the policy preferences of the us federal reserve in this paper we model and explain us macroeconomic outcomes subject to the discipline that monetary policy is set optimally exploiting the restrictions that come from optimal policymaking we estimate the parameters in the federal reserve s policy objective function together with the parameters in its optimization constraints for the period following volcker s appointment as chairman we estimate the implicit inflation target to be around 1 4 and show that policymakers assigned a significant weight to interest rate smoothing we show that the estimated optimal policy provides a good description of us data for the 1980s and 1990s

bayesian new neoclassical synthesis nns models modern tools for central banks this paper discusses the advantages of bayesian new neoclassical synthesis models as tools for monetary policy analysis and forecasting the combination of a sound micro founded structure with a good probabilistic description of the observed data makes those models suitable for investigating the structural sources of business cycle fluctuations for analysing optimal monetary policy responses to those developments and for making economic projections conditional on various policy assumptions the paper gives two examples of such analysis jel e40 e50 c11 copyright c 2005 the european economic association

price stability vs output stability tales of federal reserve administrations abstract this study disentangles policy parameters from those describing private sector behavior by simultaneously estimating an empirical model for inflation and output along with a loss function for the last three federal reserve administrations three important results emerge first the federal reserve appears to put more emphasis on price stability than output stability when the entire sample is considered second and more importantly the loss function parameters exhibit structural break at the time paul volcker was appointed chairman the accommodative characteristics of monetary policy were replaced with a more active policy towards controlling inflation finally interest rate smoothing is found to be an important feature of the monetary policymaking process for all three administrations

does society prefer small innovation abstract in this paper we show how the size of innovation can affect the incentive for cooperative r d and social welfare when cost difference between large and small innovations is not sufficiently large then social welfare can be more under small innovation compared to large innovation however the innovating firm always prefers large innovation

generalized method of moments and inverse control abstract this paper presents a generalized method of moments algorithm for estimating the structural parameters of a macroeconomic model subject to the restriction that the coefficients of the monetary policy rule minimize the central bank s expected loss function the algorithm combines least squares normal equations with moment restrictions derived from the first order necessary conditions of the auxiliary optimization we assess the performance of the algorithm with monte carlo simulations using three increasingly complex models we find that imposing the optimizing restrictions when they are true improves estimation accuracy and that imposing those restrictions when they are false biases estimates of some of the structural parameters but not of the policy rule coefficients

needs and targeting this paper shows that when in the manner of the recent targeting literature the resources available for poverty relief are allocated across heterogeneous groups so as to minimize a well behaved index of aggregate poverty the optimal response to an increase in the needs of some group may be to reduce the resources allocated to it necessary and sufficient conditions for optimally targeted benefits to be inversely related to needs are established under two polar forms of poverty alleviation strategy pure contingency and strict means testing and the wider methodological implications of this possibility discussed copyright 1992 by royal economic society

patent damages and spatial competition this paper analyzes price competition between a spatially difierentiated product patentee and an imitator anticipating the possibility of future patent damages we compare the performance of three damage regimes the reasonable royalty regime the only one that yields symmetric equilibrium pricing maximizes static welfare and yields the highest incentives to innovate when patent enforcement is nearly certain the lost proflts regime the only one that may deter infringement yields the highest incentives to innovate when patent enforcement is less than certain and product value is su ciently high the unjust enrichment regime is weakest our results ofier an e ciency argument for abandoning it we also describe new insights into the hypothetical negotiation that the courts use to construct

means testing versus universal provision in poverty alleviation programs this paper contrasts the use of means tested and universal schemes in the alleviation of poverty using a class of poverty measures the authors illustrate the trade off from the fact that means testing is costly to both the government and the claimant while universal provision entails a leakage to the nonpoor the paper provides numerical as well as analytical results copyright 1990 by the london school of economics and political science

optimal anti poverty programmes horizontal equity and the paradox of targeting the paper examines the problem of optimal targeting when households differ in needs additively decomposable poverty measures based on the households deprivation are employed needs are modelled carefully household size and needs are reflected by equivalence scales and weights the paradox of targeting corresponds to a situation in which the benefits given to a household type could decrease if the type s needs measured by the respective scale value are increased i find that poverty programmes are horizontally equitable if and only if the weight attached to each household type equals the respective equivalence scale value the paradox cannot then occur either differences in household size and needs the present paper deals with this topic considering optimal poverty alleviation programmes two questions are investigated first are optimal programmes horizontally equitable this question is related to the second one does an increase in needs lead to an increase in benefits in view of some results in the literature it seems that the answers can be negative for instance ebert 1997 demonstrates that the living standard of different household types may be different in an optimal income distribution given a social welfare function keen 1992 describes what he calls the paradox of targeting it may be that optimal targeting requires that an increase in the needs of some group be met by a reduction in the resources allocated to it thus the answers may be troubling it is obvious that the outcome of the analysis depends on the framework chosen and the researcher s objective there are several ingredients that determine optimal programmes given different needs and sizes a distribution of household income has to be adjusted in order to reflect these differences in practice incomes are often converted to equivalent incomes measured for a reference type and weights are attached furthermore the poverty lines of different groups have to be chosen appropriately an optimal outcome also

