optimal monetary policy in an economy with inflation persistence abstract this paper studies optimal monetary policy in a model where inflation is persistent two types of price setters are assumed to exist one acts rationally given calvo type constraints on price setting the other type sets prices according to a rule of thumb this results in a phillips curve with both a forward looking term and a backward looking term the phillips curve nests a standard purely forward looking phillips curve as well as a standard purely backward looking phillips curve as special cases a cost push supply shock is derived from microfoundations by adding a time varying income tax and by making the elasticity of substitution between goods stochastic a central bank loss function for this model is derived from a second order taylor approximation of the household s welfare function optimal monetary policy for different relative values of the forward and backward looking terms is then analyzed for both the commitment case and the case of discretion

optimal interest rate rule in a dsge model with housing market spillovers this paper studies the optimal interest rate rule in a dsge model with housing market spillovers iacoviello and neri 2010 we find that the optimal rule responds to house price inflation even when the stabilization of house price is not among the objectives of the policymaker and that the strength of the response depends crucially on a few structural parameters

free entry and regulatory competition in a global economy abstract this paper examines the optimal entry policy toward oligopoly in a global economy we show that free entry results in too much competition for the world but each country s corrective tax policy unless internationally coordinated proves suboptimal because of international policy spillovers thus globalization prevents countries from pursuing the optimal entry policy however globalization also generates the gains from trade when countries are small the gains from trade dominate the losses from a suboptimal entry policy but as markets grow the result is reversed making trade inferior to autarky therefore the need for tax harmonization grows as the world economy grows this paper also contributes to the international tax competition literature through the discovery of the reverse home market effect

a cross country comparison of rural income generating activities summary this paper uses a newly constructed cross country database composed of comparable income aggregates to examine the full range of income generating activities carried out by rural households the analysis paints a clear picture of multiple activities across rural space in countries on all four continents though less so in the included african countries for most countries the largest share of income stems from off farm activities and the largest share of households has diversified sources of income diversification not specialization is the norm nevertheless agricultural sources of income remain critically important for rural livelihoods in all countries

how forward looking is optimal monetary policy we calculate optimal monetary policy rules for several variants of a simple optimizing model of the monetary transmission mechanism with sticky prices and or wages we show that robustly optimal rules can be represented by interest rate feedback rules that generalize the celebrated proposal of taylor 1993 optimal rules however require that the current interest rate operating target depend positively on the recent past level of the operating target and its recent rate of increase in a way that is characteristic of estimated central bank reaction functions but not of taylor s proposal we furthermore find that a robustly optimal policy rule is almost inevitably an implicit rule that requires the central bank to use a structural model to project the economy s evolution under the contemplated policy action however calibrated examples suggest that optimal rules place less weight on projections of inflation or output many quarters in the future than do rules often discussed in the literature on inflation targeting or in the current practice of inflation forecast targeting central banks

globalisation and the spatial concentration of production new trade theory models predict that freer trade increases the spatial concentration of industrial production across countries while nations with large home markets and central geographical location become increasingly attractive business locations small peripheral countries gradually deindustrialize using data for 26 industries 20 oecd countries and 20 years we investigate the empirical validity of this claim separating out the role of home market size from geographical factors and using various panel methods we find robust evidence in line with theory freer trade has indeed magnified the importance of domestic demand and geographical location for the pattern of industrial production across the globeand has therefore exacerbated spatial disparities

optimal interest rate rules and inflation stabilization versus price level stabilization abstract this paper compares the properties of interest rate rules such as simple taylor rules and rules that respond to price level fluctuations called wicksellian rules in a basic forward looking model by introducing appropriate history dependence in policy wicksellian rules perform better than optimal taylor rules in terms of welfare robustness to alternative shock processes and are less prone to equilibrium indeterminacy a simple wicksellian rule augmented with a high degree of interest rate inertia resembles a robustly optimal rule i e a monetary policy rule that implements the optimal plan and that is also completely robust to the specification of exogenous shock processes

