petrol prices oil price rises and oil price falls some evidence for the uk since 1972 this paper examines the relationship between retail petrol prices excise duties and crude oil prices in the uk over the period 1973 1988 the existence of a stable relationship between the petrol price level of excise duty and spot oil price is confirmed through use of the cointegration approach although the speed of reaction of petrol prices to changes in the crude price depends on whether crude prices are rising or falling any asymmetry in the pricing response is virtually absent after an adjustment period of only four months

independent central banks low inflation at no costs a widely held view suggests that politically independent central banks bring about relatively low and stable inflation rates a more debated question is whether one has to pay for this good outcome with more real instability in his seminal contribution kenneth rogoff 1985 suggests that an independent and inflation averse central bank reduces average inflation but as a result increases output variability the conservative central banker reduces the inflation bias due to the time inconsistency problem but stabilizes less however alesina and summers 1993 do not find that at least within the oecd countries more independent central banks are associated with more variability of growth or unemployment thus they conclude that independent central banks bring about low inflation at no apparent real costs the point of this paper is to provide theoretical underpinnings to this finding which is in contrast to rogoff 1985 2 the basic idea is that one can isolate two sources of output variability one is the economic variability induced by standard exogenous shocks that monetary policy is supposed to stabilize for instance money demand shocks or supply shocks the second source of variability is political or more generally policy induced this is the variability introduced in the system by the uncertainty about the future course of policy for instance alesina 1987 studies the effect of uncertain electoral outcomes in a model where the two contending parties have different preferences over inflation and unemployment an inflation averse independent central banker does not stabilize as much the economic variability in order to keep inflation low and stable this is rogoff s point however by insulating monetary policy from political pressures an independent central bank can reduce the political variability the overall effect of independence on output variability is thus ambiguous this result is consistent at least prima facie with the evidence in alesina and summers 1993 on the lack of correlation between centralbank independence and output variability in fact it is possible that when the politically induced output variability is predominant a more independent central bank reduces average inflation and the variance of output

whom can we trust to run the fed theoretical support for the founders views abstract the federal reserve has been called a bizarre policymaking structure this paper documents and formalizes a historical argument that the fed s structure was a response to public conflict over inflation s redistributive powers the paper shows that in the face of conflict over redistributive inflation policy by majority can lead to policy that is worse even for the majority than obvious alternatives in balancing the interests for and against surprise inflation the fed s structure can lead to a better outcome

oil and the macroeconomy a markov state switching approach this paper analyzes the relationship between oil price shocks and postwar u s business cycle fluctuations the authors develop a generalized markov switching model of output that includes a measure of net real oil price increases and examine the capabilities of this variable to generate shifts in the mean of gdp growth and to predict transitions between dichotomous growth phases the results indicate that while the behavior of oil prices has been a contributing factor to the mean of low growth phases of output movements in oil prices generally have not been a principal determinant in the historical evidence of these phases copyright 1997 by ohio state university press

central bank independence economic behavior and optimal term lengths the authors parameterize central bank independence in terms of partisanship and term length focusing on the implications of alternative policy structures for real economic activity while long terms of office for the central banker can reduce the role of electoral surprises term lengths that are too long are costly if societal preferences are subject to permanent shifts the appointment of a conservative central banker increases the optimal term length and leads to lower average inflation but need not increase the volatility of output copyright 1996 by american economic association

global analysis of an expectations augmented evolutionary dynamics we consider a deterministic evolutionary model where players form expectations about future play players are not fully rational and have expectations that change over time in response to current payoffs and feedback from the past we provide a complete characterization of the qualitative dynamics so induced for a two strategy population game and relate our findings to standard evolutionary dynamics and equilibrium selection when agents have rational forward looking expectations

does opec influence crude oil prices testing for co movements and causality between regional crude oil prices using high frequency data the co movements among crude oil prices are analysed in order to address the question of regionalization of the world crude oil market time series econometrics in the form of error correction modelling is applied for daily crude oil price data covering the time period 1988 to 2004 and in this framework topics like weak and strong exogeneity among three major oil prices represented by brent opec and texas wti are addressed the empirical results are that causality is most likely bi directional among these crude oil prices and hence rejecting a regionalization hypothesis of the global oil market and also an influence from the opec oil price towards bent and wti which are usually claimed to have a benchmark role

