a simple framework for international monetary policy analysis abstract we study the international monetary policy design problem within an optimizing two country sticky price model where each country faces a short run tradeoff between output and inflation the model is sufficiently tractable to solve analytically we find that in the nash equilibrium the policy problem for each central bank is isomorphic to the one it would face if it were a closed economy gains from cooperation arise however that stem from the impact of foreign economic activity on the domestic marginal cost of production while under nash central banks need only adjust the interest rate in response to domestic inflation under cooperation they should respond to foreign inflation as well in either scenario flexible exchange rates are desirable

optimal monetary policy in a small open economy with home bias we analyze optimal monetary policy in a small open economy characterized by home bias in consumption peculiar to our framework is the application of a ramseytype analysis to a model of the recent open economy new keynesian literature we show that home bias in consumption is a su cient condition for inducing the monetary policy maker of an open economy to deviate from a strategy of strict markup stabilization and contemplate some optimal degree of exchange rate stabilization we focus on the optimal setting of policy both in the case of rms setting prices one period in advance and in a gradual fashion subject to adjustment costs while the rst setup allows us to analytically highlight home bias as an independent source of equilibrium

monetary policy under alternative asset market structures the case of a small open economy can the structure of asset markets change the way monetary policy should be conducted following a linear quadratic approach the present paper addresses this question in a new keynesian small open economy framework our results reveal that the configuration of asset markets significantly affects optimal monetary policy and the performance of standard policy rules in particular when comparing complete and incomplete markets the ranking of policy rules is entirely reversed and so are the policy prescriptions regarding the optimal level of exchange rate volatility

optimal monetary policy exchange rate misalignments and incomplete financial markets abstract recent literature shows that when international financial trade is restricted to autarky or a single bond there are internal and external welfare trade offs that imply optimal monetary policy in principle deviates from inflation targeting in order to offset real exchange rate misalignments this paper develops a more realistic model of incomplete markets where there is international trade in multiple assets the analysis shows that the presence of multiple assets creates a potentially powerful interaction between monetary policy and household portfolio allocation this interaction is by definition not present when there is financial autarky or a single tradeable bond and this paper shows that the interaction with portfolio allocation can imply that optimal monetary policy generates a quantitatively much more significant stabilisation of the real exchange rate gap than implied by simpler models of financial market incompleteness

an ols approach to computing ramsey equilibria in medium scale macroeconomic models abstract this note describes a general procedure for solving for the steady state and the dynamics implied by the ramsey equilibrium of medium scale macroeconomic models the procedure yields an exact numerical solution for the steady state and second order accurate dynamics it introduces a novel projection based approach to calculating exact solutions to the steady state of ramsey equilibria

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

forecasting efficiency concepts and applications this article introduces the concept of forecast efficiency in which the forecast contains all information available at the time of the forecast empirical tests investigate weak efficiency where the information set is all past forecasts and where all forecast revisions and errors should be uncorrelated with past forecast revisions tests of macroeconomic energy consumption and oil price forecasts find a significant autocorrelation of forecast revisions with fifty of fifty one tests showing positive correlation of forecast revisions as opposed to zero correlation consistent with forecast efficiency copyright 1987 by mit press

a welfare based analysis of international monetary policy spillovers at the zero lower bound we study the welfare effects of international monetary policy spillovers at the zero lower bound focusing on the effects of forward guidance in a large economy foreign on its smaller trading partner home in scenarios motivated by the global financial crisis we find that foreign forward guidance has an overall prosper thy neighbor effect on the home economy as long as it increases foreign welfare this finding holds under alternative assumptions about exchange rate pass through or the degree of international financial integration however foreign forward guidance may worsen the trade off between the stabilization objectives of home monetary policy

the value of biodiversity as an insurance device this paper presents a benchmark stochastic endogenous growth model of an agricultural economy producing food requires land and increasing the share of total land devoted to farming mechanically reduces the share of land devoted to biodiversity conservation however safeguarding a greater number of species guarantees through spatial exchanges better ecosystem services which in turn ensure lower volatility of agricultural productivity the optimal conversion conservation rule is explicitly characterized as well as the total value of biodiversity in terms of the welfare gain from biodiversity conservation and the marginal value of biodiversity in terms of risk premium reduction namely its insurance value the epstein zin weil specification of preferences allows us to disentangle the effects of risk aversion and aversion to fluctuations