public expenditure international specialisation and agglomeration abstract it is widely recognised that public sector purchasers tend to favour domestic suppliers we study the consequences of such home biased public procurement on international specialisation using a general equilibrium model with a monopolistically competitive sector we find that a country will specialise in that sector if it has relatively large home biased procurement the pull effect furthermore home biased procurement can counter agglomeration forces in that sector and thereby attenuate the overall degree of international specialisation the spread effect our empirical analysis conducted on input output data for the european union yields supporting evidence for the pull effect and some support for the spread effect

competing for capital when labor is heterogeneous this paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers the small country always gains and the large country always loses from tax competition thus implying tax competition leads to redistribution from the large to the small country however the large country always attains a higher utility than does the small country these results imply that our model encapsulates both the importance of being small as well as the importance of being large we also show that tax harmonization leads to redistribution from the large to the small country

the impact of credit on peasant productivity and differentiation in nicaragua abstract an endogenous switching regressions framework is used to structure and identify the impact of credit on small farm food production in nicaragua the results which emerge weakly support the hypothesis that credit had a positive impact on production and could be expected to reduce the pattern of structurally unbalanced growth in nicaraguan agriculture however the estimated impact is of a form which implies a process of differentiation and unequal growth in the peasant sector in the wake of the new opportunities afforded by credit

trade policy with increasing returns and imperfect competition contradictory results from competing assumptions abstract a number of recent papers derive different results about the effects of trade and industrial policy on imperfectly competitive industries this paper sets out a single model within which policy under different market structures can be examined we consider the four types of market structure generated by oligopoly versus free entry and segmented markets versus integrated markets we conclude that the effects of policy are greater when markets are segmented than when they are integrated and that if transport costs are small policy is more potent when the number of firms is fixed than when there is free entry

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

gender differentials in farm productivity implications for household efficiency and agricultural policy abstract within many african households agricultural production is simultaneously carried out on many plots controlled by different members of the household detailed plot level agronomic data from burkina faso provides striking evidence of substantial inefficiencies in the allocation of factors of production across the plots controlled by different members of the household production function estimates imply that the value of household output could be increased by 10 15 by reallocating currently used factors of production across plots this finding contradicts standard models of agricultural households a richer model of behaviour which recognizes that the individuals who comprise a household compete as well as co operate has important implications for the structure of agricultural production and for the design of agricultural policy

does capital market structure affect farm investment a comparison using french and british farm level panel data this article considers whether differences in the structure of agriculture credit markets in france and the united kingdom alters the investment sensitivity to financial variables particularly cash flow using two panel datasets of french and british farms three approaches are used to test the sensitivity of investment to internal finance an inventory investment model a fundamental q model and euler equations for machinery investment the results suggest that the contrasting capital markets structures do induce differences in overall investment sensitivity to cash flow and its pattern across both farms with varying levels of collateral and between inventory and machinery investment this article explores whether differences in the structure of agricultural credit markets in france and the united kingdom affects access to credit theoretically asymmetric information in capital markets means that banks base their lending decisions on factors such as available collateral rather than projected profitability stiglitz and weiss binks and ennew hubbard if such information costs are affected by market structure the organization of the market also becomes a potentially important factor historical differences in the structure of agricultural capital markets in developed countries have long been recognized oecd in particular in many countries specific agricultural credit institutions for example farmer cooperative banks appeared in the first half of the twentieth century because of the difficulties faced by farmers in obtaining credit from commercial lenders the degree of state involvement in agricultural credit markets has also varied considerably across countries from

credit constraints and productivity in peruvian agriculture this article evaluates the performance of a rural credit market in peru we develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing just like quantity rationing these two additional forms of nonprice rationing adversely affect farm resource allocation and productivity we test the insights of the model using a panel data set from northern peru we estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model we find that consistent with the theory productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households we estimate that credit constraints lower the value of agricultural output in the study region by 26

the value of interest rate stabilization policies when agents are learning we examine the expectational stability e stability of rational expectations equilibrium under optimal interest rate rules in the context of the standard new keynesian model of the monetary transmission mechanism we focus on the case where the monetary authority adds interest rate stabilization to its other objectives of inflation and output stabilization we consider both the case where the monetary authority lacks a commitment technology and as well as the case of full commitment we show that for both cases optimal interest rate rules yield rational expectations equilibria that are e stable for a wide range of empirically plausible parameter values this finding stands in contrast to the findings of evans and honkapohja 2002 2003ab for optimal monetary policy rules in environments where interest rate stabilization is not part of the central bank s objective function