modeling structural breaks in economic relationships using large shocks abstract this paper introduces a new model of structural breaks in the coefficients of economic relationships which allows them to be driven by large past economic shocks the breaks generated by these shocks can be taken to reflect stochastic changes in agents decisions or beliefs triggered by extraordinary economic events our model specifies that both the timing and size of breaks are stochastic the last property of it enables us to investigate qualitative effects that large shocks can have on economic relationships as an empirical application of our model the paper investigates the stability the oil economy relationship since the early sixties from the six large oil shocks identified by our data the paper shows that only the first oil shock at the end of 1973 has caused a major long term adverse effect on economic activity all the large oil price shocks that have happened since then did not have any significant negative effects on the slope of the oil economy relationship

oil price shocks and real gdp growth empirical evidence for some oecd countries this study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries multivariate var analysis is carried out using both linear and non linear models the latter category includes three approaches employed in the literature namely the asymmetric scaled and net specifications evidence of a non linear impact of oil prices on real gdp is found in particular oil price increases are found to have an impact on gdp growth of a larger magnitude than that of oil price declines with the latter being statistically insignificant in most cases among oil importing countries oil price increases are found to have a negative impact on economic activity in all cases but japan moreover the effect of oil shocks on gdp growth differs between the two oil exporting countries in the sample with the uk being negatively affected by an oil price increase and norway benefiting from it

on the dynamic effects of oil price shocks a study using industry level data abstract this paper analyzes the effects of oil price shocks on demand and supply in various industries the impulse responses of identified var models indicate that for industries that have a large cost share of oil such as petroleum refinery and industrial chemicals oil price shocks mainly reduce supply in contrast for many other industries with the automobile industry being a particularly important example oil price shocks mainly reduce demand the paper suggests that oil price shocks influence economic activities beyond that explained by direct input cost effects possibly by delaying purchasing decisions of durable goods

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

economic growth inflation and oil shocks are the 1970s coming back this article analyses the relationship between oil price shocks and the macroeconomic evolution of the group of seven g7 countries using the qu and perron 2007 methodology we endogenously identify three breaks in the nonlinear relationship across our 1970 to 2008 sample we compute long term multipliers and find that the response of output and inflation to oil price shocks is greatest in the 1970s and progressively disappears until the late 1990s in contrast to the previous literature we observe that both effects reappear in the 2000s especially on inflation nevertheless the transmission of oil price shocks to the economy is weaker than in the 1970s which means that oil price shocks have lost some of their explanatory power precisely identifying these effects is crucial for the design of adequate economic measures to control or smoothen them

on the evolution of pareto optimal behavior in repeated coordination problems i characterize the asymptotic behavior of a society facing a repeated common interest game in this society new individuals enter to replace their parents at random times each entrant has possibly different beliefs about others behavior than his or her predecessor a self confirming equilibrium sce belief process describes an evolution of beliefs in this society consistent with a self confirming equilibrium of the repeated game the main result shows that for any common interest game the pareto dominant equilibrium is a globally absorbing state of the behavioral dynamics when the sce beliefs of new entrants satisfy certain independence and full support properties this result does not involve either of the usual assumptions of myopia or large inertia common in evolutionary models nor is this result possible if only nash rather than self confirming equilibria are considered

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

a comparison of the effects of exogenous oil supply shocks on output and inflation in the g7 countries a comparison of the effects of exogenous shocks to global crude oil production on seven major industrialized economies suggests a fair degree of similarity in the real growth responses an exogenous oil supply disruption typically causes a temporary reduction in real gdp growth that is concentrated in the second year after the shock inflation responses are more varied the median cpi inflation response peaks after three to four quarters exogenous oil supply disruptions need not generate sustained inflation or stagflation typical responses include a fall in the real wage higher short term interest rates and a depreciating currency with respect to the dollar despite many qualitative similarities there is strong statistical evidence that the responses to exogenous oil supply disruptions differ across g7 countries for suitable subsets of countries homogeneity cannot be ruled out a counterfactual historical exercise suggests that the evolution of cpi inflation in the g7 countries would have been similar overall to the actual path even in the absence of exogenous shocks to oil production consistent with a monetary explanation of the inflation of the 1970s there is no evidence that the 1973 1974 and 2002 2003 oil supply shocks had a substantial impact on real growth in any g7 country whereas the 1978 1979 1980 and 1990 1991 shocks contributed to lower growth in at least some g7 countries jel e31 e32 q43

oil shocks and monetary policy rules in emerging economies we examine the effects of shocks in the oil market on key macroeconomic variables in small open economies using a dynamic stochastic general equilibrium model with sticky prices and imperfect competition under different monetary policy rules the numerical solutions show that the types of exchange rate regimes and monetary policies could partly explain the trends in macroeconomic volatilities considering negative shocks to oil supply hamilton 1983 and positive shocks to oil demand kilian 2009 these findings are confirmed in vector autoregressive responses for chile and israel with inflation targeting under flexible exchange regimes and hong kong with fixed regime

