This thesis seeks to analyse price inflation under oligopoly capitalism. Its central argument is that under oligopoly capitalism, price inflation is a structural phenomenon. For a greater understanding of that phenomenon, the adoption of the inter-industrial approach for its analysis seems essential. According to this approach, price inflation can be initiated in a single industry or in an industry group. The initiating factor may be an increase in the mark-up, an increase in the money wage rate or an increase in the foreign currency price of an imported input. It can also be initiated by devaluation. The input-output matrix, the core of the economic system, is the key to the transmission of inflationary impulses (in the form of higher unit cost) from one industry to another. Real wage resistance, rigid mark-up resistance, and rigid foreign resistance do no more than perpetuate or worsen the inflationary experience. The inflationary process itself has a dual role to play. It acts as a mechanism for shifting income distribution in favour of one section of the society against another and as a mechanism for changing the price structure. The author argues that the abandonment of the macroeconomic approach to the analysis of price inflation and its replacement by the inter-industrial approach is the first step for serious analysis of that structural phenomenon.

Competition and innovation, which comprise the driving force of modern economies, have long been an issue in the economics literature. This thesis mainly highlights these two factors in relation to public policy as applied to various analytical frameworks: (i) technology transfer scheme including a grant-back clause when innovation is cumulative (Chapters 1 and 2); (ii) universities that conduct both research and teaching activities (Chapter 3); and (iii) the relationship between competition and productivity (Chapter 4). Chapter 1 considers desirable technology transfer in a stream of cumulative innovation. Technology competition is likely to generate social overincentives for innovation. It is demonstrated that a grant-back clause with an appropriate distribution of profits can mitigate social overinvestment in the initial and follow-on technologies. Chapter 2 analyzes the effect of a grant-back clause on incentives to innovate in accordance with the attributes of innovation: severable (non-infringing) and non-severable (infringing). It is illustrated that a grant-back clause under severable innovation can be socially beneficial because it increases the original licensor’s incentive to license. In Chapter 3, a higher education industry model is examined, where universities conduct research and teaching activities to generate research output and student enrollment. The paradoxical result is that when there is strong substitutability between these two activities, a reduction in not only student enrollment but also research output can occur in response to an increase in research funds. Additionally, this theoretical analysis is motivated by the empirical challenge using the U.S. higher educational institutions data. Chapter 4 investigates the causal relationship between the effect of competition and TFP growth based on the Japanese industry-level panel data. It finds that although a positive effect of competition is observable in manufacturing industries, such an effect in non-manufacturing industries may be negative in part of the sample period.

In this thesis three policy issues that are of particular relevance in the economic debate are analysed using multiregional CGE models. The first of these issues is related to the welfare effects of the decentralised provision of quasi-private goods by the government. The second issue refers to the exportation of domestic taxes from developed to developing countries. And, the third issue is related to the efficiency gains from the elimination of global restrictions on international labour mobility. Two types of multiregional CGE models can be distinguished. The first type of models disaggregates the national economy into regions, whereas in the second type, regions consist of countries or groups of countries. In this thesis both types of models are used. Chapter 2 quantifies the welfare effects of decentralisation in Colombia, using a multiregional CGE model. The purpose of this chapter is to investigate to what extent will the Colombian population be better off when goods such as health and education, are delivered locally as against centrally. A provision scheme based on the median voter is considered. Neither multiregional CGE models nor schemes for public provision of quasi-private goods have been previously applied when assessing the effects of decentralisation. According to the results, the provision of health and education by regional governments improves the welfare of the Colombian population as a whole, since regional governments provide goods and services in a way that better caters to local preferences. More importantly, these welfare gains vary from 1.3% to 2.3% of GDP, a substantial magnitude especially when compared with the efficiency gains associated to the tax reforms of the early nineties. Chapter 3 investigates whether developed countries export taxes to developing countries, contributing to the deterioration of their terms of trade and welfare; that is to what extent the distribution of gains from trade is being affected not by existing tariffs in developed countries, which are already at low levels, but by their domestic taxation. An eight-region CGE model for the world economy is used. The results indicate that when factors of production are internationally immobile, developed regions do not export domestic taxes to developing regions. On the contrary, when capital is assumed to be internationally mobile developed region export capital taxes to developing regions. Regardless of the assumptions on international capital mobility, the effects of import tariffs on welfare and terms of trade are larger than those of domestic taxes. Chapter 4 computes the world-wide efficiency gains from the elimination of global restrictions on labour mobility using an eight-region CGE model. A distinctive feature of the analysis is the introduction of a segmented labour market, as two types of labour are considered: skilled and unskilled. According to the results, when labour is a homogeneous factor, the elimination of global restrictions on labour mobility generates world-wide efficiency gains that could be of considerable magnitude. When the labour market is segmented and both skilled and unskilled labour migrate, welfare gains reduce since the benefits and losses of migration are not evenly distributed within each region. When only skilled labour migrates, the world-wide efficiency gains are smaller, since this type of labour represents a small fraction of the labour force in developing regions.

