discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

presidents and the u s economy an econometric exploration the us economy has performed better when the president of the united states is a democrat rather than a republican almost regardless of how one measures performance for many measures including real gdp growth our focus the performance gap is large and significant this paper asks why the answer is not found in technical time series matters nor in systematically more expansionary monetary or fiscal policy under democrats rather it appears that the democratic edge stems mainly from more benign oil shocks superior total factor productivity tfp performance a more favorable international environment and perhaps more optimistic consumer expectations about the near term future jel d72 e23 e32 e65 n12 n42 an extensive and well known literature of scholarly research documents and explores the fact that macroeconomic performance is a strong predictor of us presidential election outcomes scores of papers find that better performance boosts the vote of the incumbent s party 1 in stark contrast economists have paid scant attention to predictive power running in the opposite direction from election outcomes to subsequent macroeconomic performance the answer while hardly a secret is not nearly as widely known as it should be 2 the us economy performs much better when a democrat is president than when a republican is

the effects of firm optimizing behaviour in matching models this paper considers a matching model of which the search behaviour of jovanovic 1979 and albrecht and jovanovic 1984 are special cases the nature of the generality is that each unemployed worker has more information than firms about his average productivity this results in wage offers falling over the length of an unemployment spell because a long spell is a signal of lower than average productivity the results of the paper are similar to the scarring effect of heckman and borjas 1980 and greenwald 1986 and the discouraged worker effect of schweitzer and smith 1974

friedman s plucking model of business fluctuations tests and estimates of permanent and transitory components in milton friedman s model output cannot exceed a ceiling level but occasionally is plucked downward by recession implying fluctuations are asymmetric recessions transitory and recessions duration dependent though expansions are not the empirical literature lends support but formal modeling has been absent the econometric model presented here encompasses both plucking and symmetric fluctuations around a stochastic trend we find gdp is well characterized by the plucking model implied recessions correspond to nber reference cycles and no role for symmetric cycles decomposition of the unemployment rate reveals a corresponding asymmetry and timing paths of ceiling output and trend unemployment are presented

money politics and the post war business cycle abstract the political economy literature has enshrined as stylized fact the view that lower inflation and temporarily lower growth follow the election of republican presidents and has emphasized political manipulation of monetary policy as an explanation support for the monetary explanation comes in econometric work that largely ignores identification issues that dominate the literature on measuring the effects of monetary policy we generalize a standard vector autoregression framework to accommodate discrete political party variables we find almost no support for the view that political effects on the macroeconomy operate through monetary policy and only weak evidence that political effects are significant at all

price matching in a model of equilibrium price dispersion some sellers announce openly to prospective buyers that they will match any competitor s lower price on similar products this practice is visible among many retailers of consumer durables such as tv sets stereo components cameras and personal computers in more covert and informal forms price matching is ubiquitous it exists whenever individual sellers of a product are known to be generally willing to lower their prices when confronted by prospective buyers who can demonstrate information of lower prices elsewhere attempts to demonstrate and verify such information usually constitute part of the haggling process one often wonders will prices consumers ultimately pay indeed be lower with such haggling will apparently aggressive price matching strategies result in lower or higher equilibrium prices this paper deals with an environment in which information is not perfect and buyers engage in costly sequential search it will be shown that with price matching prices ultimately charged to consumers are higher the crucial assumption here is that buyers marginal search cost increases with the number of searches already performed with this assumption the main idea driving our results is as follows in the presence of increasing marginal search cost price matching encourages search therefore there will be more prospective buyers who will have performed a larger number of searches their marginal search cost will be higher on the average thus firms will be able to take advantage of this and charge higher prices but why would price matching encourage search if marginal search cost is increasing the answer lies in that price matching implies costless recall in sequential search models with consumers facing a known price distribution and constant marginal search cost whether recall is costless or costly is immaterial for then consumers optimal strategy is a constant reservationprice strategy implying that prices rejected earlier will never be acceptable the desire to recall never arises so that it does not matter to the searcher whether recall is costly or costless in such an environment firms do not have the incentive to offer price matching but as rothschild 7 has cautioned us the two assumptions of costly and costless recall are not always interchangeable they are not when marginal search cost is increasing for then if a consumer having a price

testing models of consumer search using data on web browsing and purchasing behavior using a large data set on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various classical search models we nd that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data moreover we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution observed search behavior for given consumers over time is more consistent with non sequential search than sequential search with learning our