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

credit market access and profitability in tunisian agriculture this work develops an econometric model that links credit access with agricultural profitability and investment using data collected from rural tunisia this work provides direct estimates of credit access and its effects econometric estimates are run for agricultural investment and profitability as a function of credit access the investigation of credit access and its effect suggests that the presence of credit market constraints does impinge significantly on farm profitability but not on investments

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

wage and labor supply effects of illness in cote d ivoire and ghana instrumental variable estimates for days disabled abstract sickness should make individuals less productive but there are problems in measuring this effect first how is adult morbidity measured in a household survey second how is the impact or morbidity on productivity inferred if earning is partly used to improve health self reported functional activity limitation due to illness is considered an indicator of morbidity for wage earners and self employed people to deal with both the measurement and joint determination problems an instrumental variable estimation approach is used where local food prices and health services instrument for disability days that reduce wages by at least 10 and hours by 3 or more

how forward looking is the fed direct estimates from a calvo type rule we estimate an alternative type of monetary policy rule according to which the central bank targets a discounted infinite sum of expected inflation and output gaps empirical results suggest that the fed has a mean forward horizon of 4 to 8 quarters

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

social connections and group banking lending to the poor is expensive due to high screening monitoring and enforcement costs group lending advocates believe lenders overcome this by harnessing social connections using data from finca peru i exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint liability loans individuals with stronger social connections to their fellow group members i e either living closer or being of a similar culture have higher repayment and higher savings furthermore i observe direct evidence that relationships deteriorate after default and that through successful monitoring individuals know who to punish and who not to punish after default

credit constraints and agricultural productivity evidence from rural rwanda while potentially negative impacts of credit constraints on economic development have long been discussed conceptually empirical evidence for africa remains limited we use a direct elicitation approach on a national sample of rwandan rural households to empirically assess the extent and nature of credit rationing in the semi formal sector and its impact using an endogenous switching model elimination of all constraints could increase output by some 17 per cent implications for policy and research are spelled out

the effects of a calamity on income and wellbeing of poor microfinance borrowers the case of the 2004 tsunami shock abstract we investigate the effects of the 2004 tsunami on a sample of microfinance borrowers our findings show that the severe loss of income of damaged borrowers only partially explains the dip in wellbeing this is because the latter is also related to economic losses not measured by current income that is loss in wealth or in permanent income and by psychological or emotional effects finally we find that the role of risk on the tsunami impact is partially captured by the interaction of the damage dummy with borrowers productive activity

credit constraints their existence determinants and implications for u s farm and nonfarm sole proprietorships the objective of this study is to determine the effect of credit constraints on production for farm and nonfarm sole proprietorships a propensity score matching estimator is employed to provide unbiased estimates of the production impacts of being denied credit the empirical results demonstrate that the value of production is significantly lower for credit constrained sole proprietorships if this drop in the value of production is aggregated to a national level it constitutes only 3 and 13 of total value of production for farm and nonfarm sole proprietorships respectively copyright 2009 oxford university press

bad luck bad policy and learning a markov switching approach to understanding postwar u s macroeconomic dynamics abstract this paper evaluates the role of monetary policy in understanding the u s post war macroeconomic fluctuations we construct a medium size dsge model in which the central bank through a real time learning process can make mistakes in estimating key elasticities between macroeconomic aggregates and the central banks objectives may change over time the model also features time varying volatilities of non policy shocks we find that misperceptions of the persistence of inflation and the slope of the phillips curve could affect optimal monetary policy decision making therefore their accurate prediction is key for achieving successful monetary policy outcomes in addition we argue that the monetary policy shift geared toward inflation stabilization in the late 1970s changed the composition of output making the marginal efficiency of investment shock that proxies for the functioning of the financial sector the most important contributor to the business cycle