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

price stability with imperfect financial integration this paper studies whether the international monetary system can be affected by asymmetries in the cross country positions in the international financial markets i e the fact that some countries are large debtors while others are creditors an important channel that is explored is the interaction between international risk sharing and the stabilization role of monetary policy in each country the main finding is that the welfare costs of incomplete markets and the gains of deviating from a policy of price stability are increasing with the cross country asymmetries in the initial net international positions and in particular they become nonnegligible when the persistence of the shocks increases 1 of a permanent shift in steady state consumption for the welfare costs of incomplete markets and 0 2 for the gains of deviating from a policy of price stability when global imbalances become larger optimal monetary policy requires an increase in the volatilities of the real returns on assets and in particular of the nominal interest rates which should happen to be more correlated across countries

using usda forecasts to estimate the price flexibility of demand for agricultural commodities we estimate the general equilibrium price flexibility of demand for corn and soybeans using monthly changes in expected supply published by the usda our estimates reflect the demand response to a one year supply shock and thus correspond to the inverse demand elasticity we derive the conditions under which our estimates are consistent and we show how demand flexibility varies by season inventory time horizon and demand composition at average inventory and without accounting for corn ethanol use we obtain price flexibility estimates of 1 35 and 1 03 for corn and soybeans respectively current corn ethanol production levels are associated with much larger absolute flexibilities for both commodities copyright 2012 oxford university press

risk perception in psychology and economics abstract the concept of rationality has been basic to most economic analysis its content has been successively refined over the generations as applied to the static world of certainty it has turned out to be a weak hypothesis not easily refuted and therefore not very useful as an explanation though not literally a tautology but recent decades have seen the development of stronger versions applied to a world in which time and uncertainty are real among its most important manifestations have been criteria for consistency in allocation over time the expected utility hypothesis of behavior under uncertainty and what may be termed the bayesian hypothesis for learning that is the consistent use of conditional probabilities for changing beliefs on the basis of new information these hypotheses have been used widely in offering explanations of empirically observed behavior though as not infrequently in economics the theoretical development has gone much further than the empirical implementation these hypotheses have also been used increasingly in normative analysis as a component of benefit cost studies therefore frequently referred to as benefit risk studies the value of reducing mortality rates from diseases for example has been studied by assuming that choice of occupations is made inter alia by comparing wage differences with mortality differences

supply fundamentals and grain futures price movements a long standing puzzle in commodity markets is the low explanatory power of supply and demand fundamentals for explaining the variability of prices in these markets we apply an instrumental variable correction for measurement errors to investigate how noise in the surprise component of usda crop production reports affects estimated price responses in corn soybeans and wheat futures markets from 1970 to 2016 our findings demonstrate that after correcting for measurement error in market surprises the explanatory power of our models increases about threefold and often exceeds 70 this is compelling evidence that fundamental supply news play an important role in explaining grain futures price movements

optimal monetary policy with international trade in intermediate inputs abstract this paper examines optimal monetary policy in a two country new keynesian model with international trade in intermediate inputs we derive the loss function of a cooperative monetary policymaker and find that the optimal monetary policy must target intermediate goods price inflation rates final goods price inflation rates final goods output gaps and relative price gaps we use the welfare loss under the optimal monetary policy as a benchmark to evaluate the welfare implications of three taylor type monetary policy rules a main finding is that the degree of price stickiness at the stage of intermediate goods production is a key factor to determine which policy rule should be followed specifically when the degree of price stickiness at the stage of intermediate goods production is high the policymaker should follow intermediate goods ppi based taylor rule whereas cpi based taylor rule should be followed when the degree of price stickiness at the stage of intermediate goods production is intermediate or low

