Earlier analysis of unanticipated money growth is extended to output (GNP) and the price level (GNP deflator) for recent U.S. experience. Price level determination is more complicated than output determination, because both anticipated and unanticipated money movements are involved. Empirical results accord well with the model--notably, they support the key hypothesis of a one-to-one, contemporaneous link between anticipated money and the price level. Precise estimates are obtained for the lagged responses of output and prices to unanticipated money movements. Cross-equation comparisons indicate that the price response to unanticipated money movements has a longer lag than the output response. A form of lagged adjustment in money demand can account for this difference. The forecasts for inflation average 5.5 percent per year for 1977-80.

Journal Article A Theory of Monopolistic Price Adjustment Get access Robert J. Barro Robert J. Barro The University of Chicago and Brown University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 39, Issue 1, January 1972, Pages 17–26, https://doi.org/10.2307/2296440 Published: 01 January 1972

Changes in stock prices have substantial explanatory power for U.S. investment, especially for long-term samples, and even in the presence of cash flow variables. The stock market dramatically outperforms a standard q-variable because the market-equity component of this variable is only a rough proxy for stock market value. Although the stock market did not predict accurately after the crash of October 1987, the errors were not statistically significant. Parallel relationships for Canada raise the puzzle that Canadian investment appears to react more to the U.S. stock market than to the Canadian market.

The market for ski runs or amusement rides often features admission tickets, no explicit prices for rides, and queues. Although the price of admission tickets are much less responsive than the length of queues to variations in demand, we show that the outcomes are nearly efficient under plausible conditions. Then we show that similar results obtain for some familiar congestion problems and for profit-sharing schemes in the labor market.

The potential for rare economic disasters explains a lot of asset-pricing puzzles. I calibrate disaster probabilities from the twentieth century global history, especially the sharp contractions associated with World War I, the Great Depression, and World War II. The puzzles that can be explained include the high equity premium, low risk-free rate, and volatile stock returns. Another mystery that may be resolved is why expected real interest rates were low in the United States during major wars, such as World War II. The model, an extension of work by Rietz, maintains the tractable framework of a representative agent, time-additive and isoelastic preferences, and complete markets. The results hold with i.i.d. shocks to productivity growth in a Lucas-tree type economy and also with the inclusion of capital formation.

For 98 countries in the period 1960-1985, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial (1960) level of real per capita GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions. In neoclassical growth models, such as Solow [1956], Cass [1965], and Koopmans [1965], a country's per capita growth rate tends to be inversely related to its starting level of income per person. In particular, if countries are similar with respect to structural parameters for preferences and technology, then poor countries tend to grow faster than rich countries. Thus, there is a force that promotes convergence in levels of per capita income across countries.' The main element behind the convergence result in neoclassi-cal growth models is diminishing returns to reproducible capital. Poor countries, with low ratios of capital to labor, have high marginal products of capital and thereby tend to grow at high rates. ' This tendency for low-income countries to grow at high rates is reinforced in extensions of the neoclassical models that allow for international mobility of capital and technology. The hypothesis that poor countries tend to grow faster than rich countries seems to be inconsistent with the cross-country evidence, which indicates that per capita growth rates have little

I. Setup of the model, 149. — II. Determination of the exchange rate and the expected future exchange rate, 154. — III. Effects of exogenous variables, 156. — IV. Incomplete current information, 159. — V. Concluding remarks, 161.