inflation targets and contracts with uncertain central banker preferences within a standard model of monetary delegation the authors show that the optimal linear inflation contract performs strictly better than the optimal inflation target when there is uncertainty about the central banker s preferences the optimal combination of a contract and a target performs best and eliminates the inflation bias and any variability not associated with supply shocks however variability due to shocks is enhanced by uncertain central banker preferences quadratic contracts are shown to overcome this problem partly but the advantages of delegation may still be dominated by the excess variability due to shocks hence the credibility stabilization tradeoff is restored

congressional influence on u s monetary policy abstract congressional influence is generally discounted or ignored in political models of federal reserve behavior here i show that changes in the leadership of the senate banking committee are significantly correlated with monetary base growth more liberal committee leaders are associated with significantly higher base growth other factors held constant the result is shown to hold across several econometric specifications and different definitions of the congressional preference variable

are oil shocks inflationary asymmetric and nonlinear specifications versus changes in regime this paper identifies a structural break in core u s inflation phillips curves such that oil prices contributed substantially before 1981 but since that time pass through has been negligible this characterization is robust to a variety of re specifications and fits the data better than asymmetric and nonlinear oil price alternatives evidence does not support the hypotheses that declining energy intensity or deregulation of energy producing and consuming industries played an important role monetary policy did not itself become less accommodative of oil shocks but may have helped create a regime where inflation is less sensitive to price shocks more generally

central banking as a political principal agent problem i introduction conventional wisdom holds that during election periods political leaders have incentives to misuse policy instruments to enhance their chances of reelection rogoff and sibert 1988 construct a rational political economy model of monetary policy based on this theme 1 the results of their model can be interpreted in the following way 2 society elects a leader every other period whose competence affects the level of output in the economy and private agents will tend to vote for the incumbent if the level of output is expected to be higher than that which can be provided by an unknown challenger voters have imperfect information regarding the politician s true impact on output and exogenous shocks to output and consequently cannot disentangle the effects of one from the other in an election period this asymmetry of information gives the incumbent an incentive to expand output through the use of inflationary monetary policy in order to appear more competent than he really is however rational voters are aware of this incentive to inflate and adjust their expectations such that in equilibrium no gain in output occurs and the economy suffers from excessive inflation an implication of the rogoff sibert model is that unless a society does away with elections as a way to choose policymakers excessive inflation and a political inflation cycle will be an unavoidable cost of democracy however societies can try and have tried to avoid these ill effects by taking the power of money creation away from the elected officials and giving it to an appointed independent central banker who will presumably pursue the public good but can this approach actually work the problem with this proposal is that the central bankers well being in many respects reappointment post central bank employment opportunities avoidance of public criticism etc often hinges on pleasing their political benefactors giving the central bankers incentives to act in the interest of elected officials 3 as a result the central banker could pursue objectives different from society s and may actually function as a veil for the elected policymaker in the real world this veil is not complete but partial and hence we can characterize the relationship between the monetary authority and society as a principal agent problem the advantage of delegating power to an appointed central banker and then erecting appropriate institutions is that the inflation problems may be resolved without abandoning the electoral process in this paper we develop a rational political business cycle model that starts from the foundations laid down by rogoff and sibert we depart from their model by having monetary policy delegated to a central banker who is appointed by the elected leaden the concern about reappointment is what motivates the agency problem the central banker would like to be reappointed and this desire leads her to partially accommodate the wishes of the current administration which in turn may not coincide with the desires of the electorate we then analyze the problem faced by a central banker who is concerned about her own selfinterest as well as social well being it is this feature that turns the setting of monetary policy into a political principal agent problem the contributions of our approach to modelling the agency problem of central banking are 1 it explicitly incorporates reappointment concerns into the decision process of the central banker which heretofore has not been done in the literature and 2 we explicitly model the source of the agency problem unlike previous research that simply assumes an agency problem exists our key results are as follows in equilibrium the pursuit of her own self interest leads the central banker to create a socially inefficient inflation bias while rogoff and sibert also obtain this result our explicit functionalform model allows us to analyze this bias in more detail and tie it directly to the strength of the relationship between the central banker and the current administration

