asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

disinflation with imperfect credibility abstract this paper presents a theory of the real effects of disinflation as in new keynesian models price adjustment iis staggered across firms as in new classical models credibility is imperfect the monetary authority may not complete a promised disinflation the combination of imperfect credibility and staggering yields more plausible results than either of these assumptions alone in particular an announced disinflation reduces expected output if credibility is sufficiently low

close the gaps a learning while doing algorithm for single product revenue management problems we consider a retailer selling a single product with limited on hand inventory over a finite selling season customer demand arrives according to a poisson process the rate of which is influenced by a single action taken by the retailer such as price adjustment sales commission advertisement intensity etc the relationship between the action and the demand rate is not known in advance however the retailer is able to learn the optimal action on the fly as she maximizes her total expected revenue based on the observed demand reactions using the pricing problem as an example we propose a dynamic learning while doing algorithm that only involves function value estimation to achieve a near optimal performance our algorithm employs a series of shrinking price intervals and iteratively tests prices within that interval using a set of carefully chosen parameters we prove that the performance of our algorithm is among the best of all possible algorithms in terms of the asymptotic regret the relative loss compared to the full information optimal solution our result closes the performance gaps between parametric and nonparametric learning and between the post price mechanism and the customer bidding mechanism important managerial insight from this research is that the values of information on both the parametric form of the demand function as well as each customer s exact reservation price are less important than prior literature suggests our results also suggest that firms would be better off to perform dynamic learning and action concurrently rather than sequentially

when do long run identifying restrictions give reliable results many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long run effects of shocks this article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions although many aspects of these issues have been raised before this article draws out and illustrates the implications for inferences under the long run scheme furthermore it provides strategies for dealing with the problems

simultaneously learning and optimizing using controlled variance pricing price experimentation is an important tool for firms to find the optimal selling price of their products it should be conducted properly since experimenting with selling prices can be costly a firm therefore needs to find a pricing policy that optimally balances between learning the optimal price and gaining revenue in this paper we propose such a pricing policy called controlled variance pricing cvp the key idea of the policy is to enhance the certainty equivalent pricing policy with a taboo interval around the average of previously chosen prices the width of the taboo interval shrinks at an appropriate rate as the amount of data gathered gets large this guarantees sufficient price dispersion for a large class of demand models we show that this procedure is strongly consistent which means that eventually the value of the optimal price will be learned and derive upper bounds on the regret which is the expected amount of money lost due to not using the optimal price numerical tests indicate that cvp performs well on different demand models and time scales this paper was accepted by assaf zeevi stochastic models and simulation

measuring nonfundamentalness for structural vars as nonfundamental vector moving averages do not have causal var representations standard structural var methods are deemed inappropriate for recovering the economic shocks of general equilibrium models with nonfundamental reduced forms in the previous literature it has been pointed out that despite nonfundamentalness structural vars may still be good approximating models i characterize nonfundamentalness as bias depending on the zeros of moving average filters however measuring the nonfundamental bias is not trivial because of the simultaneous occurrence of lag truncation bias i propose a method to disentangle the bias based on population spectral density and derive a measure for the nonfundamental bias in population in the application i find that the svar exercises of sims 2012 are accurate because the nonfundamental bias is mild

price dispersion and incomplete learning in the long run abstract in each period a seller chooses a price and the customer for that period buys either one unit or nothing the relationship between price and purchase probability is one of two linear functions it is shown that the seller behaving optimally does not necessarily learn which function is the actual relationship since there can be a positive probability of sequences of prices converging to the price at which the two functions give the same purchase probability

monetary policy indeterminacy and identification failures in the u s results from a robust test we propose a novel identi cation robust test for the null hypothesis that an estimated new keynesian model has a reduced form consistent with the unique stable solution against the alternative of sunspot driven multiple equilibria our strategy is designed to handle identi cation failures as well as the misspeci cation of the relevant propagation mechanisms we invert a likelihood ratio test for the cross equation restrictions cer that the newkeynesian system places on its reduced form solution under determinacy if the cer are not rejected sunspot driven expectations can be ruled out from the model equilibrium and we accept the structural model otherwise we move to a second step and invert an anderson and rubin type test for the orthogonality restrictions or implied by the system of euler equations the hypothesis of indeterminacy is accepted if the or are not rejected we investigate the nite sample performance of the suggested two steps testing strategy by some monte carlo experiments we apply our robust test to a new keynesian ad as model estimated with actual u s post wwii data in spite of some evidence of weak identi cation

