The goal of this paper is to compute optimal monetary and fiscal policy rules in a real business cycle model augmented with sticky prices, a demand for money, taxation, and stochastic government consumption. We consider simple policy rules whereby the nominal interest rate is set as a function of output and inflation, and taxes are set as a function of total government liabilities. We require policy to be implementable in the sense that it guarantees uniqueness of equilibrium. We do away with a number of empirically unrealistic assumptions typically maintained in the related literature that are used to justify the computation of welfare using linear methods. Instead, we implement a second-order accurate solution to the model. Our main findings are: First, the size of the inflation coefficient in the interest-rate rule plays a minor role for welfare. It matters only insofar as it affects the determinacy of equilibrium. Second, optimal monetary policy features a muted response to output. More importantly, interest rate rules that feature a positive response of the nominal interest rate to output can lead to significant welfare losses. Third, the optimal fiscal policy is passive. However, the welfare losses associated with the adoption of an active fiscal stance are negligible. JEL Classification: E52, E61, E63.

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For years after the Spanish dictator actually died, the mock television newscast on “Saturday Night Live ” was periodically interrupted with a “news flash ” informing viewers that “General Franco is still dead! ” This served both to satirize the breathlessly urgent style of television news reporting, and to suggest that after many decades of taking an absolute ruler for granted, the world needed more than one reminder that he was no longer alive and well. Much the same is true for general equilibrium theory. In the course of its long decades of rule over the discipline of economics, general equilibrium became established as the fundamental framework for theoretical discourse. Its influence continues to spread in policy applications, with the growing use of computable general equilibrium models. It has successfully colonized much of macroeconomics, with the insistence on the derivation of rigorous microfoundations for macro models and theories. General equilibrium theory is widely cited in a normative context, often in textbooks or semitechnical discussion, as providing the rigorous theoretical version of Adam Smith’s invisible hand and demonstrating the desirable properties of a competitive economy.

The core of any system of economic theory is the explanation of how prices are determined. As Mises (1998, p. 235) himself put it, “Economics is mainly concerned with the analysis of the determination of money prices of goods and services exchanged on the market. ” Thus, the core of Human Action is parts three and four (pp. 201–684), entitled, respectively, “Economic Calculation ” and “Catallactics or Economics of the Market Society. ” In these two parts, comprising 484 pages, there is presented for the first time a complete and systematic theory of how actual market prices are determined. Of course, Mises did not create this theory out of whole cloth. In fact, the theory of price elaborated in Human Action represents the crowning achievement of the Austrian School of economics. It is the culmination of the approach to price theory originated by Carl Menger in 1871 and developed further by a handful of brilliant economists of the generation intervening between Menger and Mises. These latter included especially Eugen

at Indiana University and the Pennsylvania State University for helpful comments and suggestions. The usual In this paper, we provide evidence that repurchases are replacing dividends. We show this first by examining the source of earnings that drives each distribution mechanism. Contrary to prior research, we find that both dividends and repurchases are a means to distribute permanent earnings. Additionally, consistent with previous research, we find that repurchases are also a mechanism to distribute temporary earnings. Second, we show that the sensitivity of the change in dividend payments to a change in permanent earnings decreased significantly in the 1980s and beyond, as the use of stock repurchases increased, and show that this decrease partially explains the aggregate pattern of stock repurchases. Thus, the evidence in this paper adds to the extensive literature on the importance of stock repurchases and to the growing literature on the aggregate use of dividends over time. In 1997, corporate payout policy rounded a dramatic corner: in aggregate, firms spent more on stock repurchases than on cash dividends. The eclipsing of dividend payments by repurchases reflects two trends that have emerged in the past several decades. First, the use of stock repurchases has dramatically grown over the 1980s and 1990s. Second, at the same time, the number of firms

... This paper seeks to derive design principles for distributed application development from an economics open market analogy. A Service Interface Description Language (SIDL) is presented as the basis for minimizing transition costs for distributed applications. It is used for the trading process as well as the creation of graphical local user interfaces for arbitrary remote services at binding time. Finally, the paper outlines the current status of a distributed prototype system which implements cooperation support for a COSM

The views expressed are those of the author and do not necessarily reflect those of the Bank of England. Nick Oulton works in the Structural Economic Analysis Division. I owe thanks to my colleagues Emilio Fernandez-Corugedo and Jenni Greenslade for help with a number of points. I have also benefited from comments received at seminars within the Bank and from Susanto Basu. This paper was presented at the Bank of England Conference on ‘Productivity growth: how should we measure it and where is it going? ’ on 12 December 2001. I would like to thank my discussant John Muellbauer and other conference participants for helpful comments. Finally, the paper was revised in the light of useful comments from two anonymous referees, though I remain responsible for any remaining errors. Copies of working papers may be obtained from Publications Group, Bank of England,

Recent changes in farm policy have renewed interest in using marketing strategies based on futures and options markets to enhance the income of field crop producers. This article reviews the literature surrounding the dominant academic theory of the behavior of futures and options markets, the efficient market hypothesis. The following conclusion is reached: while individuals can beat the market, few can consistently do so. This conclusion is consistent with Grossman and Stiglitz’s model of market efficiency in which individuals who consistently earn trading returns have superior access to information or superior analytical ability. One implication is that, with few exceptions, the crop producers who survive will be those with the lowest cost of production since efforts to improve revenue through better marketing will have limited success. There do appear to be some successful marketing strategies. One is to base storage decisions on when a producer harvests the crop relative to the national harvest of the crop. Another is to base storage decisions on whether the current basis exceeds the cost of storage, and then to use hedging to assure an expected positive return.

Both Keynesians and modern institutional economists are critical of the “classical economists”. In being so, they employ similar micro foundations of the business behavior (the “institutional arrangements”) of individuals. Yet in contrast to Keynesians, the representatives of modern institutional economics incorporate the institutional framework into their analysis: For them, the linkage between “economy and politics ” is likewise an object of economic analysis. This is, in particular, the central issue of the “new political economics”. The concept of the “institution as an equilibrium outcome of a game ” is applied in this literature- an approach, which leads to multiple equilibria. The Keynesian under-employment equilibrium may be interpreted in this manner. The present essay constitutes a plea to widen macroeconomic analysis and “new political economics ” by utilizing the procedure of “analytic narratives ” that has been successfully put to the test by economic historians. Keywords: macroeconomics, new institutional economics, new political economy, Neo-Keynesianism, underemployment equilibrium, game theory, property rights, transaction costs, credibility.

this paper, therefore, is to synthesize some of this `non-C&I' literature, with a view to distilling some key lessons that are of relevance to C&I design within the forestry sector. In doing this, the paper covers topics ranging from economic history and the role that `rationality' has played in economic decision-making, to modern procedures of resource valuation, to issues of uncertainty, taxation and wealth distribution. Findings in all of these areas, in the end, guide the selection of a recommended set of criteria and indicators