di¤erent e¤ects on the …nance premium. Most countries have shown procyclic equity premium over their histories but with evidence that these are countercyclic during the Great Recession especially. The model has the ability to explain the countercyclical movements of credit spreads during major recession and …nancial crisis when goods TFP also a¤ects banking productivity. This we model as a cross correlation of shocks to replicate the recent events during the crisis period. Importantly, the model can also explain business cycles facts and the countercyclical behaviour of the trade balance.
The paper presents a theory of nominal asset prices for competi- tively owned oil and gold. Focus... more The paper presents a theory of nominal asset prices for competi- tively owned oil and gold. Focusing on monetary eects, with ‡exible prices, oil and gold prices follow the aggregate price. But with rigid nominal prices for oil and gold, prices can jump proportionally with nominal interest rate increases. VAR evidence indicates structural breaks in the oil and gold prices
The negative eect of inflation on the output growth rate has been found in panel studies that avo... more The negative eect of inflation on the output growth rate has been found in panel studies that avoid biases of previous cross section work. Theoret- ically this eect is supported qualitatively by endogenous growth exchange economies. Related research examines Tobin-type eects of inflation on the levels of various variables, such as capital usage. A coherent explanation of both growth and
The paper examines the eect of in‡ation on growth in transition countries. It presents panel data... more The paper examines the eect of in‡ation on growth in transition countries. It presents panel data evidence for 13 transition countries over the 1990-2003 period; it uses a …xed eects, full-information maximum likelihood, panel approach to account for possible bias from correlations among the unobserved eects and the observed country heterogeniety. The results …nd a strong, robust, negative eect of in‡ation on growth, and one that declines in magnitude as the in‡ation rate increases. These results include a role for a normalized money demand, by itself and as part of a nonlinearity in the in‡ation-growth eect. And these results derive from both a baseline single equation model and one that is then expanded into a three equation simultaneous system. This allows for possible simultaneity bias in the baseline model.
The paper presents an endogenous growth economy with a representation of the tax rate system in t... more The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries. Assuming that government spending is a given fraction of output, the papershows how a flat tax system balanced between labor and corporate tax rates can be second best optimal. It then computes how actual Baltic tax reforms from 2000 to 2007 affect the growth rate and welfare, including transition dynamics. Comparing the actual reform effects to hypothetical tax experiments, it results that equal flat tax rates on personal and corporate income would have increased welfare in all three Baltic countries by 24% more on average than the actual reforms. This shows how equal, balanced, flat rate taxes can be optimal in both theory and practice. Further, movement towards a more equal balance between labor and capital tax rates, through changing just one tax rate, achieved almost as high or higher utility gains as in actual law for all three countries under both open and clo...
International Journal of Social Economics, Mar 31, 1995
... Tim Eade, Department of Economics, University of Otago, Dunedin, New Zealand. Abstract. ... C... more ... Tim Eade, Department of Economics, University of Otago, Dunedin, New Zealand. Abstract. ... Corporations were generally created/recognized by the State in return for service to the Empire and until the time of Alexander Severus were relatively autonomous (Rostovtzeff, 1957, pp. ...
Real oil prices surged from 2009 through 2014, comparable to the 1970's oil shock period. Standar... more Real oil prices surged from 2009 through 2014, comparable to the 1970's oil shock period. Standard explanations based on monopoly markup fall short since in ‡ation remained low after 2009. This paper contributes strong evidence of Granger (1969) predictability of nominal factors to oil prices, using one adjustment to monetary aggregates. This adjustment is the subtraction from the monetary aggregates of the 2008-2009 Federal Reserve borrowing of reserves from other Central Banks (Swaps), made after US reserves turned negative. This adjustment is key in that Granger predictability from standard monetary aggregates is found only with the Swaps subtracted.
The paper presents the welfare cost of inflation in a banking time economy that models exchange c... more The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a [Lucas, Robert Jr. E. 2000. “Inflation and Welfare.” Econometrica 68 (2): 247–274.] shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. A zero rate is statutorily specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.