internet advertising and the generalized second price auction selling billions of dollars worth of keywords we investigate the generalized second price gsp auction a new mechanism used by search engines to sell online advertising although gsp looks similar to the vickrey clarke groves vcg mechanism its properties are very different unlike the vcg mechanism gsp generally does not have an equilibrium in dominant strategies and truth telling is not an equilibrium of gsp to analyze the properties of gsp we describe the generalized english auction that corresponds to gsp and show that it has a unique equilibrium this is an ex post equilibrium with the same payoffs to all players as the dominant strategy equilibrium of vcg

optimal disinflationary paths abstract this paper characterizes optimal monetary policy in the context of a general equilibrium model with optimizing agents and staggered price setting starting from a steady state with positive inflation a rapid disinflation is desirable when announcements of future monetary policy are fully credible disinflationary policy yields substantial losses in output and employment when the monetary authority lacks credibility nevertheless the benefits of disinflation still exceed the costs disinflation often fails to be welfare improving however when lost seignorage revenues must be replaced using other distortionary taxes

how much is a dollar worth tipping versus equilibrium coexistence on competing online auction sites theory models of platform competition predict that prices and buyer seller ratios should be approximately equal on coexisting auction sites using field experiments on ebay and yahoo auctions we find evidence that is inconsistent with equilibrium hypotheses and suggest that the market is tipping prices on ebay are consistently 20 70 percent higher than those on yahoo and ebay attracts two additional buyers per seller on yahoo prices and bidders counts are unaffected by the auction ending rule various differences between the sites cannot account for the magnitude of these disparities however a model of imitation dynamics can rationalize our findings

imperfectly credible disinflation under endogenous time dependent pricing the real effects of an imperfectly credible disinfl ation depend critically on the extent of price rigidity therefore the study of how policymakers credibility affects the outcome of an announced disinflation should not be dissociated from the analysis of the determinants of the frequency of price adjustments in this paper we examine how the policymaker s credibility affects the outcome of an announced disinflation in a model with endogenous time dependent pricing rules both the initial degree of price ridigity calculated optimally and more notably the changes in contract length during disinflation play an important role in the explanation of the effects of imperfect credibility we initially evalute the costs of disinfl ation in as etup where credibility is exogenous and then allow agents to update beliefs about the type of monetary authority that they face we show that in both cases the interaction between the endogeneity of time dependent rules and imperfect credibility increases the output costs of disinflation

identification of technology shocks using misspecified vars studies that evaluate the effects of technology shocks often employ structural vars identified with long run restrictions in the presence of a mismatch between the lag structures of the true data generating process and the adopted var estimates based on long run restrictions can be biased this paper offers a method that can reduce this bias substantially using artificial data i assess the performance of the proposed method and find that it can outperform a range of alternative procedures applying the procedure to the us data i find that per capita hours exhibit a positive hump shaped response profile in response to a technology shock resume identification des chocs technologiques a l aide de vecteurs autoregressifs mal specifies des etudes pour evaluer les effets de chocs technologiques emploient souvent des modeles de vecteurs autoregressifs var structurels avec des restrictions a long terme quand il n y a pas d arrimage entre les structures de delais du processus generant les vraies donnees et celles qui emergent des modeles var adoptes les estimes bases sur les restrictions a long terme peuvent etre biaises ce texte propose une methode qui peut reduire ce biais de maniere substantielle a partir de donnees artificielles on evalue la methode proposee et on montre qu elle performe mieux que les procedures de rechange en appliquant cette methode aux donnees americaines on decouvre un profil positif en forme de bosse dans les heures de travail per capita en reponse a un choc technologique

the output effect of a transition to price stability when velocity is time varying this paper explores the effect of time varying velocity on output responses to policies for reducing stopping inflation we study a dynamic general equilibrium model with sticky prices in which we introduce time varying velocity specifically we endogenize time varying velocity into the model developed by ireland 1997 for analyzing optimal disinflation the nonlinear solution method reveals that depending on velocity the disinflationary boom found by ball 1994 may disappear even under perfect credibility and that early output losses may be much larger than previously thought indeed we find that a gradual disinflation from a low inflation may even be undesirable