uninsured health shocks and agricultural productivity among rural households the mitigating role of micro credit this article investigates how health shocks affect farm productivity in the presence of microcredit it is expected that microcredit increases agricultural productivity by enhancing allocative and

the optimal perception of inflation persistence is zero this study shows that in an economy with inflation persistence it is always welfare improving for a central bank that operates under discretion to behave as if there were no inflation persistence under reasonable assumptions about inflation persistence all of the inefficiency associated with discretionary policymaking is then removed

a test of trade theories when expenditure is home biased we develop a criterion to distinguish two dominant paradigms of international trade theory constant returns perfectly competitive models and increasing returns monopolistically competitive models our analysis makes use of the pervasive presence of home biased expenditure it predicts that countries relative output and their relative home biases are positively correlated in increasing returns sectors the home bias effect while no such relationship exists in constant returns sectors this discriminating criterion turns out to be robust to a number of generalisations of the baseline model our empirical results suggest that the increasing returns model fits particularly well for the mechanical and electrical engineering industries which account for close to half of manufacturing output

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

mobile capital and the home market effect most existing studies examine the home market effect hme in a framework with immobile labour as the only production factor and the assumption of a freely traded homogeneous good is known to be crucial for the hme to emerge this study explores the hme in the presence of mobile capital by use of a footloose capital model allowing for positive transport costs of the homogeneous good the mobile capital generates a channel to offset the trade imbalance of a country as a result the hme always appears for arbitrary transport costs in both sectors of differentiated and homogeneous goods la plup art des travaux existants etudient l effet du marche domestique dans un cadre d analyse ou le travail immobile est le seul facteur de production et ou le postulat d un bien homogene librement echange est considere comme un element crucial pour que l effet du marche domestique emerge ce texte explore le phenomene dans le cas ou le capital est mobile et ou on utilise un modele de capital libre comme l air avec couts de transport positifs pour le bien homogene le capital mobile engendre un canal pour compenser le desequilibre commercial d un pays en consequence l effet du pays domestique apparait toujours pour des couts de transport arbitraires dans les secteurs des biens differencies ou homogenes

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

gender agricultural production and the theory of the household virtually all models of the household assume that the allocation of resources is pareto efficient within many african households agricultural production occurs on many plots controlled by different members of the household pareto efficiency implies that factors should be allocated efficiently across these plots i find in contrast that plots controlled by women are farmed much less intensively than similar plots within the household controlled by men the estimates imply that about 6 percent of output is lost because of inefficient factor allocation within the household the paper suggests a new approach to modeling intrahousehold allocation consistent with the empirical results

the relationship between credit and productivity in chinese agriculture a microeconomic model of disequilibrium credit is an important element in agricultural production systems it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture preparation planting cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned while expenditures on materials purchased inputs and consumption must be made in cash cash income is received a short time after the harvest in the absence of credit markets farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle the availability of credit allows both greater consumption and greater purchased input use and thus increases welfare of the farmers

risk credit constraints and financial efficiency in peruvian agriculture abstract based on a panel data set we use a two stage analysis to evaluate the effects of access to formal credit on financial efficiency of farms in northern peru the first stage uses non parametric data envelope analysis to estimate farm specific measures of financial efficiency 28 per cent of farmers are financially inefficient and credit constraints reduce profits of these farmers by an average of between 17 and 27 per cent the second stage uses tobit regression to evaluate the determinants of financial inefficiency the results point to uninsured risk as a key determinant of financial inefficiency and suggest that policies to strengthen agricultural insurance markets would likely pay large dividends in rural peru

trade costs and the home market effect most of the theoretical and empirical studies on the home market effect hme assume the existence of an outside good that absorbs all trade imbalances and equalizes wages we study the consequences on the hme of removing this assumption the hme is attenuated and more interestingly it becomes non linear the non linearity implies that the hme is more important for very large and very small countries than for medium size countries the empirical investigation conducted on a database comprising 25 indus tries 25 countries and 7 years con rms the presence of the hme and of its non linear shape