This thesis consists of three individual models on technology adoption, contracts and protection. The first model is motivated by the inconsistency between empirical results and theoretical models regarding the firm size effects upon the timing of adoption. By proposing a two-stage, endogenous learning, Stackelberg model, we conclude that in a pure strategy equilibrium, the large firm may or may not tacitly delay its adoption to capture the information advantage, depending on cost and belief parameters. The welfare analysis provides a justification for government interventions in firms’ adoption decisions. The second model is motivated by the fact that although more and more resources have been devoted to R&D activities, there is little theoretical discussion regarding R&D funding issues. Chapter 3 derives the optimal funding contract, which happens to be a cost-plus-fixed-fee contract in the literature. After considering the adverse selection problem, the optimal contract induces no efficiency loss under both discrete and continuous settings and the principal will be more conservative in funding. The optimal auction maintains both allocation and production efficiency, and bidding the principal’s reservation price will be a dominant strategy in a second price auction. Neither the revenue equivalence nor the separation property will hold. With symmetric beliefs, the optimal funding length is shorter than that of contractible effort. Under some assumptions, the lock-in effect persists and the principal will prefer short-term contracts to long-term contracts. The third model decides the optimal protection forms, protection rates and protection lengths under various cost and revenue circumstances. Since the incentive scheme will be affected by the target firm’s future profits, we show that in the context of incomplete information, screening protection schemes can sometimes coincide with the efficient schemes. In R&D area, our result suggests that optimal patent length need not necessarily be increasing in firm’s investment efficiency.

This thesis argues in favour of Bayesian techniques for the analysis of non- stationary linear time series. The main motivations are to avoid using asymptotic results and to explicitly incorporate prior beliefs, where they exist. The properties of univariate and multivariate unit root models, and the available frequentist inferential results are described. Some problems in their applications are highlighted: the discrepancies between asymptotic and finite sample properties and the role of the deterministic components in determining the reference asymptotic distributions. The advantages and disadvantages of Bayesian techniques are then examined with the recent developments in the Monte Carlo integration by Markov Chain sampling. Two case studies are conducted with the aim of providing evidence of the applicability of Bayesian techniques. The first of these cases develops a procedure to test for seasonal and/or zero frequency unit roots in quarterly series. A new parameterisation is provided and the priors implemented are discussed and justified. The analysis relies on a Gibbs sampling scheme. The inferential technique used is the evaluation of posterior odds ratios. These ratios are defined as posterior expectations of functions of the parameters, and therefore can be consistently estimated The procedure is applied to some UK variables. The results are robust with respect to different prior distributions, and conflict with some conclusions reached by using classical asymptotic unit root tests. The second case study develops a Bayesian procedure to conduct inference in cointegrated systems. Inference regards the number of cointegrating relationships and their structural interpretation, and is based on the evaluation of highest posterior density confidence intervals. The procedure is applied to three VAR systems: Danish and Finnish money demands, and UK exchange rate data. Interesting results emerge, showing significant differences with their frequentist counterparts. All these results are robust with respect to different priors.