learning by disinflating disinflationary episodes are a valuable source of information for economic agents trying to learn about the economy in this paper we are particularly interested in how policymakers can themselves learn by disinflating the approach differs from the existing literature which typically focuses on the learning of private agents during a disinflation we build a model where both the policymaker and private agents learn and ask what happens if the policymaker has to disinflate to satisfy a new central bank mandate specifying greater emphasis on inflation stabilisation in this case our results show that inflation may fall dramatically before it gradually rises to its new long run level the potential for inflation to undershoot its long run level during a disinflationary episode suggests that caution should be exercised when assessing the success of any change in the policymaker s mandate jel classification d83 e52 e58 keywords disinflation escape dynamics learning monetary policy

vector autoregressions and reduced form representations of dsge models abstract the performance of dynamic stochastic general equilibrium models is often tested against estimated vars this requires that the data generating process consistent with the dsge theoretical model has a finite order var representation this paper discusses the assumptions needed for a finite order var p representation of a dsge model to exist when a var p is only an approximation to the exact infinite order var the truncated var p may return largely incorrect estimates of the impulse response function the results do not hinge on small sample bias or on incorrect identification assumptions but the bias introduced by truncation can lead to bias in the identification of the structural shocks identification strategies that work in the exact var representation perform poorly in the truncated var

the impact of imperfect credibility in a transition to price stability in this paper we study the impact of a temporary lack of credibility in a transition to price stability we quantify the effects of a period of disinflation on temporary output losses and the impact of the lack of credibility on the optimal speed of disinflation we demonstrate that the disinflationary booms found by ball 1994 and ireland 1997 may or may not disappear in an environment with imperfect credibility depending on the speed of learning relative to the speed of disinflation finally we enquire whether the speed of the volcker disinflation was excessive or not

comparing new keynesian models of the business cycle a bayesian approach abstract the baseline new keynesian model cannot replicate the observed persistence in inflation output and real wages for sensible parameter values as a result several extensions have been suggested to improve its fit to the data we use a bayesian approach to estimate and compare the baseline sticky price model of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 and three extensions our empirical results are as follows first we find that adding price indexation improves the fit of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 model second models with both staggered price and wage setting dominate models with only price rigidities third introducing wage indexation does not significantly improve the fit fourth all model estimates suggest a high degree of price stickiness fifth the estimates of labor supply elasticity are higher in models with both staggered price and wage contracts finally the estimated inflation parameters of the taylor rule are stable across models

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

a minmax regret price control model for managing perishable products with uncertain parameters abstract conventional revenue management assumes that demand parameters used in the models are known the control policy derived based on such a premise however guarantees no optimality as the real parameters can significantly deviate from their estimates this article proposes a robust price control model for managing perishable products it attempts to find a policy that minimizes the worst case regret due to imperfect information distribution of each uncertain parameter is assumed arbitrary with only the lower and upper bound available we formulate the dynamic price control problem as a continuous time model under fairly mild conditions we derive the optimality condition for the control policy and develop a recursive procedure for the optimal solution our analysis shows that the proposed minmax regret price control model is equivalent to conventional rm models when demand parameters are deterministic we examine structural properties of the solution and managerial insights they imply numerical results show that the proposed robust model outperforms the conventional rm model when parameters are unknown in particular it significantly reduces the variation in revenues without sacrificing the average revenue

identification robust analysis of dsge and structural macroeconomic models abstract full and limited information identification robust methods are proposed for structural systems notably dsge models which are valid whether identification is weak or strong theory intrinsic or data specific the proposed methods are applied to a standard new keynesian system for the u s single and multi equation estimation and fit are also compared when a unique rational expectation stable equilibrium is imposed the model is rejected in contrast limited information inference produces informative results regarding forward looking behavior in the nkpc and precise conclusions on feedback coefficients in the reaction function which cannot be reached via single equation methods

business cycle measurement with some theory a method to evaluate cyclical models not requiring knowledge of the dgp and the exact specification of the aggregate decision rules is proposed we derive robust restrictions in a class of models use some to identify structural shocks in the data and others to evaluate the class or contrast sub models the approach has good properties even in small samples and when the class of models is misspecified the method is used to sort out the relevance of a certain friction the presence of rule of thumb consumers in a standard class of models

costs of price adjustment and the welfare economics of inflation and disinflation this paper studies the welfare consequences of inflation and disinflation in a model in which monopol istic firms incur a fixed cost of price adjustment it is shown that a moderately increasing price level is associated with higher social welfare than a perfectly stable price level and the model therefore provides theoretical support for the widespread belief that a little bit of inflation is good for the economy nevertheless it is also tr ue that the eradication of a moderate inflation leads to an increase in social welfare copyright 1988 by american economic association