on the pervasiveness of home market effects paul krugman s model of trade predicts that the country with the relatively large number of consumers is the net exporter and hosts a disproportionate share of firms in the increasing returns sector he terms these results home market effects this paper analyses three additional models featuring increasing returns firm mobility and trade costs to assess the robustness of home market effects to alternative modelling assumptions we find strikingly similar results for two of the models that relax assumptions about the nature of demand competition and trade costs however a model that links varieties to nations rather than firms can generate opposite results

from policy aims and small farm characteristics to farm science needs this paper examines the agricultural science needs of small farms the green revolution successfully negotiated two tightropes agricultural productivity increases were larger than the fall in prices that resulted from producing more food and output per hectare rose faster than output per worker thus increasing the demand for labor the current challenge is to generate technology that helps poor farmers in low potential areas since research capacity is increasingly private incentives to produce the needed technology are needed perhaps through contracts to produce varieties with specific characteristics development of seeds needs complementary work on water for which economists plant scientists and engineers need to pool their skills

estimation and control of an optimization based model with sticky prices and wages abstract this paper provides estimates of an optimization based equilibrium model with sticky prices and wages the estimated model is used to analyse the welfare properties of various interest rate rules for conducting monetary policy an important feature of this model is that it involves a tradeoff between the variances of price and wage inflation and the output gap this tradeoff implies that it is desirable for the monetary authority to respond to wage inflation in addition to price inflation output and past interest rates when setting the current interest rate the issue whether wages and prices can be indexed to steady state inflation has important implications both for the characterization of optimal interest rate rules and interest rate volatility in particular optimal policy in the presence of indexation induces implausibly high steady state inflation

trade and the location of industries some new results abstract we study a two country two sector model with free entry and monopolistic competition where both industries use labour to produce differentiated goods the two countries are identical except for size labour is freely mobile across industries but it cannot move internationally transport costs affect both industries the location of industries and the pattern of trade are the results of the interaction of two effects the home market effect and the wage differential effect the main results are i if the two countries are sufficiently close in size and demand elasticities differ across industries transport costs being equal a continuous fall in transport costs from a prohibitive level to zero is associated with a reversal in the pattern of trade at some intermediate level for large transport costs the large country is a net exporter of the more differentiated good for lower transport costs the large country becomes a net exporter of the less differentiated good ii if the two countries are very different in size and demand elasticities differ across industries transport costs being equal the larger country is always a net exporter of the less differentiated good

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

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

learning about monetary policy rules when the cost channel matters abstract we study how monetary policy may affect determinacy and expectational stability e stability of rational expectations equilibrium when the cost channel of monetary policy matters focusing on instrumental taylor type rules and optimal target rules we show that standard policies can induce indeterminacy and expectational instability when the cost channel is present a naive application of the traditional taylor principle could be misleading and expectations based reaction function under discretion does not always induce determinate and e stable equilibrium this result contrasts with the findings of bullard and mitra 2002 learning about monetary policy rules journal of monetary economics 49 1105 1129 and evans and honkapohja 2003 expectations and stability problem for optimal monetary policies review of economic studies 70 807 824 for the standard new keynesian model the ability of the central bank to commit to an optimal policy is an antidote to these problems

market access by smallholder farmers in malawi implications for technology adoption agricultural productivity and crop income abstract in malawi maize is the major crop and food staple given limited off farm employment opportunities much needed increases in household income for improving food security must come from gains in agricultural productivity through better technology and more profitable crops in the past hybrid maize and more recently tobacco were promoted by policy for increasing smallholder income an analysis of determinants of adoption of these two crops and related income effects is presented apart from factor endowment and exposure to agroecological risks differences in the household s access to financial and commodity markets significantly influence its cropping shares and farm income