The purpose of this thesis is to examine the behaviour of consumers and producers in markets where the consumers of a product have to prepay for their purchases and then wait for a period of time before the goods are delivered to them. Chapter 2 examines the role of prepayments as a means to support efficient exchange. We develop a framework to discuss contractual arrangements between a buyer, who places an order for a product, and a seller, who makes an investment in specific assets in response to the buyer’s order. We find that contracts stipulating a non-refundable prepayment which is to be paid when the order is placed can support efficient exchange as long as the prepayment is set equal to the amount of the investment in specific assets. In chapter 3 we develop a model of a market where some customers of a firm with monopoly power must pay an advance deposit for the right to purchase a new durable good sooner than others. We will show that this behaviour can be explained by a model in which a monopolist, having already spent money on R&D but being uncertain of the profitability of his product due to cost uncertainty, charges the non-refundable prepayment in order to be able to recover the R&D cost in the case where the product turns out to be unprofitable and, therefore, is not produced. Some high-valuation customers will be prepared to bear the risk of losing the prepayment (in the case where the product is not produced) as long as they are given priority over others in the delivery of the product. Chapter 4 examines the role of prepayments as an integral part of the pricing strategy of an incumbent firm who is privately informed as to the level of cost and is concerned with deterring entry in a market of a new product. We show that there exist separating equilibria in which the low-cost incumbent’s pricing policy is successful in deterring entry. This pricing policy involves the signing (by the incumbent and the buyers) of a number of contracts one period before production starts. These contracts require consumers who have signed them to prepay for their purchases of the product before production starts and take delivery after the end of the production period. Chapter 5 extends the model of chapter 4 to allow for heterogeneous consumers and the possibility for the incumbent to choose between two patterns for serving consumers who are willing to prepay. Both serving patterns give rise to a unique separating equilibrium in which prepayments prevent entry. In addition, rationing of those consumers who are willing to prepay may emerge in equilibrium and this depends on the serving pattern that is adopted by the incumbent. In chapter 6 we show that an incumbent seller with a known unit cost can reduce the probability of entry into his market of an entrant who faces a fixed cost of entry and whose variable unit cost is unknown by signing contracts requiring buyers to pay for the product before it is delivered to them. Buyers may sign the contracts even though they know that the entrant may turn out to be more efficient than the incumbent. This behaviour is mainly due to the assumption made that each buyer’s reservation price is decreasing in the number of buyers who purchase the product.

This thesis presents original and significant research on the foundations of dynamic disequilibrium macroeconomics and on the implications of such a modelling strategy. It represents a continuation of current research to provide an acceptable alternative to New Classical macroeconomics. Disequilibrium economics, contrary to New Classical economics, does not assume markets continually clear, and is concerned, in principle, with the dynamic response of an economy to disequilibrium by way of both price and quantity adjustments. It is only recently, however, that the early static disequilibrium models have been extended to include dynamics via price adjustment and other intertemporal linkages. This thesis furthers this line of research. Initial chapters concentrate on developing a rational basis for quantity constrained models, while subsequent chapters develop and analyse specific open and closed economy dynamic disequilibrium models. Chapters 2-4 critically assess New Classical economics; show that imperfect price adjustment can be derived from rational economic behaviour, given the presence of imperfect information and learning, incomprehensively indexed contracts, and small-menu costs; and discuss various disequilibrium modelling strategies. Chapters 5-6 employ the chosen modelling strategy (based on Sneessens, 1981) to develop dynamic disequilibrium models. Intertemporal linkages are established via wage, price and inventory adjustment. These models are used to test ‘the robustness of previously derived results and provide new results. Significant insights are gained into the possibility of long-run non-Walrasian equilibria, the existence of limit cycles, the importance of wage and price adjustment, and the behaviour of exchange rates within regime switching models. Further these models aid our understanding of trade and inventory cycles. Finally we analyse the effectiveness of government policy in the various disequilibrium models. Not all the New Classical policy conclusions remain valid when imperfect price adjustment is modelled consistently.