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

technical note dynamic pricing and demand learning with limited price experimentation in a dynamic pricing problem where the demand function is not known a priori price experimentation can be used as a demand learning tool existing literature usually assumes no constraint on price changes but in practice sellers often face business constraints that prevent them from conducting extensive experimentation we consider a dynamic pricing model where the demand function is unknown but belongs to a known finite set the seller is allowed to make at most m price changes during t periods the objective is to minimize the worst case regret i e the expected total revenue loss compared with a clairvoyant who knows the demand distribution in advance we demonstrate a pricing policy that incurs a regret of ologmt or m iterations of the logarithm furthermore we describe an implementation of this pricing policy at groupon a large e commerce marketplace for daily deals the field study shows significant impact on revenue and bookings the e companion is available at https doi org 10 1287 opre 2017 1629

can long run restrictions identify technology shocks gali s innovative approach of imposing long run restrictions on a vector autoregression var to identify the effects of a technology shock has become widely utilized in this paper we investigate its reliability through monte carlo simulations using calibrated business cycle models overall gali s methodology appears to be fruitful the impulse responses derived from the artificial data generally have the same sign and qualitative pattern as the true responses and the approach can be informative in discriminating between alternative models however our results reveal some important quantitative shortcomings including considerable estimation uncertainty about the impact of technology shocks on macroeconomic variables more generally the conditions under which the methodology performs well appear considerably more restrictive than implied by the key identifying assumption this underscores the importance of using economic models to guide in the implementation of the approach in interpreting the results and in assessing its limitations jel c32 e32 o33

the general equilibrium effects of fiscal policy estimates for the euro area abstract this paper describes a dynamic stochastic general equilibrium model featuring a fraction of non ricardian agents in order to estimate the effects of fiscal policy in the euro area the model takes into account distortionary taxation on labor and capital income and on consumption while expenditures are broken down into purchases of goods and services compensation of public employees and transfers to households a newly computed quarterly data set of fiscal variables is used our results point to the prevalence of mild keynesian effects of public expenditures in particular although innovations in fiscal policy variables tend to be rather persistent government purchases of goods and services and compensations for public employees have small and short lived expansionary effects on private consumption while innovations in transfers to households show a slightly more sizeable and lasting effect the effects are more significant on the revenue side decreases in labor income and consumption tax rates have sizeable effects on consumption and output while a reduction in capital income tax favors investment and output in the medium run finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

learning and pricing with models that do not explicitly incorporate competition in revenue management research and practice demand models are used that describe how demand for a seller s products depends on the decisions such as prices of that seller even in settings where the demand for a seller s products also depends on decisions of other sellers the models often do not explicitly account for such decisions it has been conjectured in the revenue management literature that such monopoly models may incorporate the effects of competition because the parameter estimates of the monopoly models are based on data collected in the presence of competition in this paper we take a closer look at such a setting to investigate the behavior of parameter estimates and decisions if monopoly models are used in the presence of competition we consider repeated pricing games in which two competing sellers use mathematical models to choose the prices of their products over the sequence of games each seller attempts to estimate the values of the parameters of a demand model that expresses demand as a function only of its own price using data comprised only of its own past prices and demand realizations we analyze the behavior of the sellers parameter estimates and prices under various assumptions regarding the sellers knowledge and estimation procedures and we identify situations in which a the sellers prices converge to the nash equilibrium associated with knowledge of the correct demand model b the sellers prices converge to the cooperative solution and c the sellers prices have many potential limit points that are neither the nash equilibrium nor the cooperative solution and that depend on the initial conditions we compare the sellers revenues at potential limit prices with their revenues at the nash equilibrium and the cooperative solution and we show that it is possible for sellers to be better off when using a monopoly model than at the nash equilibrium