portfolio choice with non expected utility in continuous time non expected utility preferences which can distinguish intertemporal substitution from attitudes towards risk are extended to continuous time the consumption savings and portfolio problem is solved for constant intertemporal elasticity of substitution and constant relative risk aversion

do the ecb and the fed really need to cooperate optimal monetary policy in a two country world abstract a two country model with monopolistic competition and price stickiness is employed to investigate the implications for macroeconomic stability and the welfare properties of three international policy arrangements a cooperative b non cooperative and c monetary union i characterize the conditions under which there is scope for policy cooperation and quantify the costs of non cooperation and monetary union the non cooperative equilibrium may be suboptimal because of terms of trade spillover effects while monetary union may be suboptimal because of the sluggishness of relative prices both the costs of policy competition and of a monetary union are sensitive to the values assumed for the intertemporal and international demand elasticity and the degree of openness of the economy independently of the calibration scenario adopted the ecb has little to gain by coordinating with the fed

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

pre harvest price expectations for corn the information content of usda reports and new crop futures this article examines the puzzle of why futures prices continue to react to usda crop reports despite the fact that reports appear to be no longer newsworthy that is provide no better production estimates than private forecasts the information value of reports is measured in terms of their influence on rational agents harvest time corn price expectations which are uncovered using a hamilton type modeling approach results show that reports are still newsworthy as they would contribute to agents price expectations if released a day early thus futures price reactions which closely reflect price expectations are rational and consistent with efficient markets hypothesis copyright 2008 oxford university press

on the benefits of a monetary union does it pay to be bigger this paper revisits the question of the appropriate domain of a currency area using a new keynesian open economy model in which the world is split into two areas each framed as a continuum of small open regions we show that the adoption of a common currency like the euro can be beneficial for the members of the monetary union since the spill over effects generated by the inflationary policies of the small open economies are likely to outweigh the costs of not tailoring monetary policy to country specific shocks we also show that while the enlargement of the monetary union to another group of small open economies can bring about welfare gains for all countries involved monetary integration of two large economies such as the euro area and the u s will not these findings can help to rationalize the process of the creation and enlargement of multi country currency areas like the eurozone

the new econometrics of structural change dating breaks in u s labor productivity we have seen the emergence of three major innovations in the econometrics of structural change in the past fifteen years 1 tests for a structural break of unknown timing 2 estimation of the timing of a structural break and 3 tests to distinguish unit roots from broken time trends these three innovations have dramatically altered the face of applied time series econometrics in this paper we review these three innovations and illustrate their application through an empirical assessment of u s labor productivity in the manufacturing durables sector

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

inflation stabilization and welfare the case of a distorted steady state this paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price setting rotemberg and woodford 1997 and woodford 2002 have shown that under certain conditions a local approximation to the expected utility of the representative household in a model of this kind is related inversely to the expected discounted value of a conventional quadratic loss function in which each period s loss is a weighted average of squared deviations of inflation and an output gap measure from their optimal values zero however those derivations rely on an assumption of the existence of an output or employment subsidy that offsets the distortion due to the market power of monopolistically competitive price setters so that the steady state under a zero inflation policy involves an efficient level of output here we show how to dispense with this unappealing assumption so that a valid linear quadratic approximation to the optimal policy problem is possible even when the steady state is distorted to an arbitrary extent allowing for tax distortions as well as market power and when as a consequence it is necessary to take account of the effects of stabilization policy on the average level of output we again obtain a welfare theoretic loss function that involves both inflation and an appropriately defined output gap though the degree of distortion of the steady state affects both the weights on the two stabilization objectives and the definition of the welfare relevant output gap in the light of these results we reconsider the conditions under which complete price stability is optimal and find that they are more restrictive in the case of a distorted steady state we also consider the conditions under which pure randomization of monetary policy can be welfare improving and find that this is possible in the case of a sufficiently distorted steady state though the parameter values required are probably not empirically realistic