The worldwide …nancial crisis of 2007 to 2009 caused bankruptcy and bank failures in the US and m... more The worldwide …nancial crisis of 2007 to 2009 caused bankruptcy and bank failures in the US and many other parts such as Europe. Recent empirical evidence suggests that this simultaneous drop in output was strongest in countries with greater …nancial ties to the US economy with important cross border deposit and lending. This paper develops a two-country framework to allow for banking structures within an international real business cycle model. The banking structure across countries is modelled using the production approach to …nancial intermediation. We allow both countries'banks to be able to take deposits both locally and internationally. We analyze the transmission mechanism of both goods and banking sector productivity shocks. We show that goods total factor productivity (TFP) and bank TFP have di¤erent e¤ects on the …nance premium. Most countries have shown procyclic equity premium over their histories but with evidence that these are countercyclic during the Great Recession especially. The model has the ability to explain the countercyclical movements of credit spreads during major recession and …nancial crisis when goods TFP also a¤ects banking productivity. This we model as a cross correlation of shocks to replicate the recent events during the crisis period. Importantly, the model can also explain business cycles facts and the countercyclical behaviour of the trade balance.
The paper presents a theory of nominal asset prices for competi- tively owned oil and gold. Focus... more The paper presents a theory of nominal asset prices for competi- tively owned oil and gold. Focusing on monetary eects, with ‡exible prices, oil and gold prices follow the aggregate price. But with rigid nominal prices for oil and gold, prices can jump proportionally with nominal interest rate increases. VAR evidence indicates structural breaks in the oil and gold prices
The negative eect of inflation on the output growth rate has been found in panel studies that avo... more The negative eect of inflation on the output growth rate has been found in panel studies that avoid biases of previous cross section work. Theoret- ically this eect is supported qualitatively by endogenous growth exchange economies. Related research examines Tobin-type eects of inflation on the levels of various variables, such as capital usage. A coherent explanation of both growth and
The paper examines the eect of in‡ation on growth in transition countries. It presents panel data... more The paper examines the eect of in‡ation on growth in transition countries. It presents panel data evidence for 13 transition countries over the 1990-2003 period; it uses a …xed eects, full-information maximum likelihood, panel approach to account for possible bias from correlations among the unobserved eects and the observed country heterogeniety. The results …nd a strong, robust, negative eect of in‡ation on growth, and one that declines in magnitude as the in‡ation rate increases. These results include a role for a normalized money demand, by itself and as part of a nonlinearity in the in‡ation-growth eect. And these results derive from both a baseline single equation model and one that is then expanded into a three equation simultaneous system. This allows for possible simultaneity bias in the baseline model.
The paper presents an endogenous growth economy with a representation of the tax rate system in t... more The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries. Assuming that government spending is a given fraction of output, the papershows how a flat tax system balanced between labor and corporate tax rates can be second best optimal. It then computes how actual Baltic tax reforms from 2000 to 2007 affect the growth rate and welfare, including transition dynamics. Comparing the actual reform effects to hypothetical tax experiments, it results that equal flat tax rates on personal and corporate income would have increased welfare in all three Baltic countries by 24% more on average than the actual reforms. This shows how equal, balanced, flat rate taxes can be optimal in both theory and practice. Further, movement towards a more equal balance between labor and capital tax rates, through changing just one tax rate, achieved almost as high or higher utility gains as in actual law for all three countries under both open and clo...
International Journal of Social Economics, Mar 31, 1995
... Tim Eade, Department of Economics, University of Otago, Dunedin, New Zealand. Abstract. ... C... more ... Tim Eade, Department of Economics, University of Otago, Dunedin, New Zealand. Abstract. ... Corporations were generally created/recognized by the State in return for service to the Empire and until the time of Alexander Severus were relatively autonomous (Rostovtzeff, 1957, pp. ...
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