frequentist evaluation of small dsge models this article proposes a new evaluation approach for the class of small scale hybrid new keynesian dynamic stochastic general equilibrium nk dsge models typically used in monetary policy and business cycle analysis the empirical assessment of the nk dsge model is based on a conditional sequence of likelihood based tests conducted in a vector autoregressive var system in which both the low and high frequency implications of the model are addressed in a coherent framework if the low frequency behavior of the original time series of the model can be approximated by nonstationary processes stationarity must be imposed by removing the stochastic trends this gives rise to a set of recoverable unit roots cointegration restrictions in addition to the short run cross equation restrictions the procedure is based on the sequence lr1 lr2 lr3 where lr1 is the cointegration rank test lr2 is the cointegration matrix test and lr3 is the cross equation restrictions test lr2 is computed conditional on lr

dynamic pricing with a prior on market response we study a problem of dynamic pricing faced by a vendor with limited inventory uncertain about demand and aiming to maximize expected discounted revenue over an infinite time horizon the vendor learns from purchase data so his strategy must take into account the impact of price on both revenue and future observations we focus on a model in which customers arrive according to a poisson process of uncertain rate each with an independent identically distributed reservation price upon arrival a customer purchases a unit of inventory if and only if his reservation price equals or exceeds the vendor s prevailing price we propose a simple heuristic approach to pricing in this context which we refer to as decay balancing computational results demonstrate that decay balancing offers significant revenue gains over recently studied certainty equivalent and greedy heuristics we also establish that changes in inventory and uncertainty in the arrival rate bear appropriate directional impacts on decay balancing prices in contrast to these alternatives and we derive worst case bounds on performance loss we extend the three aforementioned heuristics to address a model involving multiple customer segments and stores and provide experimental results demonstrating similar relative merits in this context

sacrifice ratio in a medium scale new keynesian model a medium scale macroeconomic model with a number of nominal and real frictions that have be shown to be important for explaining observed aggregate uctuations is capable to quantitatively account for the empirically estimated sacri ce ratio after a disin ationary monetary policy this nding however is sensitive to the degrees of price and wage indexation to past in ation and to a less extent to the price and wage calvo probabilities jel classi cation e31 e5

bayesian dynamic pricing policies learning and earning under a binary prior distribution motivated by applications in financial services we consider a seller who offers prices sequentially to a stream of potential customers observing either success or failure in each sales attempt the parameters of the underlying demand model are initially unknown so each price decision involves a trade off between learning and earning attention is restricted to the simplest kind of model uncertainty where one of two demand models is known to apply and we focus initially on performance of the myopic bayesian policy mbp variants of which are commonly used in practice because learning is passive under the mbp that is learning only takes place as a by product of actions that have a different purpose it can lead to incomplete learning and poor profit performance however under one additional assumption a constrained variant of the myopic policy is shown to have the following strong theoretical virtue the expected performance gap relative to a clairvoyant who knows the underlying demand model is bounded by a constant as the number of sales attempts becomes large this paper was accepted by gerard p cachon stochastic models and simulation

what do technology shocks tell us about the new keynesian paradigm abstract researchers have used unanticipated changes to monetary policy to identify preference and technology parameters of macroeconomic models this paper uses changes in technology to identify the same set of parameters estimates based on technology shocks differ substantially from those based on monetary policy shocks in the post world war ii united states a positive technology shock reduces inflation and increases hours worked significantly and rapidly in both cases relative to policy shock identification technology shock identification implies i long duration durability in preferences instead of short duration habit ii built in inflation inertia disappears and price flexibility increases in response to technological improvement consumption durability increases hours worked because households temporarily increase labor supply to accumulate durables towards a new higher steady state level limited nominal rigidities allow inflation to fall because firms are able to immediately cut prices when households labor supply increases finally we consider alternative data constructions and econometric specifications we find that i and or ii hold in nearly every case