the value of public information in storable commodity markets application to the soybean market this article provides a framework to estimate the potential effects and benefits of the provision of market information in storable commodity markets this framework is applied to the case of production forecasts for the soybean market a rational expectations storage model of the global soybean market accounting for both inter annual and intra annual market dynamics is built shocks that occur between planting and harvesting affect the size of the potential harvest estimates of the size of these shocks are reported publicly and affect the market equilibrium through adjustments to stock levels by varying counterfactually the observability of seasonal shocks we can estimate the efficiency gains related to the availability of advance information they are equivalent to 2 of storage costs the reduction of stock levels being the main channel explaining the welfare gains the presence of advance information has a limited effect on inter annual price volatility but redistributes price volatility during the season increasing it just before harvest when almost all news has been received and stocks are tight and decreasing it after harvest the effect of news shocks is stronger on higher order moments of the distribution with a strong decrease in skewness and kurtosis related to the lower frequency of price spikes

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

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

designing targeting rules for international monetary policy cooperation this study analyzes a two country dynamic general equilibrium model with nominal rigidities monopolistic competition and producer currency pricing a quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers it is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained efficient solution depend on the kind of disturbance that affects the economy it might be the case either for fixed or floating exchange rates despite this result simple targeting rules that involve only targets for the growth of output and for both domestic gdp and cpi inflation rates can replicate the cooperative allocation

financial globalization and monetary policy abstract recent data show substantial increases in the size of gross external asset and liability positions the implications of these developments for optimal conduct of monetary policy are analyzed in a standard open economy model which is augmented to allow for endogenous portfolio choice the model shows that monetary policy takes on new importance due to its impact on nominal asset returns nevertheless the case for price stability as an optimal monetary rule remains in fact it is reinforced even without nominal price rigidities price stability is optimal because it enhances the risk sharing properties of nominal bonds

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

between data and decisions the organization of agricultural economic information systems abstract in the current political economic environment there is pressure to reduce and reorient public agency involvement in agricultural economic research and information services efforts to evaluate the effectiveness of public investments and enhance sectoral coherence through exploitation of institutional complementarity are constrained by weak understanding of how economic information is produced processed and circulated in this paper we locate the centers of analytic competence and analyze supply of agricultural economic advisory services through development of an information accounting framework we focus on the relative contributions of public agencies commercial firms collective organizations and informal networks in order to identify organizational structures and institutional arrangements of coordination in the agricultural economy the observed division of labor in information systems reflects the heterogeneous distribution and strategic choices of actors with respect to internal analytic competencies decision makers in agricultural businesses are heavily dependent on the services of a diverse range of intermediaries who perform information translation and customization functions these intermediaries rely heavily on largely but not exclusively publicly supplied data and information inputs this strongly linear aspect of agricultural economic information systems is identified as a component subsystem within the larger and more highly interconnected system of innovation the dominant role of public agencies in economic information systems suggests that they currently perform highly valuable coordinating functions in agriculture while commercial and collective organizations make important contributions and could be mobilized to assume broader responsibility there are likely to be limitations to substitutability based on the classic but still fully relevant problem of private underinvestment in information

does exchange rate variability matter for welfare a quantitative investigation of stabilization policies abstract this paper studies what degree of exchange rate stabilization is optimal for several types of open economies this is accomplished through a quantitative evaluation of optimal monetary policy rules in a two country sticky price model first a calibrated benchmark model with incomplete asset markets supports past conclusions from simpler models emphasizing inflation stabilization rather than exchange rate stabilization it also highlights that the utility gains from optimal stabilization policy are small second while an economy extended to include consumer habits implies greater sensitivity by households to consumption variability it has only minor effects on the benchmark conclusions and benefits finally these conclusions are altered under an alternative environment where international asset markets exhibit asymmetry in the form of original sin such countries can benefit from policies that aggressively stabilize the exchange rate with utility gains larger than the previous cases