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

input price shocks and the slowdown in economic growth the case of u k manufacturing this paper provides a theoretical and empirical analysis of the effects of input price shocks on economic growth with a focus on united kingdom manufacturing in the 1970s the theoretical model predicts a discrete decline in output and productivity after an input price rise and a longer run slowdown in productivity growth real wage growth and capital accumulation these features characterize the united kingdom and most other oecd economies after 1973 the empirical results confirm the important role of input prices in recent u k adjustment but also point to an important role for other supply and demand factors two types of explanations have been offered for the sharp deterioration in u k economic performance in the past decade focusing respectively on demand and supply factors a standard keynesian view holds that macroeconomic demand management has been either too expansionary or too contractionary and that rising unemployment and falling output reflect the burden of anti inflationary policies an alternative view holds that various supply shocks are the main source of the poor output performance in this interpretation higher raw material prices particularly oil competition from the newly industrializing countries nics and perhaps an independent decline in productivity growth all have lowered output growth and raised unemployment

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

oil and the macroeconomy since the 1970s economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance this interest dates back to the 1970s the 1970s were a period of growing dependence on imported oil unprecedented disruptions in the global oil market and poor macroeconomic performance in the united states thus it was natural to suspect a causal relationship from oil prices to u s macroeconomic aggregates since then a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support we do not attempt a comprehensive survey of this literature but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years the timing seems right for such an account although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy there have been a number of new oil price shocks since the 1970s notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 1991 gulf war and the 2003 iraq war given this richer case history we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects increases in oil prices have been held responsible for recessions periods of excessive inflation reduced productivity and lower economic growth in this paper we review the arguments supporting such views first we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

the political economy of inflation labour market distortions and central bank independence using the citizen candidate model we study the government s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment we derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence the post election cycle in inflation and employment and inflation bias our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher consistent with evidence for oecd countries many democratic societies delegate key tasks to non elected and independent institutions a prominent example being independent central banks the belief in the advantage of central bank independence is nursed by the cross country evi

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

oil price movements and macroeconomic performance evidence from twenty six oecd countries abstract this study investigates the relationship between oil price movements and macroeconomic aggregates such as gross domestic product gdp consumer prices cpi and unemployment for oecd countries to do this second generation econometric methods have been employed to panel data including panel unit root tests panel cointegration tests and panel long run models panel unit root tests suggest that oil prices plus selected macroeconomic aggregates in oecd countries are non stationary at levels but become stationary at first differences in the existence of multiple structural breaks five structural break points have successfully been investigated in the series of this study during panel unit root and panel cointegration tests durbin h panel co integration tests confirm that there is a long term relationship between oil prices and those macroeconomic aggregates on the other hand results of this study reveal that the price of oil exerts statistically and negatively significant impacts on gdp cpi and unemployment in the case of oecd countries in general

self confirming equilibrium rium path of play thus if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs even though beliefs about play at off path information sets need not be correct we characterize the ways in which self confirming equilibria and nash equilibria can differ and provide conditions under which self con firming equilibria correspond to standard solution concepts nash equilibrium and its refinements describe a situation in which i each player s strategy is a best response to his beliefs about the play of his opponents and ii each player s beliefs about the opponents play are exactly correct we propose a new equilibrium concept self confirming equilibrium that weakens condition ii by requiring only that players beliefs are correct along the equilibrium path of play thus each player may have incorrect beliefs about how his opponents would play in contingencies that do not arise when play follows the equilibrium and moreover the beliefs of different players may be wrong in different ways the concept of self confirming equilibrium is motivated by the idea that noncooperative equilibria should be interpreted as the outcome of a learning process in which players revise their beliefs using their observations of previous play suppose that each time the game is played the players observe the actions chosen by their opponents but that players do not observe the actions their opponents would have played at the information sets that were not reached along the path of play then if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs so the equilibrium is self confirming in the weak sense of not being inconsistent with the evidence by analogy with the literature on the bandit problem e g rothschild 1974 one might expect that a non nash self confirming equilibrium can be the outcome of plausible learning processes this point was made by fudenberg and

monetary politics and unemployment persistence abstract this paper develops a positive model of monetary policy that allows for persistent unemployment and electoral uncertainty the common credibility problem associated with low inflation monetary policy results in both a more severe inflation bias and a stabilization bias however a simple state contingent performance contract eliminates both biases monetary policy is also subject to two different strategic political considerations it is used to influence future policy decisions as well as to increase the incumbent party s probability of re election this results in a political business cycle which however is fundamentally different for left wing and right wing governments