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

optimal experimentation in a changing environment this paper studies optimal experimentation by a monopolist who faces an unknown demand curve subject to random changes and who maximizes profits over an infinite horizon in continuous time we show that there are two qualitatively very different regimes determined by the discount rate and the intensities of demand curve switching and the dependence of the optimal policy on these parameters is discontinuous one regime is characterized by extreme experimentation and good tracking of the prevailing demand curve the other by moderate experimentation and poor tracking moreover in the latter regime the agent eventually becomes trapped into taking actions in a strict subset of the feasible set

revisiting the exchange rate pass through a general equilibrium perspective abstract a large literature estimates the exchange rate pass through to prices erpt using reduced form approaches whose results are an important input for central banks we show two shortcomings of these empirical measures for monetary policy analysis which are quantitatively important and may lead to imprecise and biased inflation predictions first while the literature describes a single erpt which we will label unconditional there are different erpt conditional on each shock that hits the economy second these crucially depend on expected monetary policy so that empirical erpt measures should not be taken as given in evaluating policy actions we use a simple model of a small and open economy to understand the intuition behind these two critiques showing that these results seem to hold under many alternative specifications we then highlight the quantitative relevance of these distinctions using a large scale dsge model of a small open economy

what do the vars mean measuring the output effects of monetary policy abstract vars describe the history of output and other variables following monetary shocks to measure the effects of monetary shocks one must add economic identifying assumptions i specify the relative effects of anticipated and unanticipated money and i calculate how var based measures of the effect of money on output change as one varies this assumption the anticipated unanticipated assumption influences measured output effects as much or more than the variable selection and shock orthogonalization assumptions on which the var literature focuses assuming that anticipated monetary policy can have some effect on output results in much shorter smaller and perhaps more believable estimates of the output response to monetary shocks

dynamic pricing with online learning and strategic consumers an application of the aggregating algorithm we study the problem faced by a monopolistic company that is dynamically pricing a perishable product or service and simultaneously learning the demand characteristics of its customers in the learning procedure the company observes the sales history over consecutive learning stages and predicts consumer demand by applying an aggregating algorithm aa to a pool of online stochastic predictors numerical implementation uses finite sample distribution approximations that are periodically updated using the most recent sales data these are subsequently altered with a random step characterizing the stochastic predictors the company s pricing policy is optimized with a simulation based procedure integrated with aa the methodology of the paper is general and independent of specific distributional assumptions we illustrate this procedure on a demand model for a market in which customers are aware that pricing is dynamic may time their purchases strategically and compete for a limited product supply we derive the form of this demand model using a game theoretic consumer choice model and study its structural properties numerical experiments demonstrate that the learning procedure is robust to deviations of the actual market from the model of the market used in learning

state dependence in labor market fluctuations this paper documents state dependence in labor market uctuations using a threshold vector autoregression model tvar we establish that the unemployment rate the job separation rate and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity a diamond mortensen pissarides model with endogenous job separation and on the job search replicates these empirical regularities well we calibrate the model to match the standard deviation of the job transition rates explained by productivity shocks in the tvar and show that the model explains 88 percent of the state dependence in the unemployment rate 76 percent for the separation rate and 36 percent for the job finding rate the key channel underpinning state dependence in both job separation and job finding rates is the interaction of the firm s reservation productivity level and the distribution of match specific idiosyncratic productivity results are robust across several variations to the baseline model

monetary policy shocks choleski identification and dnk models abstract a popular identifying assumption in structural var studies is that the monetary policy shock does not affect macroeconomic variables contemporaneously we examine the consequences of using this identification strategy when the data generating process is a basic dynamic new keynesian dnk model but without these assumed time delays the principle conclusion is that the standard choleski assumption can severely distort the impulse response functions producing price puzzles and muted responses of inflation and the output gap to monetary shocks

optimal auction design and equilibrium selection in sponsored search auctions in analyses of sponsored search auctions for online advertising it is customary to model the dynamic game of incomplete information by considering a static game of complete infor mation this approach is used in benjamin edelman michael ostrovsky and michael schwarz 2007 eos hal r varian 2007 and the subsequent literature modeling complex interactions in uncertain environments as games of complete information has a long history for example the bertrand model of oligopolistic competition posits that companies know their competitors costs based on their experience from prior interactions the use of a static game of complete infor mation often offers important benefits for one it is tractable avoiding complex multi period information sets in a dynamic game furthermore a suitably chosen static game can capture important characteristics of the under lying dynamic game when a game is repeated over an extended period there is good reason to think participants will learn many characteris tics of their counterparts supporting the use of a complete information model yet the use of a static game of complete information is also unsatisfying there is no clear way to identify which if any equilibria of the static game of complete information are a relevant approximation of the equilibria of the dynamic game of incomplete information

