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Working Paper
Adding bond funds to M2 in the P-star model of inflation
Working Paper
Wealth effects, heterogeneity and dynamic fiscal policy
Working Paper
Costly intermediation and the big push
Many existing theories of financial intermediation have difficulty explaining why financial activity can generate large real effects. This paper argues that the large real effects may reflect a multiplicity of equilibria. The multiple equilibria in this paper are generated by the dynamic interactions between the savings decisions of workers and the monopolistically competitive behavior of banks. We characterize the equilibria by showing the comparative-static responses of key aggregates to changes in the pure rate of time preference, investment uncertainty, and bank costs. We find that the ...
Working Paper
Fiscal competition and reality: A time series approach
Strategic interjurisdictional behavior and the interaction over time of the mean and dispersion of average tax rates across states are analyzed in a vector autoregression model. Variance decompositions reveal that fiscal competition explains roughly one-third of the time variation of state and local taxes. Impulse response functions identify the type of fiscal competition and the characteristics of leaders and followers. Local tax dynamics agree with Wildasin's (1988) results on expenditure competition with significant short- and medium-run effects but insignificant long-run effects. State ...
Working Paper
Endogenous market structures and financial development
Existing theories that emphasize the significance of financial intermediation for economic development have not addressed two important empirical facts: (i) the relationship between financial and real activities depends crucially on the stage of development, and (ii) financial and industrial market structures vary widely across otherwise similar countries. To explain these observations, we develop a dynamic general equilibrium model allowing for endogenous market structures in which financial deepening spurs real activity through intermediate product broadening. We show the possibility of ...
Journal Article
Indicators of the general price level and inflation
This article examines whether price indexes, such as the CPI, the PPI, and the implicit price deflator for GDP (PGDP), tell a consistent story about the general price level and inflation rate. To this end, Zsolt Becsi analyzes the time series properties of these indexes. He finds that the PGDP has a stable long-term relationship with both of the other price indexes. Some evidence suggests that PGDP and CPI inflation have common long-run trends, while PPI inflation has no discernible stable long-run relationship with either PGDP or CPI inflation. ; Some theories suggest that the price level ...
Journal Article
Economics and crime in the states
Polls identify crime as the number one public worry. Crime also exacts tremendous costs not factored into official measures of well-being, and it is a favorite subject of political campaign promises. However, the public seems largely unaware that crime responds to economic conditions and incentives and that the results of a substantial body of work by economists have important implications for public policy. ; This article introduces the economics and crime literature by describing a simple supply-and-demand crime model in which criminals supply crime, the public demands protection from ...
Journal Article
Financial development and growth
Poor performance by the financial sector can be costly for society. On the other hand, a healthy banking sector has been thought by some to contribute to the growth of the economy. Recently, though, economists have begun to analyze new elements of the linkages between the financial and real sides of the economy. ; This article provides an illustrative model that is meant to capture current thinking about the ways in which financial intermediaries affect growth. The model shows how households, firms, and financial intermediaries interact to determine equilibrium growth rates and various ...
Journal Article
Do state and local taxes affect relative state growth?
The South has seen a remarkable economic rise during the past three decades. Was this growth a result of automatic forces or was it fueled by state and local tax policies? Traditional economic theory suggests that forces of convergence, not tax policies, have moved the southern states toward catching up with the rest of the nation. But more recent economic models recognize that convergence and low tax rates may not be mutually exclusive explanations for the South's stronger growth. ; This article presents an overview of relative state growth and relative state and local taxation from 1960 to ...