This thesis develops extensions to current techniques in applied general equilibrium (AGE) model calibration that improve existing practice and expand the use of AGE modelling to economic history applications. Chapter I introduces the thesis. Chapter 2 summarizes the origin and practice of calibration in economics, focussing on its role in AGE modelling. Chapter 3 proposes two related sensitivity analysis procedures for AGE models: calibrated parameter sensitivity analysis (CPSA) and extended sensitivity analysis. Existing sensitivity techniques are incomplete because they only capture the robustness of the model's results to uncertainty in a subset of the parameters, the elasticities. The remaining parameters determine the model's static structure, but are ignored in the sensitivity literature. CPSA fills this gap. When combined with an existing elasticity sensitivity technique in 'extended sensitivity analysis,' CPSA permits sensitivity analysis with respect to uncertainty in the values of all of a model's parameters. Chapter 4 examines the significance of the data adjustments required for calibration. It proposes that the measure of this importance should be the effect of the adjustment algorithm on the statistical properties of the model results. Simulations show that the performance of various algorithms differs significantly under such criteria, and illustrate fora specific policy experiment the link between algorithm performance and the relative magnitudes of the data. The experiments imply that the choice of data adjustment procedure is an important, if neglected, component of calibration. Chapter 5 shows how AGE techniques can be adapted to explore decompositional issues in economic history. By incorporating information about the combined effect of several shocks to an economy in calibration, AGE models can quantify the relative contributions to change of each shock. Furthermore, the effects ol shocks are non-additive, so that the marginal contribution of a shock is conditional on the presence or absence of other shocks. Chapter 6 concludes.

This dissertation examines the conduct of monetary policy, by focusing on the causes and consequences of time-varying monetary policy. In chapter 1, I study whether money growth targeting leads to indeterminacy in the price level. I extend a conventional framework and show that the price level may be indeterminate if the central bank’s response to money growth is weak even when the Taylor principle is satisfied. Based on this reasoning, policy coefficients estimated using novel Federal Open Market Committee (FOMC) meeting-level data propose a new channel of the policy mistakes that may have triggered indeterminacy during the Great Inflation. Furthermore, I show that ‘passively’ pursuing money growth objectives generates significantly larger welfare losses compared to alternative specifications of the monetary policy rule but ‘active’ money growth targeting drastically minimizes welfare loss. I confirm the relationship between pursuing money growth objectives and macroeconomic volatility using cross-country evidence. In chapter 2, I decompose deviations of the Federal funds rate from a Taylor type monetary policy rule into exogenous monetary policy shocks and a time-varying inflation target. I show that the role of exogenous shocks may be exaggerated in a fixed inflation target model, and a large fraction of business cycle fluctuations attributed to them may actually be due to changes in the inflation target. A time-varying inflation target explains approximately half of the volatility normally attributed to these deviations, and consequently more than a quarter of the fluctuations in the business cycle. This contributes approximately 39% additional inflation volatility during the Great Inflation. I show that shocks to the inflation target imply a lower sacrifice ratio compared to exogenous changes in the interest rate and therefore propose a gradual adjustment of the inflation target in order to achieve monetary policy objectives. Chapter 3 presents an overview of the literature on the conduct of monetary policy. First, I summarize the design of monetary policy by differentiating between the goals, targets and instruments of monetary policy. Second, I focus on the role of policy rules as a basis for the setting of the Federal Funds rate in the U.S., and analyse the merits of including other objectives in the baseline policy rule. I study the welfare impact of these objectives in light of their historical macroeconomic performance documented in the literature. I also evaluate alternative policy rules such as constant money growth rules and nominal GDP targeting frameworks. Last, I study the classic rules versus discretion debate in light of the time-varying nature of monetary policy. The dissertation is presented in the following order: chapter 1 presents the paper titled ‘Monetarism, indeterminacy and the Great Inflation’. Chapter 2 presents the paper titled ‘What are monetary policy shocks?’, and chapter 3 presents a review of the literature on the conduct of monetary policy.

This dissertation is a collection of three independent essays on econometrics and economics of education. The first chapter investigates how the Research Excellence Framework (REF) perceives the quality of economics journals. Exploiting aggregate information available in the published REF dataset, we propose a novel algorithm within an ordered probit framework that provides an effective recovery of underlying disaggregated outcomes (i.e. individual submission). The estimated results can be viewed as a directory for predicting the perception of journal quality for the REF 2014 exercise. In the second chapter, I suggest a new matching methodology—the Dirichlet process (DP) matching—that has several important advantages compared to conventional matching methods, including the balancing property, a more efficient ATT estimator and a credible confidence band. I describe the DP matching as a story of the “Chinese restaurant with invited guests”. In the third chapter, we exploit a quasi-natural experiment, namely the PelCa program in Ecuador, and study its consequences on mothers’ empowerment and children’s early development. We find optimistic evidence that the program helped mothers rear their children in a more learning conductive environment, resulting in positive effects on children outcomes and greater empowerment in mothers at home and in the community.