the impact of demand and price expectations on the behavior of prices the effects of demand and price expectations on price behavior are analyzed using data from the manufacturing sector and a model formulated to pinpoint the demand oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior the expected normal demand is seen to have a strong and systemic influence on price behavior the expected normal level of new orders is found to be an adequate measure with sector data in general although some industries require more specification the effects of inventories and unfilled orders on prices are sporadic and across sectors and industries demand oriented forces are concluded to perform as well statistically as cost push determinants expectations concerning the current normal industry price level have a significant and consistent impact on price behavior this supports the idea that firms setting prices take into account their estimates of competitor s prices future price expectations appear to have little effect on current price information 15 references

price dispersion with directed search we model a market where identical buyers direct their search to identical capacity constrained sellers sellers cannot fully commit to the list price so strategic bargaining may determine the sale price we study search and pricing behavior in symmetric equilibrium sale prices exhibit equilibrium dispersion as they respond naturally to local demand conditions uncoordinated search decisions lead to equilibrium demand heterogeneity so sellers realizing large demand bargain prices up we characterize the sale price distribution parametrically studying how different commitment limitations and market features affect pricing and surplus shares we also determine endogenously

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

measuring the effects of search costs on equilibrium prices and profits abstract this paper assesses the effects of search costs on equilibrium prices and profits using an estimated model of demand and costs in a laundry detergent market i find that some firms profits initially rise and then fall with search costs overall the magnitude and direction of the search costs effects on prices and profits are heterogeneous this is because search costs create conflicting incentives for a firm to reduce prices to attract the attention of searching consumers yet also raise prices to harvest profit from consumers who are unaware of competing products these effects can vary with the relationship between the firms actual prices and the consumers pre search beliefs about prices

retail gasoline price dynamics and local market power using monthly data from the 48 contiguous states except nevada for the 1988 2002 period it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases moreover markets with high average retail wholesale margins experience a slower adjustment and a more asymmetric response since gasoline is the only variable input average margins in a state likely reflect the degree of retail market power this suggests that sticky prices and response asymmetries in the gasoline market are at least partially a consequence of retail market power

employer search training and vacancy duration we develop a model of optimal employer search strategy when information about match quality is endogenous the model is tested using four data sets two of which have not previously been used as theory predicts we find that when filling positions requiring more training employers search more intensively and extensively employers also search more extensively when hiring workers with more education and with prior experience these findings provide strong evidence of systematic variation in search strategies based on the characteristics of the positions and job applicants factors that influence employer search also affect the duration of a vacancy

costly diagnosis and price dispersion abstract in the standard search model under monopolistic competition when the consumer encounters a seller he knows the price before purchasing the commodity consequently the price cannot exceed the consumer s reservation price in a market with rational and homogeneous agents the price distribution must therefore be degenerate in markets for indivisible professional services the consumer does not necessarily know the price of the service when he encounters the seller this possibility arises when the cost of ascertaining the price the diagnosis cost is high and the consumer decides to enter the market without searching in contrast to the standard model under monopolistic competition price dispersion in equilibrium is possible even when fully rational economic agents on both sides of the market are homogeneous we characterize such equilibria and provide a sufficient condition for their existence we then study the effect of manipulating the search technology typically through a professional code of ethics on the equilibrium in markets for such professional services

price dispersion in an automobile insurance market from automobile insurance data for alberta over the period 1974 81 we find thatpremiums are highly correlated across driver classes in a given year but that premiums for a given driver class are not correlated over a period of more than 5 years firms relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums in these driver classes the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured from these results we conclude that the price dispersion in automobile insurance in alberta is based on costly consumer search

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

output price markups and producer size abstract this paper examines how output prices and markups vary across the size distribution of producers it uses unique plant level data on physical output revenue and input expenditures for six homogeneous u s manufactured products the results reveal that for five of the six products output prices decline systematically with increases in plant size in the most extreme case corrugated boxes the smallest producers have prices that average 20 percent above the mean price while the largest producers average 10 percent below the mean at the other extreme the price dispersion for gasoline is small and unrelated to plant size plant specific markups of price over marginal cost vary across the size distribution of producers for five of the products in three cases they decline in two cases they increase and one product gasoline shows no systematic variation

using stock returns to identify government spending shocks this article explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches the new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large us military contractors this strategy is used to estimate the dynamic responses of output hours consumption and real wages to a government spending shock we find that positive government spending shocks are associated with increases in output hours and consumption real wages initially decline after a government spending shock and then rise after a year we estimate the government spending multiplier associated with increases in military spending to be about 1 5 over a horizon of 5 years