protecting consumers through protection the role of tariff induced technology transfer abstract we consider a duopolistic trade model where a tariff induces the foreign firm to transfer its superior technology to the domestic rival contrary to the conventional wisdom such a tariff raises consumers surplus relative to the free trade situation we characterize the optimal tariff with and without precommitment on the part of the local government possibility of technology transfer reduces the optimal tariff rate compared to the no transfer situation

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

patent strength and optimal two part tariff licensing with a potential rival we investigate a two part tariff licensing contract that enables an incumbent innovator to license the technology for a new product to a potential rival who may alternatively develop a compatible technology for an imperfectly substitutable product we identify the optimal two part tariff licensing contract based on the development cost incurred by the rival the market parameter and the substitution coefficient

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

econometric policy evaluation and inverse control the traditional approach to monetary policy evaluation entails a first step in which structural parameters are estimated and a second in which the performance of alternative policy rules is studied this paper combines the two steps of the traditional approach into one by estimating a structural model subject to the restriction that the central bank chooses the policy rule that minimizes expected loss the structure is a forward looking new keynesian model in which equilibrium values of output and inflation depend on expectations of future values of those variables analysis of u s data between 1965 and 2001 support the hypotheses that the sample contains two policy regimes that the fed placed far greater weight on stabilizing inflation after 1980 and that improvements in policy were available in both regimes the unified approach also sharpens estimates of structural parameters

strategic enforcement intellectual property rights and contractual r d this study examines the role of intellectual property rights iprs in contractual research and development r d in developing countries we find that strong iprs provide incentives for firms both multinational and local to specialize in r d activities in which they have competitive advantage the specialization effect they also facilitate the switching process from imitators to potential innovators for local firms the switching effect moreover we also demonstrate that a multinational firm s strategic iprs enforcement behavior can be an effective instrument for subsidizing contractual r d in developing countries the subsidizing effect we further illustrate how a policy mix of iprs and a foreign direct investment subsidy in these countries affects r d activities by adding an offshore r d subsidiary as an additional organizational form jel l13 o31 o34

speed limit policies the output gap and optimal monetary policy in a standard new keynesian model a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal timeless perspective precommitment policy by stabilizing output gap changes the central bank imparts inertia into output and inflation that is absent under pure discretion even a fully optimizing i e non myopic central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting this abstract was borrowed from another version of this item

drastic innovations and multiplicity of optimal licensing policies abstract considering the licensing of a drastic cost reducing innovation by an outside innovator in an n firm cournot oligopoly we show that when the innovator uses combinations of fees and royalties there are either n 1 or n optimal licensing policies

optimal non linear income taxation for the alleviation of income poverty there has been much discussion recently of structuring tax and transfer programs to ensure that resources go to the poor with minimal leaks to the nonpoor the poor have no incentive to earn income with 100 percent marginal tax rates but how high or low the marginal rate of taxation should be and how they should vary with income is a complex issue and opinions vary social security schemes that withdraw benefits represent an extremely high effective marginal tax rate other schemes call for relatively low marginal tax rates at the bottom of the income distribution which tax transfer schedule does most to reduce poverty the issue is one of optimal nonlinear income taxation the authors show that one of the key theoretical results of the welfarist literature is overturned if it is desirable for everybody to work the optimal marginal tax rate on the very poorest individuals is strictly negative they argue that the nonwelfarist perspective points toward lower marginal tax rates in the lower part of the income distribution than does the welfarist perspective but numerical simulations suggest that the effect is of limited quantitative significance using conventional functional forms and parameter values optimal marginal tax rates on the poor are in the 60 70 percent range

explaining the great moderation it is not the shocks this paper shows that the explanation of the decline in the volatility of gdp growth since the mid eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism

fee versus royalty licensing in a cournot duopoly model abstract this paper finds that royalty licensing can be superior to fixed fee licensing for the patent holding firm when the cost reducing innovation is non drastic the reason for this result is that the patent holding firm enjoys a cost advantage over the licensee under royalty licensing while the two firms compete on equal footing under fixed fee licensing

