I examine the "fiscal theory of the price level" according to which "non-Ricardian" policy and predetermined nominal government debt fiscally determine prices. I argue that the non-Ricardian policy assumption and, by implication, fiscal price level determination are inconsistent with an equilibrium in which all asset holdings reflect optimal household choices. In such an equilibrium, policy must be Ricardian even if, in some states of nature, the government defaults or commits to an arbitrary real primary surplus sequence. I propose an alternative to the fiscal theory of the price level, based on nominal flows instead of nominal stocks. While this alternative framework establishes a consistent link between fiscal policy and the price level, it does not introduce inflationary fiscal effects beyond those suggested by Sargent and Wallace.

Psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue-based complementarities: the presence of the cue raises the marginal utility derived from consumption. In this paper, such dynamic preferences are embedded in a rational choice model. Behavior that arises from this model is characterized by endogenous cue sensitivities, costly cue-management, commitment, and cue-based spikes in impatience. The model is used to understand addictive/habit-forming behaviors and marketing. The model explains why preferences change rapidly from moment to moment, why temptations should sometimes be avoided, and how firms package and position goods.

Controlling for labor productivity, income levels, and other possible determinants, there is a robust and statistically significant association between the extent of democracy and the level of manufacturing wages in a country. The association exists both across countries and over time within countries. The coefficient estimates suggest that nonnegligible wage improvements result from the enhancement of democratic institutions: average wages in a country like Mexico would be expected to increase by 10 to 40 percent if Mexico were to attain a level of democracy comparable to that prevailing in the United States. Political competition and participation seem to be the driving force behind the result.

A high proportion of skilled workers in the labor force implies a large market size for skill-complementary technologies, and encourages faster upgrading of the productivity of skilled workers. As a result, an increase in the supply of skills reduces the skill premium in the short run, but then it induces skill-biased technical change and increases the skill premium, possibly even above its initial value. This theory suggests that the rapid increase in the proportion of college graduates in the United States labor force in the 1970s may have been a causal factor in both the decline in the college premium during the 1970s and the large increase in inequality during the 1980s.

Journal Article A New Assessment of Openness and Inflation: Reply Get access David Romer David Romer University of California, Berkeley Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 113, Issue 2, May 1998, Pages 649–652, https://doi.org/10.1162/003355398555612 Published: 01 May 1998

Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing “too much” liquidity.

This paper proposes a microfoundation for social increasing returns in human capital accumulation. The underlying mechanism is a pecuniary externality due to the interaction of ex ante investments and costly bilateral search in the labor market. It is shown that the equilibrium rate of return on the human capital of a worker is increasing in the average human capital of the workforce even though all the production functions in the economy exhibit constant returns to scale, there are no technological externalities, and all workers are competing for the same jobs.

Despite a surplus of candidates for most teaching jobs, a strong academic record does little for an applicants job prospects. This does not appear to result from lukewarm interest on the part of such applicants or choosiness about the positions they accept. Administrators' lack of interest in these candidates may reflect the weakness of competitive pressures in public education. Policies intended to improve teacher quality need to consider incentives on both the demand and supply sides of the market.

Because unanticipated monetary expansion leads to real exchange rate depreciation, and because the harms of real depreciation are greater in more open economies, the benefits of unanticipated expansion are decreasing in the degree of openness. Models in which the absence of precommitment in monetary policy leads to excessive inflation therefore predict lower average inflation in more open economies. This paper tests this prediction using cross-country data. The data show a strong and robust negative link between openness and inflation.