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Author:Dotsey, Michael 

Working Paper
Demographic Aging, Industrial Policy, and Chinese Economic Growth

We examine the role of demographics and changing industrial policies in ac- counting for the rapid rise in household savings and in per capita output growth in China since the mid-1970s. The demographic changes come from reductions in the fertility rate and increases in the life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of employment, and later on benefiting capital-intensive firms resulting in an increasing share of capital devoted ...
Working Papers , Paper 19-21

Working Paper
The welfare cost of inflation in general equilibrium

This paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions. Although individually none of the distortions is very large, they combine to yield substantial welfare cost estimates. A sustained 4% inflation like that experienced in the U.S. since 1983 costs the economy the equivalent of 0.41% of output per year when currency is identified as the relevant definition of money and over 1% of output per year when M1 is defined as money. The results illustrate how the traditional, partial equilibrium approach can seriously underestimate the ...
Working Paper , Paper 94-04

Working Paper
The economic effects of corporate taxes in a stochastic growth model

The Economic Recovery Act of 1981 led to the largest postwar decline in effective tax rates on capital. The legislation also had its most significant effect on rates in 1982 due to the rapid decline in inflation. Although some of the tax cut was rescinded in 1982, effective corporate tax rates on plant and equipment, measured as the difference between before and after-tax rates on return to capital as a percentage of before-tax rates of return, remained at historically low values though 1986. Accompanying this tax cut is the current economic recovery which began in November, 1982. It is ...
Working Paper , Paper 87-04

Working Paper
On the implementation of Markov-Perfect interest rate and money supply rules : global and local uniqueness

Currently there is a growing literature exploring the features of optimal monetary policy in New Keynesian models under both commitment and discretion. This literature usually solves for the optimal allocations that are consistent with a rational expectations market equiibrium, but it does not study how the policy can be implemented given the available policy instruments. Recently, however, King and Wolman (2004) have shown that a time-consistent policy cannot be implemented through the control of nominal money balances. In particular, they find that equilibria are not unique under a money ...
Working Paper , Paper 09-06

Working Paper
How important is the currency denomination of exports in open-economy models?

The authors show that standard alternative assumptions about the currency in which firms price export goods are virtually inconsequential for the properties of aggregate variables, other than the terms of trade, in a quantitative open-economy model. This result is in contrast to a large literature that emphasizes the importance of the currency denomination of exports for the properties of open-economy models.
Working Papers , Paper 09-32

Journal Article
Reforming deposit insurance: lessons from the savings and loan crisis

A history of the collapse of the savings and loan industry. The authors contend that FSLICs institutional structures, established decades ago, made a thrift crisis inevitable. Poorly designed incentive structures strongly encouraged regulators and thrift managers to delay proper action when thrifts became insolvent. The authors present recommendations to prevent a recurrence of the crisis.
Economic Review , Volume 76 , Issue Mar , Pages 3-28

Working Paper
Investigating Nonneutrality in a State-Dependent Pricing Model with Firm-Level Productivity Shocks

In recent years there has been an abundance of empirical work examining price setting behavior at the micro level. First generation models with price setting rigidities were generally at odds with much of the micro price data. A second generation of models, with fixed costs of price adjustment and idiosyncratic shocks, have attempted to rectify this shortcoming. Using a model that matches a large set of microeconomic facts we find significant nonneutrality. We decompose the nonneutrality and find that state-dependence plays an important part in the responses of output and inflation to a ...
Working Papers , Paper 19-9

Journal Article
Oil shocks, monetary policy, and economic activity

Various reasons have been given to explain downturns in U.S. economic activity since World War II. Romer and Romer (1989) argued that these recessions were primarily associated with monetary contractions, while Hamilton (1983) and others attributed them to oil price increases. We investigate these competing hypotheses and find that when measures of oil prices are included, the Romers measure of monetary policy does not significantly explain economic downturns. However, alternative measures of monetary policy, specifically the federal funds rate the spread between the ten-year Treasury rate ...
Economic Review , Volume 78 , Issue Jul , Pages 14-27

Working Paper
Nontraded goods, market segmentation, and exchange rates.

Empirical evidence suggests that movements in international relative prices (such as the real exchange rate) are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind international relative price movements. In this paper we show that nontraded goods have important implications for exchange rate behavior, even though fluctuations in the relative price of nontraded goods account for a relatively small fraction of real exchange rate movements. In our quantitative study ...
Working Papers , Paper 06-9

Working Paper
Inflation uncertainty and growth in a simple monetary model

This paper analyzes the effects of inflation variability on economic growth in a model where money is introduced via a cash-in-advance constraint. In this setting, we find that inflation adversely affects long-run growth, even when the cash-in-advance constraint applies only to consumption. At the same time, we find that inflation and growth are positively related in the short-run. In addition, variability tends to increase average growth through a precautionary savings motive. Since inflation and inflation variability tend to be highly correlated, this latter effect attenuates the negative ...
Working Paper , Paper 97-05

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