nonstandard foundations of equilibrium search models abstract we develop an equilibrium sequential search model which includes most of the literature as special cases in particular the model can accommodate heterogeneity in buyers search costs and demand functions and firms cost functions with general demand and cost functions we identify conditions which ensure existence of equilibrium in pure strategies utilizing recent progress in the theory of large games by khan and sun these conditions elucidate the essential structure of equilibrium search models although we focus on sequential search our methodology can be used for other classes of equilibrium search models as well

relationship between spatial agglomeration and hotel prices evidence from business and tourism consumers abstract in this paper we examine the relationship between number of local competitors and both the average and the dispersion of retail prices in urban hotels using a dataset from the metropolitan area of madrid spain by controlling for hotel characteristics and spatial factors we obtained results for each of the days in one week in line with predictions derived from the traditional monopolistic approach empirical results consistently indicate that a greater density of competitors implies a lower average and less dispersion of local prices moreover we found evidence which supports the idea that the effect of local agglomeration on average prices is particularly weaker at weekends this in turn indirectly suggests that within the metropolitan area there is a greater degree of substitution in hotel locations for tourism consumers than for business consumers

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

partisan bias in inflation expectations we examine partisan bias in inflation expectations our dataset includes inflation expectations of the new york fed s survey of consumer expectations over the period june 2013 to june 2018 the results show that inflation expectations were 0 46 points higher in republican dominated than in democratic dominated us states when barack obama was us president compared to inflation expectations in democratic dominated states inflation expectations in republican dominated states declined by 0 73 points when donald trump became president we employ the blinder oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations around 25 of the total difference between inflation expectations in democratic dominated versus republican dominated states is based on how partisans respond to changes in the white house s occupant partisan bias the results also corroborate the belief that voters misperceptions of economic conditions decline when the president belongs to the party that voters support

advertising intensity and welfare in an equilibrium search model i analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price i compare the market advertising level to the socially optimal level where i find that costly search can improve welfare and that firms may under or over advertise relative to the social optimum depending on the costs of search the results suggest that in markets with sufficiently low search costs firms are likely over advertising relative to the socially optimal level and vice versa for markets with sufficiently high search costs

paying the professor sources of salary variation in academic labor markets using a set of 58 academic fields as distinct labor markets we examined the extent of wage variation within markets the degree to which wages vary is an indicator of market efficiency and of whether a market wage exists holding constant differences in human capital we found that the degree of wage variation in an academic labor market is negatively related to mobility within that market and positively related to the oversupply of labor we also found that as wage variation increases male female wage differentials also increase

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

a simple model of price dispersion abstract this article considers a simple stock flow matching model with fully informed market participants unlike the standard matching literature prices are assumed to be set ex ante when sellers pre commit themselves to sell their products at an advertised price the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs in a marketplace with full information this provides new insights into the price dispersion literature which instead commonly assumes that buyers are not perfectly informed and engage in a costly search

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

tracking customer search to price discriminate suppose that every time you walked around the mall somebody put a bar code on your shoulder and as you walked into the shops in the mall someone came up and scanned your shoulder and got the number went to a database saying ah yes that s lesley who visited the shop next door 15 minutes ago that s the level of surveillance that s going on on the internet internet entrepreneur jason catlett in a 60 minutes interview with lesley stahl not as private as you think aired november 28 1999 i introduction transaction mechanisms in an electronic marketplace can be much different from those used in traditional markets predominantly brick and mortar markets are described as sellers posting single offer prices that buyers either accept or reject through their purchase decisions without necessarily holding everything else constant two buyers each making concurrent purchases in the same store pay the same posted price for an identical item 1 in particular a buyer that has visited multiple rival stores receives the same price as a buyer that impulsively purchases without comparing any prices in contrast a combination of internet technologies makes it possible to identify the search history of potential customers online retailers generally make use of a standard programming device that produces electronic files to tag individual customers with a unique identification commonly referred to as cookies these small computer files are stored on the hard drive of the customer s computer developers created cookies so that a web site could maintain state even though the http protocol is stateless this allows a web site to recognize an individual and accommodate multiple item purchases from an internet retailer 2 an unintended consequence of this technology is that other web sites namely rival sellers could use a second internet device called a web bug to retrieve the identity of the internet domain that placed a cookie even though the specific information content of the cookie is typically encrypted two different types of web bugs can ascertain the search history of a customer a web bug is a graphic typically one pixel by one pixel in size on a web page and it is designed to monitor who is reading the web page web bugs are virtually invisible because they are uncolored and so small one type an executable web bug is a file that monitors a machine s traffic and hard drive and periodically sends the information back to the web site that planted the bug on the machine the second type is not physically located on the machine and uses a technology called scripts e g javascript activex and perl to scan a hard drive searching for files 3 4 because the process of identifying a customer and posting an offer price is electronic and immediate sellers on the internet can use this technology to post dynamic customer specific prices 5 however the major contributions to the rich literature on consumer search consider only models in which firms post a single price regardless of how informed the customer may be for example braverman 1980 varian 1980 stiglitz 1979 and salop and stiglitz 1977 assume that a consumer is either fully informed or completely unaware of other stores prices and that each firm posts a single price to any customer other work considers sequential consumer search but again each firm posts a single price regardless of how informed the customer may be see for example stahl 1989 stiglitz 1987 rob 1985 burdett and judd 1983 carlson and mcafee 1983 and wilde and schwartz 1979 6 this article explores the fundamental changes to traditional sequential customer search in posted offer markets when firms have the ability to track customers and price discriminate accordingly using controlled experimental markets we investigate how the ability to track customers and offer differentially informed customers different prices affects the prices that buyers receive in aggregate