the value of public information in commodity futures markets abstract the informational value of u s department of agriculture usda corn and soybean production forecasts is investigated for the period 1971 1992 three tests of informational content are applied overall the results suggest usda corn and soybean forecasts provide valuable information to participants in commodity futures markets this value does appear to have declined especially since the mid 1980s

managing increasing environmental risks through agrobiodiversity and agrienvironmental policies abstract agro biodiversity can provide natural insurance to risk averse farmers by reducing the variance of crop yield and to society at large by reducing the uncertainty in the provision of public good ecosystem services such as e g co2 storage we analyze the choice of agro biodiversity by risk averse farmers who have access to financial insurance and study the implications for agri environmental policy design when on farm agro biodiversity generates a positive risk externality while increasing environmental risk leads private farmers to increase their level of on farm agro biodiversity the level of agro biodiversity in the laissez faire equilibrium remains inefficiently low we show how either one of two agri environmental policy instruments can cure this risk related market failure an ex ante pigouvian subsidy on on farm agro biodiversity and an ex post compensation payment for the actual provision of public environmental benefits in the absence of regulation welfare may increase rather than decrease with increasing environmental risk if the agroecosystems is characterized by a high natural insurance function low costs and large external benefits of agro biodiversity

rationality and the role of judgement in macroeconomic forecasting this paper examines the effects of judgemental adjustments on the rationality of macroeconomic forecasts published forecasts based on large scale models are rarely purely model based but often include extensive adjustments forecasters adjustments tend to improve forecast accuracy but there is no evidence of their impact on the rationality of forecasts using series of revisions to forecasts we find little evidence that published forecasts are excessively smooth in the nordhaus i 987 sense but intercept corrections do appear to reduce the variation over time in purely modelbased forecasts and to alter the underlying output inflation trade off implicit in the model there is a large literature on the rationality of forecasts and on the efficient use of information in forecasting equally it is now generally recognised that published forecasts are rarely based on the estimated model alone but that adjustments are often made to the model based predictions in arriving at a final forecast thus published forecasts reflect in varying degree the properties of the model and the skills of the model s proprietors while forecasters adjustments do appear to improve forecast accuracy see the work of the esrc

are harvest forecasts news usda announcements and futures market reactions futures market price data for maize and soyabeans are used to examine reactions to us department of agriculture harvest forecasts these forecasts are widely known and reasonably accurate so failure to find significant reaction would indicate that the usda did not contribute additional news relative to information already possessed by traders various t tests f tests and nonparametric chi square tests indicate rejection of the null hypothesis of no significant difference between means of absolute values or variances of changes in closing prices on days following a usda announcement and other days thus the data indicate that significant information is contained in the forecasts

speculative price economic welfare and the idiot of chance p aul cootner stimulated significant research on the subject of speculative markets in both commodities and equities his papers 1960 1964 1967 were original and provocative one paper began with the statement the subject matter of this paper is bound to be considered heresy i can say that without equivocation because whatever views anyone expresses on this subject are sure to conflict with someone else s deeply held beliefs 1964 p 231 most of the papers concerned with the operation of futures markets in commodities test the efficiency of the market by examining the stochastic nature of futures prices which samuelson refers to as the idiot of chance in particular it is asked whether the price of a futures contract is a martingale cootner s contention which runs counter to the tide of academic writings is that speculative prices are not random walks but are constrained by economically determined barriers 1964 ch 11 the present paper is in the spirit of cootner s thinking about the economic and welfare implications of speculative markets my main conclusions are as follows 1 the optimality of resource allocation defined as the sum of consumer and producer surplus depends upon the accuracy of the forward price at the time production decisions are made as a forecast of the subsequent spot price when consumption occurs the existence or nonexistence of the martingale property of futures prices between these two dates is irrelevant for welfare purposes 2 social loss is a multiple of the square of the forecast error between the forward price and the subsequent spot price expected social loss is irreducible when the forward price is equal to the mathematical expectation of the subsequent spot price 3 the longer the period between the production decisions and the subsequent consumption decisions the greater the bias between the forward price and subsequent spot price 4 it has been claimed that in an efficient market the spot price at time t should just depend upon the price at t 1 and not upon earlier prices it is proved that this situation is neither a necessary nor a sufficient condition for rational expectations 5 therefore there is a tenuous connection between the stochastic nature of speculative price and measures of economic welfare but there is a direct connection between the forecast errors and economic welfare