the time varying volatility of macroeconomic fluctuations we investigate the sources of the important shifts in the volatility of us mac roeconomic variables in the postwar period to this end we propose the esti mation of dsge models allowing for time variation in the volatility of the structural innovations we apply our estimation strategy to a large scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades jel c51 e32

revealing the preferences of the us federal reserve we use bayesian methods to estimate changes in us post war monetary policy in the smets and wouters model we perform the estimations by allowing for a break in monetary policy at the time of volcker s appointment as chairman this enables us to capture changes in the monetary policy regime introduced by volcker during the volcker greenspan period we find support for the assumption that monetary policy in the volcker greenspan period performed optimally under commitment our estimation strategy allows us to estimate the preferences of the us federal reserve in the volcker greenspan period where the main objective of policy appears to be inflation followed by interest rate stabilization output growth and interest rate smoothing we find that the great moderation of output growth is explained by a combination of two factors the decrease in the volatility of the structural shocks and the improved monetary policy conduct inflation stabilization however is mainly due to the change in monetary policy that took place at the beginning of volcker s mandate copyright 2010 john wiley sons ltd

optimal subsidy for the poor abstract this paper considers the problem of allocating an antipoverty budget subsidy among the poor in a society in an optimal and inequality reducing manner optimality requires minimization of some exogenously given poverty index on the other hand for inequality reduction a poorer poor should receive a higher amount of subsidy than a richer poor minimal progressivity and the ranks of the persons in the pre and post subsidized distributions should be the same an illustration of the general optimal subsidy function using some specific poverty index and an income distribution is provided

inflation targeting a new framework for monetary policy he world s central bankers and their staffs meet regularly in venues from basle to washington to share ideas and discuss common problems perhaps these frequent meetings help explain why changes in the tactics and strategy of monetary policymaking such as the adoption of money growth targets in the 1970s the intensification of efforts to reduce inflation in the 1980s and the recent push for increased institutional independence for central banks tend to occur in many countries more or less simultaneously whatever their source major changes in the theory and practice of central banking are of great importance for both individual countries and the international economy in this article we discuss a new strategy for monetary policy known as inflation targeting which has sparked much interest and debate among central bankers and monetary economists in recent years this approach is characterized as the name suggests by the announcement of official target ranges for the inflation rate at one or more horizons and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy other important features of inflation targeting include increased communication with the public about the plans and objectives of the monetary policymakers and in many cases increased accountability of the central bank

on a non cooperative theory of technology transfer abstract this paper shows that it might be profitable for a firm with advanced technology to sell the knowledge to a competing firm with less efficient technology and still remain in the business a non corperative equilibrium with technology transfer may pareto dominate the initial equilibrium without technology transfer in this paper it is shown that technology agreement is likely to occur between firms which are reasonably close in terms of their initial technologies such an equilibrium is an interesting possibility in the absence of credibly sustainable collusive outcomes

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

transfers targeting and poverty poverty ravi kanbur in spite of poverty alleviation programmes in the uk and the us poverty still exists in both countries and a significant share of welfare funds do not even reach the poor this is partly because funds are simply limited and shrinking but there are also fundamental problems in designing programmes of poverty alleviation maximum effectiveness would seem to suggest that transfers ought to be targeted as precisely as possible at those who most need them unfortunately this is socially costly for two reasons first means based transfers imply that the poor face a very high marginal tax rate sometimes in excess of 100 which is a major disincentive to work effort the second difficulty is the stigma attached to means testing and the low take up rate this may induce this article presents the salient features of the us and uk poverty programmes discusses the principles behind poverty alleviation and considers various reform proposals among the alternatives is the idea of shifting even further away from means testing towards contingent benefits making transfers dependent on the characteristics most often associated with poverty the author argues that the present programmes reflect some essential considerations on which it is possible to build and that wholesale reform would be inappropriate nor is it clear that public support exists for a major extension of transfers to the poor indeed existing inefficiencies may be part of the price of public acceptance of the transfer programmes already in place

a decision theoretic model of innovation technology transfer and trade we analyse a dynamic north south model of innovation technology transfer and trade northern firms conduct r d using labour which has alternative uses producing in the r d sector or a nontraded good sector since technology transfer prevents the north from fully appropriating benefits of r d the optimal rate of innovation for either profit maximizing firms or a utility maximizing northern planner is less than globally optimal an increased transfer rate intensifies competition of lower wage southern workers with northern workers in production so profit maximizing northern firms irrespective of their number or cooperation in r d reallocate labour toward r d