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

political uncertainty market anomalies and presidential honeymoons the first 100 days of a newly elected president s administration are often a period of substantial and concentrated policy change this paper shows that measures of uncertainty and risk aversion rise sharply during presidential honeymoons consistent with theoretical models that suggest that investors demand compensation for bearing heightened political risk we document striking spread returns to value investment and profitability anomalies during honeymoons for example the book to market value premium averages 3 51 per month during presidential honeymoons yet only 0 27 per month at other times these findings survive numerous robustness checks nonetheless establishing a direct link between escalating political risk and equity returns proves challenging

the asymmetric business cycle abstract the business cycle is a fundamental yet elusive concept in macroeconomics in this paper we consider the problem of measuring the business cycle first we argue for the output gap view that the business cycle corresponds to transitory deviations in economic activity away from a permanent or trend level then we investigate the extent to which a general model based approach to estimating trend and cycle for the u s economy leads to measures of the business cycle that reflect models versus the data we find empirical support for a nonlinear time series model that produces a business cycle measure with an asymmetric shape across nber expansion and recession phases specifically this business cycle measure suggests that recessions are periods of relatively large and negative transitory fluctuations in output however several close competitors to the nonlinear model produce business cycle measures of widely differing shapes and magnitudes given this model based uncertainty we construct a mode

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 impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

measuring oil supply disruptions a historical perspective abstract an oil supply disruption in opec member countries or in the persian gulf region may have unusually large effects on crude oil prices because such a disruption may escalate into wider disruptions within these volatile regions this analysis reviews and updates several past studies to identify specific events that can be linked to oil supply shocks that remove oil production while increasing world oil prices using historical data it finds that a 10 cut in world oil supplies arising from abrupt and large monthly disruptions of opec and persian gulf crude oil production correlates with a 35 43 increase in inflation adjusted crude oil prices the data also reveal that almost all sudden and large oil supply disruptions occurred prior to 2004 which raises some interesting issues about how to interpret the evidence from studies evaluating the impact of future oil disruptions on either prices or the economy

are government spending multipliers greater during periods of slack evidence from 20th century historical data a key question that has arisen during recent debates is whether government spending multipliers are larger during periods of slack some researchers and policymakers have argued that while government spending multipliers are estimated to be modest on average they might become greater during times when resources are underutilized auerbach and gorodnichenko 2012 forthcoming henceforth ag test this hypothesis and find larger multipliers dur

news shocks and business cycles abstract this paper proposes and implements a novel structural var approach to the identification of news shocks about future technology the news shock is identified as the shock orthogonal to the innovation in current utilization adjusted tfp that best explains variation in future tfp a favorable news shock leads to an increase in consumption and decreases in output hours and investment on impact more suggestive of standard dsge models than of recent extensions designed to generate news driven business cycles though news shocks account for a significant fraction of output fluctuations at medium frequencies they contribute little to our understanding of recessions

a model of market power in customer markets we develop a model for studying dynamic competition in environments with frictions that lead to partial lock in of customers to products the dynamic aspects associated with customer retention and acquisition introduce pricing incentives that do not exist in more traditional static product markets the proposed model while highly stylized maintains certain symmetry properties that allow us to obtain equilibrium existence and uniqueness we then study the comparative statics of the model and derive a closed form relationship between average equilibrium markups and the herfindahl index we illustrate how the model can be used by analyzing mergers in such a dynamic environment