the need for international policy coordination what s old what s new what s yet to come the first generation of policy coordination models was introduced some 25 years ago it provided a rationale for policy coordination but the gains from coordination were generally thought to be small now a new generation of policy coordination models is emerging incorporating monopolistic competition and nominal inertia here we examine macroeconomic interdependence and the scope for policy coordination in a tractable second generation model with two countries and multiple sectors initial calibration of the model suggests that second generation models may have more scope for policy coordination than did the first d 2004 elsevier b v all rights reserved

international capital flows abstract the surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice we develop the implications of portfolio choice for both gross and net international capital flows in the context of a simple two country dynamic stochastic general equilibrium dsge model we focus on the time variation in portfolio allocation following shocks and resulting capital flows endogenous time variation in expected returns and risk which are the key determinants of portfolio choice affect capital flows in often subtle ways the model is consistent with a broad range of empirical evidence an additional contribution of the paper is to overcome the technical difficulty of solving dsge models with portfolio choice by developing a broadly applicable solution method

when do the usda forecasters make mistakes this study analysed forecasts for all us corn soya bean and wheat categories published within the world agricultural supply and demand estimates wasde reports over the 1987 88 through 2009 10 marketing years in an attempt to identify patterns and better understand when the usda forecasters make mistakes two general sources of errors were investigated behavioural and macroeconomic factors the first objective was to examine how these factors affect the size of the forecast error and the second concentrated on the direction of the error due to these effects our findings suggest that the largest increase in the size of usda forecast errors was associated with structural changes in commodity markets that took place in the mid 2000s corn soya bean and wheat forecast errors also grew during the periods of economic growth and with changes in exchange rates while inflation and changes in oil price had a much smaller impact with respect to behavioural sources we identified patterns consistent with leni

the role of financial market structure and the trade elasticity for monetary policy in open economies the degree of international risk sharing matters for how monetary policy should optimally be conducted in an open economy this is because risk sharing afiects the way in which monetary policy is afiected by terms of trade considerations in a standard twocountry model with monopolistic competition and nominal rigidities i consider difierent assumptions on international flnancial markets complete markets flnancial autarky and a bond economy and a large region for the crucial parameter of the trade elasticity there are three main results one the prescription of producer price stability as the optimal policy is obtained only as a special case while in general it is optimal to deviate from a strictly zero in ation rate two while gains from international policy coordination are generally small they do become substantial when international risk sharing is poor and wealth efiects from shocks across countries are large and three when international flnancial markets are incomplete there are also sometimes considerable gains over the exible price allocation achievable

how the data we make can unmake us annals of factology scrutiny we give to propositions derived from theory claims of statistical significance of a regression result or a bald assertion consider why do people still ranch and why lately have more ranchers started to write poetry about their lives new york times july 5 1992 if you were to make such a poetical claim you could expect to be asked for supporting data but to take an example of the other kind after you quote world bank gdp tables to show real income growth in developing countries slowing up in the 1980s your assertion that real income growth slowed in the 1980s is likely to be unchallenged this is wrong for the supine acceptance of data can cause scientific mischief of the worst kind believing we know things that aren t so the purposes of this paper are to show how the data agricultural economists use can mislead and to discuss what might be done about it