monetary policy and the exchange rate evaluation of var models abstract this paper examines the ability of vector autoregressive var models to properly identify the transmission of monetary policy in a controlled experiment simulating data from a small open economy dsge model estimated for australia we find that sign restricted var models do reasonably well at estimating the responses of macroeconomic variables to monetary policy shocks this is in contrast to models that use recursive zero type restrictions for which inflation can rise following an unexpected interest rate increase while the exchange rate can appreciate or depreciate depending on the ordering of the variables sign restricted var models seem to be able to overcome puzzles related to the real exchange rate provided that a sufficient number of different types of shocks are identified despite delivering the correct sign of the impulse responses central tendency measures of sign restricted var models can however be misleading and hardly ever coincide with the true impulses this finding casts doubt on the common notion that the median impulses are the most probable description of the true data generating process

learning and pricing models for repeated generalized second price auction in search advertising abstract in search advertising how much an advertiser is willing to pay for a click or tap on his search ad is private information which hampers an ad seller s ability to set the best reserve price to increase the revenue for the generalized second price gsp auctions used to allocate ad slots we present a series of learning and pricing models for repeated gsp auctions selling multiple heterogeneous items this paper contributes to the literature in dynamic pricing with learning and complements the existing off line studies on impact of the reserve price in the multi billion dollar online advertising business with few restrictions on the distribution function of the unknown parameter algorithms are developed to estimate the empirical distribution function and determine the best reserve price to reduce the revenue loss regret over time when bidders bid in the locally envy free equilibrium we present an algorithm that has the best attainable regret upper bound when bidders do not bid in the locally envy free equilibrium we propose a gsp auction with position specific reserve prices and develop an algorithm with the same regret bound to mitigate the risk of strategic bidding with a high volatility involved learning becomes more active while earning is more effective when bidders coordinate bidding the properly selected starting reserve prices can substantially reduce the revenue loss from possible collusive bidding behaviors

on inflation and output with costly price changes a simple unifying result we analyze the effect of inflation on the average output of monopolistic firms facing a small fixed cost of changing nominal prices using taylor expansions we derive a general closed form solution for the slope of the long run phillips curve this very simple unifying formula allows us to evaluate and clarify the role of three key factors the asymmetry of the profit function the convexity of the demand function and the discount rate these partial equilibrium effects remain important components of any general equilibrium model with s s pricing this abstract was borrowed from another version of this item

on weak identification in structural varma models we simulate synthetic data from known data generating processes dgps that arise from economic theory and compare the performance of fitted var and varma models in estimating the true impulse responses to structural shocks we show that while the varma structures implied by these dgps are theoretically identified and lead to precise estimates of impulse responses given enough data their parameters are close to the non identified ridge in the parameter space and that makes precise estimation of the impulse responses in small samples typical of macroeconomic data improbable as a result varma models barely show any advantage over vars in characterizing the known dgps in small samples this is a refinement of the conjecture that near non stationarity near non invertibility or weak identification could be possible reasons for the failure of structural varma models in providing good estimates of theoretical impulse responses of particular dsge models

nonparametric advertising budget allocation with inventory constraint abstract in this paper we study the optimization problem of the advertising budget allocation for revenue management faced by a marketer besides the advertising budget the marketer is subject to an inventory constraint during the promotion season the marketer can affect sales by spending on advertising but does not initially know the relationship between the advertising expense and consequent sales we propose a nonparametric learning while doing budget allocation policy for the problem specifically we first conduct a sequence of advertising experiments to learn predict the market sales response through observing realized sales exploration then based on the learned sales function determine the following budget allocation planning exploitation in particular during the exploration and exploitation phases we need to balance the advertising and inventory budgets simultaneously we show that our policy is asymptotically optimal as the size of the market increases by constructing a worst case example we show that our policy achieves near best asymptotic performance we also provide numerical illustrations to show how our policy works and discuss how its performance changes as the system parameters vary we also glen some managerial implications of our model and policy from the numerical results

relative price distortions and inflation persistence sticky price models often suggest that relative price distortion is a major cost of inflation we provide an intuition for this even at low rates inflation strongly affects price dispersion which in turn has an impact on the economy qualitatively similar to and of the order of magnitude of a negative shift in productivity the utility cost of price dispersion is quantified and its impact on optimal monetary policy discussed price dispersion is incorporated into a linearised model strikingly a contractionary nominal shock has a persistent negative hump shaped impact on inflation but may have a positive hump shaped impact on output