consumer discrimination and self employment self employment rates and incomes differ significantly by race we show that these differentials arise in markets with consumer discrimination and incomplete information about the price of the good and the race of the seller equilibrium income distributions have two properties mean black incomes are lower than mean white incomes and the returns to ability are lower for black than for white sellers able blacks therefore are less likely to self select into the self employment sector than able whites using the 1980 census data we find that observed racial differences in the self employment income distributions are consistent with the theoretical predictions

price price dispersion and number of sellers at a low entry cost shopbot abstract shopbots function as market intermediaries by providing unprecedented quantities of information to buyers and sellers this paper explores the role of market structure across shopbot mediated markets using an unbalanced panel of 399 digital camera models it extends prior work by using an ultra low entry cost site additionally allowing controls for life cycle and popularity effects we find a robust negative relationship between seller number and price which persists even as markets become crowded with sellers the results are capable of either an scp or a carlson mcafee heterogeneous cost interpretation but observed entry behaviour here is consistent with the latter

information animal spirits and the meaning of innovations in consumer confidence we show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the michigan survey of consumers have powerful prognostic implications for the future paths of macroeconomic variables we attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes the animal spirits view from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects the information view in natural rate models animal spirits shocks are associated with overshooting of among other variables consumption that attenuates when agents come to grips with their overreaction while information shocks about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed in a baseline vector autoregression involving consumption income and confidence the data come down sharply in favor of the information view the impulse responses of consumption and gdp show no tendency to attenuate even after a number of years further confidence innovations have strong implications for labor productivity many quarters into the future in somewhat larger vars with an information block that includes inflation and or stock prices the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks but they are smaller in magnitude we demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits but it does not provide constructive evidence of such effects

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

product differentiation search costs and competition in the mutual fund industry a case study of s p 500 index funds we investigate the role that non portfolio fund differentiation and information search frictions play in creating two salient features of the mutual fund industry the large number of funds and the sizeable dispersion in fund fees in a case study we find that despite the financial homogeneity of s p 500 index funds this sector exhibits the fund proliferation and fee dispersion observed in the broader industry we show how extra portfolio mechanisms explain these features these mechanisms also suggest an explanation for the puzzling late 1990s shift in sector assets to more expensive and often newly entered funds an influx of highinformation cost novice investors

buyer search and price dispersion a laboratory study we study markets with costly buyer search in which sellers simultaneously post prices buyers costlessly observe one or with probability 1 q two of the posted prices and can accept one or pay to search again the experiment varies q the search cost and the number of buyers equilibrium theory predicts a unified very low high price for q 0 q 1 and predicts specific distributions of dispersed prices for q 1 3 and 2 3 actual prices conform closely to the predictions in some treatments buyers reservation prices are biased away from the extremes however and sellers prices have positive autocorrelation and cross sectional correlation

market structure and market performance in e commerce we investigate the effect of market structure on market performance in the market for consumer electronics we exploit product life cycle information to build an instrumental variable for the number of firms in a market a variable which hitherto had to be treated as exogenous in comparable studies on seller behavior in e commerce we combine data from austria s largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics we observe input prices of firms and all their moves in the entry and the pricing game using this information for 70 digital cameras we generate instrumenting is particularly important for estimating the effect of competition on the markup of the price leader

entry and price dynamics in a perfect foresight model abstract this paper studies firms entry and price dynamics in a model that combines the assumptions of free entry and perfect foresight with the hypothesis of consumer s loyalty postulated by phelps and winter the analysis of the transition to long run equilibrium reveals that in such a model the entry of firms is related to the difference between current prices and costs in relation to the growth of the firms output it is shown that the model is consistent with gibrat s law finally it is shown that the size distribution of firms approaches asymptotically a pareto distribution

price distributions and competition considerable evidence demonstrates that significant dispersion exists in the prices charged for seemingly homogeneous goods this paper adopts a simple flexible equilibrium model of search to investigate the way the market structure influences price dispersion using the noisy search approach the paper demonstrates the effects of having a single large price leading firm with multiple outlets and a competitive fringe of small firms with one retail outlet each

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

firm size distribution testing the independent submarkets model in the italian motor insurance industry this paper tests the presence of multiple independent submarkets in the italian motor insurance industry independence is motivated by administrative boundaries among provinces and by further locational reasons we find that the independence effects are sufficient to induce a minimum degree of inequality in the size distribution of firms once submarkets are aggregated these results are fully consistent with the predictions of sutton 1998 we also show that the degree of skewness in the firms size distribution is related to characteristics such as the population living in an area its density and the riskiness of a submarket