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

on the international transmission of technology shocks abstract using vector autoregressions on u s time series and an aggregate of industrialized countries we find that technology shocks appreciate the terms of trade and lower the trade balance they induce an s shaped cross correlation function for both variables the s curve in calibrating a prototypical international business cycle model under complete and incomplete financial markets we find two distinct sets of parameter values while both model specifications deliver the s curve the underlying transmission mechanism of technology shocks is fundamentally different most importantly only in the incomplete markets economy the terms of trade appreciate and thus amplify the relative wealth effects of technology shocks as suggested by the evidence

country portfolios in open economy macro models this paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models the method is widely applicable simple to implement and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset it can be used in models with any number of assets whether markets are complete or incomplete and can be applied to stochastic dynamic general equilibrium models of any dimension so long as the model is amenable to a solution using standard approximation methods we first illustrate the approach using a simple two asset endowment economy model and then show how the results extend to the case of any number of assets and general economic structure

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

the role of intermediate goods in international monetary cooperation abstract this paper investigates the implications of intermediate goods for optimal monetary policy in open economies and particularly focuses on the welfare gains that result from monetary cooperation in a relatively standard two country dynamic stochastic general equilibrium model with input output relations this paper demonstrates that introducing intermediate goods can amplify the welfare gains caused by cost push shocks by an order of magnitude larger a detailed analysis of equilibrium dynamics highlights a new channel that is absent in the previous literature non cooperative central banks respond differently to shocks in the intermediate goods market versus shocks in the final goods market even if these shocks generate the same distortions when the two central banks cooperate furthermore it is demonstrated that increasing the degree of openness in the intermediate goods market can reduce the welfare gains from monetary cooperation this casts doubt on whether the recent trend in international economic integration justifies the potential need for international monetary cooperation

risk and intertemporal substitution livestock portfolios and off take among kenyan pastoralists abstract most decisions involve variability in two dimensions uncertainty across states of nature and fluctuations over time the stakes involved in tradeoffs between these variability dimensions are especially high for the poor who have difficulty managing and recovering from shocks we assume epstein and zin recursive preferences and estimate risk aversion and intertemporal substitution as distinct preferences using data from kenyan herders results suggest that the assumption implicit in additive expected utility models that relative risk aversion rra is the inverse of the elasticity of intertemporal substitution eis is flawed specifically our rra and eis estimates are consistent with a preference for the early resolution of uncertainty which we believe is driven importantly by the instrumental value of early uncertainty resolution this same preference pattern is consistent with asset smoothing in response to a dynamic asset threshold

obstfeld and rogoff s international macro puzzles a quantitative assessment abstract obstfeld and rogoff 2001 propose that trade frictions lie behind key puzzles in international macroeconomics we take a dynamic multicountry model of international trade production and investment to data from 19 countries to assess this proposition quantitatively using the framework developed in eaton et al 2016 we revisit the puzzles in a counterfactual world without trade frictions in manufactures removing these trade frictions goes a long way toward resolving a number of puzzles the dependence of domestic investment on domestic saving falls by half or disappears entirely mitigating the feldstein and horioka 1980 puzzle changes in nominal gdps in u s dollars become less variable across countries and line up with changes in real gdps as much as with real exchange rates mitigating the exchange rate disconnect puzzle less dramatically changes in consumption become more correlated across countries mitigating the consumption correlations puzzle and changes in real exchange rates become less variable across countries mitigating the relative purchasing power parity puzzle

are revisions to usda crop production forecasts smoothed this article uses nordhaus framework to determine the efficiency of the revision process for usda corn and soybean production forecasts over the 1970 1971 through 2004 2005 marketing years positive autocorrelation and consistency of directional changes in forecast revisions suggest these forecasts are smoothed evidence is provided that the loss in forecast accuracy due to smoothing is statistically and economically significant in several cases a conservative bias in farm operators assessments of yield potential and in the procedure for translating enumerator s information about plant fruit counts into objective yield estimates are identified as plausible sources of smoothing

the rationality of usda forecasts under multivariate asymmetric loss a large number of previous studies suggest that many usda forecasts are biased and or inefficient these findings however may be the result of the assumed loss function of usda forecasters we test the rationality of the usda net cash income forecasts and the wasde production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non separable forecast errors our results provide robust evidence that usda forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under or overprediction as a result this study provides an alternate interpretation of previous findings of forecast irrationality