IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpmi/0407010.html
   My bibliography  Save this paper

The Bad Government: A Source of Uncertainty and Business Fluctuations

Author

Listed:
  • Taiji Harashima

    (The Cabinet Office of the Japanese Government)

Abstract

Uncertainty represented by volatilities in equity markets has been observed to be time-variable and lead output fluctuations. In the rational expectation framework, uncertainty with this nature needs exogenous variables with time-varying volatilities, but technology, tastes and fiscal and monetary policies do not seem suitable for such variables. The paper contends that supervisions and law enforcement that reduce cheatings in contracts is one of the ultimate sources of uncertainty. The cheating plays an important role for uncertainty since it is the origin of noisy price observations that makes an economy uncertain in the framework of rational expectation approximate equilibria.

Suggested Citation

  • Taiji Harashima, 2004. "The Bad Government: A Source of Uncertainty and Business Fluctuations," Microeconomics 0407010, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0407010 Note: Type of Document - pdf; pages: 39
    as

    Download full text from publisher

    File URL: http://econwpa.repec.org/eps/mic/papers/0407/0407010.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 1-74.
    2. Mordecai Kurz & Maurizio Motolese, "undated". "Endogenous Uncertainty and Market Volatility," Working Papers 99005, Stanford University, Department of Economics.
    3. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises; Evidence From Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
    4. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 573-593, Sept.-Oct.
    5. Michael Francis, 2003. "Governance and Financial Fragility: Evidence from a Cross-Section of Countries," Staff Working Papers 03-34, Bank of Canada.
    6. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-1098, July.
    7. Robert E. Hall & Charles I. Jones, 1998. "Why Do Some Countries Produce So Much More Output per Worker than Others?"," Working Papers 98007, Stanford University, Department of Economics.
    8. Frederic S. Mishkin, 2001. "Prudential Supervision: Why Is It Important and What Are the Issues?," NBER Chapters,in: Prudential Supervision: What Works and What Doesn't, pages 1-30 National Bureau of Economic Research, Inc.
    9. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, pages 83-116.
    10. Campbell, John Y & Kim, Sangjoon & Lettau, Martin, 1998. "Dispersion and Volatility in Stock Returns: An Empirical Investigation," CEPR Discussion Papers 1923, C.E.P.R. Discussion Papers.
    11. Sanford J. Grossman, 1981. "An Introduction to the Theory of Rational Expectations Under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 48(4), pages 541-559.
    12. Michael M. Hutchison, 1997. "Financial crises and bank supervision: new directions for Japan?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec12.
    13. Mordecai Kurz & Maurizio Motolese, "undated". "Endogenous Uncertainty and Market Volatility," Working Papers 99005, Stanford University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Uncertainty; Rational expectation approximate equilibria; Imperfect commitment; Supervision; Business fluctuations;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpmi:0407010. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: http://econwpa.repec.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.