food subsidies and poverty alleviation this paper formulates the problem of the optimal pattern of food subsidies in a general setting where the objective is to minimize a class of poverty indices within the framework of the mo dern public finance theory taking explicit account of the budget con straint and preferences and technologies the authors derive rules fo r retargetting food subsidies to reduce poverty many operational rul es of thumb appear as special cases of the general results the analy sis thus provides not only the microfoundations of these operational rules but also their appropriate generalizations when the conditions under which they arise are not fulfilled copyright 1988 by royal economic society

licensing under general demand and cost functions abstract we consider a cournot duopoly under general demand and cost functions where an incumbent patentee has a cost reducing technology that it can license to its rival by using combinations of royalties and upfront fees two part tariffs we show that for drastic technologies a licensing occurs and both firms stay active if the cost function is superadditive and b licensing does not occur and the patentee monopolizes the market if the cost function is additive or subadditive for non drastic technologies licensing takes place provided the average efficiency gain from the cost reducing technology is higher than the marginal gain computed at the licensee s reservation output optimal licensing policies have both royalties and fees for significantly superior technologies if the cost function is superadditive by contrast for additive and certain subadditive cost functions optimal licensing policies have only royalties and no fees

discontinuous losses from poverty generalized pα measures and optimal transfers to the poor abstract this paper examines the distributional properties of poverty measures which are discontinuous at the poverty line it is shown that among all the additive poverty measures only those measures with some discontinuous jump at the poverty line are such that it is optimal to allocate a given antipoverty budget either to the richest of the poor or to the poorest of the poor or to both a special class of such poverty measures is an extension of the well known p the properties of which are investigated

general licensing schemes for a cost reducing innovation optimal combinations of upfront fees and royalties are considered for a cost reducing innovation in a cournot oligopoly for both outside and incumbent innovators it is shown that for any nondrastic innovation a the license is practically sold to all firms ensuring full diffusion of the innovation b consumers are better off firms are worse off and the social welfare is improved c the optimal licensing policy involves positive royalty for relatively significant innovations d compared to an incumbent firm an outsider invests more in r d and has higher incentive to innovate and e as a function of the magnitude of the innovation the industry size that provides the highest incentive to innovate is u shaped

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

effects of technology transfers on the provision of public goods in this paper we examine the viability ofcooperative policies oriented to the resolution oftransboundary pollution problems using the theory ofprivate provision of public goods in a two countrymodel we analyze the effects on economic welfare ofvoluntary technological transfers oriented to reducingthe emission of pollutants

equity and policy effectiveness with imperfect targeting abstract we propose a general approach that jointly integrates horizontal and vertical equity criteria in the assessment of poverty alleviation programs with the strength of each criterion being captured through its own inequity aversion parameter this contrasts with the assessment of poverty alleviation programs done with simple under coverage and leakage ratios or with other methods that do not take into account the heterogeneity of the poor and that do not address directly the social benefits of achieving normative criteria our methodology is illustrated using tunisian data and two alternative poverty alleviation policies we find inter alia that the social ranking of commodity and socio demographic targeting in tunisia depends on the policymaker s comparative preference for vertical and horizontal equity

tariffs licensing and market structure this paper challenges the conventional wisdom that exclusive owners of an advanced technology are always better off when producing as a monopolist than when competing against another firm competition against a less efficient firm weakens the power that a host country can exert on the incumbent in the form of its tariff policy we show that this gives a motive for a monopolist to license its technology to another foreign firm a host country gains more from increased competition if it can induce the foreign incumbent to transfer technology to the host country firm we show that the host country can do so by tariff commitment we also discuss the implications of bargaining under licensing and bertrand competition in the product market hence this paper qualifies and extends the recent work of kabiraj and marjit protecting consumers through protection the role of tariff induced technology transfer european economic review 47 113 124

unionization structure licensing and innovation we show the effects of the unionization structure viz decentralized and centralized unions on a firm s incentive for technology licensing and innovation the incentive for technology licensing is stronger under decentralized unions we identify circumstances under which the benefit from licensing creates a stronger incentive for innovation under decentralized unions if the union s preference for employment is high the benefit from licensing may create higher incentive for innovation under decentralized unions however if the union s preference for wage is high enough the incentive for innovation is higher under a centralized union irrespective of licensing ex post innovation if the centralized union decides whether or not to supply workers to all firms the possibility of higher innovation under decentralized unions increases we further show that perfectly substitutable workers can be better off under decentralized unions if the labor productivity depends on the unionization structure which occurs in our analysis when e g licensing after innovation occurs only under decentralized unions or innovation with no licensing occurs only under a centralized union