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

neutral technology shocks and the dynamics of labor input results from an agnostic identification this article studies the dynamic response of labor input to neutral technology shocks it uses benchmark dynamic stochastic general equilibrium models enriched with labor market search and matching frictions and investment specific technological progress that enables a new agnostic identification scheme based on sign restrictions on a structural vector autoregression svar the estimation supports an increase of labor input in response to neutral technology shocks this finding is robust across different perturbations of the svar model

sectoral shifts and comovements in employment abstract sectoral shifts in employment from manufacturing to services are viewed as a structural transformation which occurs over a long period of time economists point out that a rapid technological advance in the manufacturing sector relative to that in the service sector is the underlying cause of this phenomenon however few have associated this with business cycle analyses this paper finds that a relatively faster technological advance in the manufacturing sector named manufacturing specific technology shock generates sectoral comovements in employment in the short run while it leads to sectoral shifts in employment in the long run the behavior of investment is the key to this finding

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

sensitivity of impulse responses to small low frequency comovements reconciling the evidence on the effects of technology shocks this article clarifies the empirical source of the debate on the effect of technology shocks on hours worked we find that the contrasting conclusions from levels and differenced vector autoregression specifications documented in the literature can be explained by a small low frequency comovement between hours worked and productivity growth that gives rise to a discontinuity in the solution for the structural coefficients identified by long run restrictions whereas the low frequency comovement is allowed for in the levels specification it is implicitly set to 0 in the differenced vector autoregression consequently even when the root of hours is very close to 1 and the low frequency comovement is quite small removing it can give rise to biases of sufficient size to account for the empirical difference between the two specifications

identification of technology shocks in structural vars the usefulness of svars for developing empirically plausible models is actually subject to controversies in macroeconomics we propose a two step svars based procedure which consistently estimates the effect of permanent technology shocks on aggregate variables simulation experiments from a standard business cycle model and a sticky prices model show that our approach outperforms standard svars the two step procedure when applied to actual data predicts a significant short run decrease of hours after a technology improvement followed by a hump shaped positive response additionally the rate of inflation and the nominal interest rate displays a significant decrease after this shock

a partially observed markov decision process for dynamic pricing in this paper we develop a stylized partially observed markov decision process pomdp framework to study a dynamic pricing problem faced by sellers of fashion like goods we consider a retailer that plans to sell a given stock of items during a finite sales season the objective of the retailer is to dynamically price the product in a way that maximizes expected revenues our model brings together various types of uncertainties about the demand some of which are resolvable through sales observations we develop a rigorous upper bound for the seller s optimal dynamic decision problem and use it to propose an active learning heuristic pricing policy we conduct a numerical study to test the performance of four different heuristic dynamic pricing policies in order to gain insight into several important managerial questions that arise in the context of revenue management

foreign liquidity to real estate market ripple effect and housing price dynamics globalisation enables foreign liquidity to access local property markets this paper depicts a strong connection between foreigners property acquisitions and regional housing price movements in singapore testing structure breaks also illustrates a ripple effect of prices from the central city to suburbs a structural vector autoregression incorporates these two observations impulse response function and forecast error variance decomposition show that central region s foreign liquidity shocks can greatly impact housing price growth in not only the central region but also the non central region where foreign buyers are inactive the ripple effect of prices plays an important role non central region s foreign liquidity shocks in contrast have small effects on both regions impacts of foreign liquidity shocks can reach the public housing market where foreigners participation is prohibited the findings are useful to policy makers who consider regulations of foreign home buyers as an instrument to stabilise housing markets

sufficient information in structural vars abstract necessary and sufficient conditions under which a var contains sufficient information to estimate the structural shocks are derived on the basis of this theoretical result we propose two simple tests to detect informational deficiency and a procedure to amend a deficient var a simulation based on a dsge model with fiscal foresight suggests that our method correctly identifies and fixes the informational problem in an empirical application we show that a bivariate var including unemployment and labor productivity is informationally deficient once the relevant information is included into the model technology shocks appear to be contractionary