Collaborative Research: The Aggregate Effects and Equilibrium Selection of Public Policies

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9617576 Jones This project renews researah on the aggregate effects and equilibrium selection of public policies begun under a previous NSF award. The first part of the project examines the relationship between the structure of information, i.e., differences in the information acquired by buyers and sellers, and the effect of monetary policy variability on economic performance. This new dimension of monetary policy is shown to have important and predictable effects. This work is extended to dynamic settings with production and inventory decisions. Preliminary results suggest that existing models of the welfare costs of inflation will substantially underestimate its costs when variability is high. The second part examines how collective decision making mechanisms fare in terms of policy choice. It explores the implications for the data of alternative models of endogenous policy choice. The project develops a new general framework for the analysis of dynamic policy choice in settings with sequential voting. This framework is used to study the conditions under which the nature of distributive problems (income distribution, skill distribution, distribution of industry specific human capital) can prevent the adoption of efficient policies.