how sensitive are consumer expenditures to retail energy prices abstract there is growing evidence that the primary effect of energy price shocks on the u s economy involves a reduction in consumer spending we quantify the direct effect on real consumption of unanticipated changes in discretionary income shifts in precautionary savings and changes in the operating cost of energy using durables the possibility of asymmetries in the response of real consumption to energy price shocks is also considered we demonstrate that linear models are consistent with the symmetric behavior of real consumption in 1979 when energy prices increased sharply and in 1986 when they fell sharply it is shown that historically energy price shocks have been an important factor in explaining u s real consumption growth but by no means the dominant factor

exogenous oil supply shocks how big are they and how much do they matter for the u s economy abstract the paper proposes a new measure of exogenous oil supply shocks the timing the magnitude and the sign of this measure may differ greatly from current state of the art estimates it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions exogenous oil supply shocks cause a sharp drop of u s real gdp growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in cpi inflation after three quarters overall exogenous oil supply shocks made remarkably little difference for the evolution of the u s economy since the 1970s although they did matter for some historical episodes

the dynamic causality between commodity prices inflation and output in china a bootstrap rolling window approach in this article we empirically study the time varying bilateral causality between commodity prices inflation and output in china we first perform a series of parameter stability tests and find s

the economic effects of energy price shocks large fluctuations in energy prices have been a distinguishing characteristic of the u s economy since the 1970s turmoil in the middle east rising energy prices in the u s and evidence of global warming recently have reignited interest in the link between energy prices and economic performance this paper addresses a number of the key issues in this debate what are energy price shocks and where do they come from how responsive is energy demand to changes in energy prices how do consumers expenditure patterns evolve in response to energy price shocks how do energy price shocks affect u s real output inflation and stock prices why do energy price increases seem to cause recessions but energy price decreases do not seem to cause expansions why has there been a surge in the price of oil in recent years why has this new energy price shock not caused a recession so far have the effects of energy price shocks waned since the 1980s and if so why as the paper demonstrates it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets when answering these questions

the 2014 oil bust causes and consequences abstract this article suggests that the 2014 oil price collapse was possibly triggered by the falling euro versus the us dollar specifically the usd eur exchange rate likely adjusted to the sudden economic growth outlook divergence between the us and the eu as evident by the relative short term interest rate spread measures and triggered a strong dollar trade which is negative for the crude oil prices thus in our view the 2014 oil price bust is another episode of oil price inefficiency similar to the 2008 oil bubble the key argument presented in this article is that as long as there are temporary economic growth divergences between the us and the eu the resulting exchange rate volatility is likely to create the pricing inefficiencies in crude oil which in fact are mean reverting as the economic growth divergences eventually dissipate

central bank independence centralization of wage bargaining inflation and unemployment theory and some evidence abstract this paper proposes a conceptual framework to investigate the effects of central bank independence of the degree of centralization of wage bargaining and of the interaction between those institutional variables on real wages unemployment and inflation in a framework in which unions are averse to inflation this aversion moderates union s wage demands as they attempt to induce the central bank to inflate at a lower rate an increase in the degree of centralization of wage bargaining a decrease in the number of unions triggers two opposite effects on real wages unemployment and inflation it reduces the substitutability between the labor of different unions and therefore the degree of effective competition between them this reduced competition effect raises real wages unemployment and inflation but the decrease in the number of unions also strengthens the moderating effect of inflationary fears on the real wage demands of each union this strategic effect lowers real wages unemployment and inflation for sufficiently inflation averse unions the interaction between those two effects produces a calmfors driffill type relation between real wages and centralization the paper analyzes the effects of central bank independence on the position and the shape of this relation as well as on inflation and unemployment the paper features two mechanisms one of which is novel through which monetary institutions have real effects the model implies that if there is a single union social welfare is maximized when the central bank attaches a zero weight to inflation but when the number of unions is larger than one this result is no longer true in general empirical evaluation of some of the theoretical implications using data from 19 developed economies is for the most part supportive of those implications

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

oil shocks and aggregate macroeconomic behavior the role of monetary policy a recent paper by bernanke gertler and watson 1997 suggests that monetary policy could be used to eliminate any recessionary consequences of an oil price shock this paper challenges this conclusion on two grounds first we question whether the federal reserve actually has the power to implement such a policy for example we consider it unlikely that additional money creation would have succeeded in reducing the fed funds rate by 900 basis points relative to the values seen in 1974 second we point out that the size of the effect that bernanke gertler and watson attribute to oil shocks is substantially smaller than that reported by other researchers primarily due to their choice of a shorter lag length than that used by other researchers we offer evidence in favor of the longer lag length employed by previous research and show that under this specification even the aggressive federal reserve policies proposed would not have succeeded in averting a downturn