This paper argues that the theory of wage and price setting in macroeconomics should be broadened to include insights from behavioural economics, in particular prospect theory and loss aversion. The paper shows how broader microeconomic foundations can explain the main features of a realistic...

China's industrial reforms have left many key industries dominated by few, often state owned, firms. Until recently, these firms were not required to pay dividends to the state and the post-2000 surge in growth made them very profitable, with their economic profits adding corporate saving...

This paper investigates the consequences of receiving sexual favors or other services as an alternative form of bribery. It infers how these non-monetary payments are made by analyzing the relative effciency of sex bribes and the bargaining power of agents. By assumption, sex payments are less...

Conventional wisdom holds that international political pressure and domestic civil unrest in the mid-1970s and 1980s brought an end to apartheid in South Africa. I show that, prior to these events, labor market pressure in the late 1960s/early 1970s caused a dramatic unraveling of apartheid in...

Can a small, poor country reduce poverty by gaining increased market access to a large, rich country? The 2001 U.S.-Vietnam Bilateral Trade Agreement provides an excellent opportunity to examine this question as, unlike other bilateral trade agreements, the U.S. tariff cuts were not influenced...

Initially, the global financial crisis caused a surge of financial inflows, raising Chinese investment but this abated in 2008, to be replaced by a slowdown in export demand. The government's key response has been to commit to an unprecedented fiscal expansion. Two oft-ignored consequences are,...

Macroeconomists working with multivariate models typically face uncertainty over which (if any) of their variables have long run steady states which are subject to breaks. Furthermore, the nature of the break process is often unknown. In this paper, we draw on methods from the Bayesian...

This paper introduces a new model of trend (or underlying) inflation. In contrast to many earlier approaches, which allow for trend inflation to evolve according to a random walk, ours is a bounded model which ensures that trend inflation is constrained to lie in an interval. The bounds of this...

Cointegration ideas as introduced by Granger in 1981 are commonly embodied in empirical macroeco- nomic modelling through the vector error correction model (VECM). It has become common practice in these models to treat some variables as weakly exogenous, resulting in conditional VECMs. This...

We derive and estimate a New Keynesian Phillips curve (NKPC) in a model where consumers are assumed to have deep habits. Habits are deep in the sense that they apply to individual consumption goods instead of aggregate consumption. This alters the NKPC in a fundamental manner as it introduces...