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

the new keynesian monetary model does it show the comovement between gdp and inflation in the u s abstract this paper analyzes the performance of alternative versions of the new keynesian monetary nkm model in replicating the comovement observed between output and inflation following den haan 2000 the comovement between output and prices journal of monetary economics 46 3 30 we analyze comovement by computing the correlations of var forecast errors of the two variables at different forecast horizons the empirical correlation is negative and marginally significant for the one ahead forecast horizon but the correlations are non significant for the other forecast horizons studied in contrast a simple nkm model under a standard parameterization provides a high and significant negative comovement at all forecast horizons however a generalized version including habit formation and a forward looking taylor rule is able to mimic the observed weak comovement at medium and long term forecast horizons

beyond the home market effect market size and specialization in a multi country world the standard two country model of international trade with monopolistic competition predicts a more than proportional relationship between a country s share of world production of a good and its share of world demand for that same good a result known as the home market effect we first show that this prediction does not generally carry through to the multi country case as production patterns are crucially affected by third country effects we then derive an alternative prediction that holds whatever the number of countries considered this new prediction takes into account important features of the real world such as comparative advantage due to cross country technological differences and lack of factor price equalization c 2009 elsevier b v all rights reserved

robust optimal policy in a forward looking model with parameter and shock uncertainty this paper characterizes a robust optimal policy rule in a simple forward looking model when the policymaker faces uncertainty about model parameters and shock processes we show that the robust optimal policy rule is likely to involve a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty thus parameter uncertainty alone does not necessarily justify a small response of monetary policy to perturbations however uncertainty may amplify the degree of super inertia required by optimal monetary policy we finally discuss the sensitivity of the results to alternative assumptions copyright 2007 john wiley sons ltd

investment and monetary policy learning and determinacy of equilibrium we explore determinacy and expectational stability learnability of rational expectations equilibrium ree in new keynesian nk models that include capital using a consistent calibration across three different models labor only firm specific capital or an economy wide rental market for capital we provide a clear picture of when ree is determinate and learnable and when it is not under a variety of monetary policy rules our findings make a case for greater optimism concerning the use of such rules in nk models with capital while bullard and mitra s 2002 2007 findings for the labor only nk model do not always extend to models with capital we show that determinate and learnable ree can be achieved in nk models with capital if there is i plausible capital adjustment costs ii some weight given to output in the policy rule and or iii a policy of interest rate smoothing

monetary policy rules in theory and in practice evidence from the uk and the us given the large amount of interaction between research on monetary policy and its practice this article examines whether some simple monetary policy rules that have been proposed in the academic literature part of which has originated from within central banks provide a reasonable characterization of actual policy in the united kingdom and the united states the article finds the simple rule that describes best the actual us monetary policy is a speed limit rule with dynamics whilst for the uk it is a forward looking rule the simpler dynamics in the uk s monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting

health shocks and consumption smoothing in rural households does microcredit have a role to play abstract this paper estimates using a large panel data set from rural bangladesh the effects of health shocks on household consumption and how access to microcredit affects households response to such shocks households appear to be fairly well insured against health shocks our results suggest that households sell livestock in response to health shocks and short term insurance is therefore attained at a significant long term cost however microcredit has a significant mitigating effect households that have access to microcredit do not need to sell livestock in order to insure consumption microcredit organizations and microcredit therefore have an insurance role to play an aspect that has not been analyzed previously

the performance of forecast based monetary policy rules under model uncertainty we investigate the performance of forecast based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics we identify the key characteristics of rules that are robust to model uncertainty such rules respond to the one year ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia in contrast rules with longer forecast horizons are less robust and are prone to generating indeterminacy in light of these results we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences

risk rationing and wealth effects in credit markets theory and implications for agricultural development we develop a model that shows that asymmetric information can result in two types of credit rationing conventional quantity rationing and risk rationing whereby farmers are able to borrow but only under high collateral contracts that offer them lower expected well being than a safe subsistence activity after exploring its incidence with respect to wealth we show that risk rationing has important policy implications specifically land titling will be only partially effective because it does not enhance producers willingness to offer up the collateral needed to secure loans under moral hazard constraints efforts to enhance agricultural investment and the working of agricultural credit markets must step beyond land titling and also deal with risk copyright 2008 oxford university press