new human resource management practices complementarities and the impact on innovation performance in this paper we take our theoretical point of departure in recent work in organisational economics on systems of human resource management hrm practices we develop the argument that just as complementarities between new hrm practices influence financial performance positively there are theoretical reasons for expecting them also to influence innovation performance positively we examine this overall hypothesis by estimating an empirical model of innovation performance using data from a danish survey of 1 900 business firms using principal component analysis we identify two hrm systems which are conducive to innovation in the first one seven of our nine hrm variables matter almost equally for the ability to innovate the second system is dominated by firm internal and firm external training of the total of nine sectors that we consider we find that the four manufacturing sectors correlate with the first system firms belonging to wholesale trade and to the ict intensive service sectors tend to be associated with the second system

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

identifying a forward looking monetary policy in an open economy i identify a forward looking monetary policy function in a forecast augmented var foavar model by using forecasted macroeconomic variables in addition to the realized variables used in a standard var i find that forecasted variables play a greater role than realized variables in a central bank s policy decisions i also find that a contractionary policy shock in the foavar generates impulse responses of macroeconomic variables that are consistent with the predictions of economic theory while the same shock causes a price puzzle and a delayed overshooting response of the exchange rate in the standard model

the disaggregation of corporations selective intervention high powered incentives and molecular units a vast array of organizational innovations and changes are transforming us corporations large firms have dramatically downsized refocused and vertically disaggregated they increasingly obtain goods and services pursue complex development efforts and exploit horizontal synergies without the aid of formal hierarchy large firms are also internally disaggregating into smaller more autonomous units that are treated much like external subcontractors the authors argue that these organizational innovations share an important underlying commonalty economic activity is converging toward exchange involving either internal within firm or external between firm networks of small autonomous production or service units small units and small firms have become the basic building block the molecular units of these new forms further exchange among the small autonomous units is commonly a mix of both market like and hierarchical features the authors develop a theoretical explanation for these trends the

the influence of information technology on the use of loosely coupled organizational forms an industry level analysis information technology it enhances coordination both within the firm and between the firm and its external partners consequently it investment can promote both loosely and tightly coupled organizational forms indeed in some industries widespread investment in it is associated with high levels of disaggregation in other industries this is not the case we argue that the specific influence of it on firm boundaries depends on the broader industrial context we investigate conditions whereby it investments enable industries to be more loosely coupled through alliance formation and the use of contingent workers we use transaction cost and modular systems theory to ground our theoretical development the extent to which industrywide it investment is associated with loosely coupled organizational forms depends on 1 limited asset specificity because of industry standards 2 the level of industry uncertainty resulting from technological change and 3 the overall complexity of the industry in terms of diverse inputs specifically when industry standards exist it investment leads to greater use of both alliances and contingent workers it investment has a stronger positive relationship with the use of contingent workers when levels of technological change are low as compared to when levels of technological change are high when there are high levels of input diversity and industry standards exist it investment led to an increased use of contingent workers our analyses provides a more refined view of it influence on firm boundaries

price and authority in inter profit center transactions price and authority have traditionally been regarded as alternative social mechanisms for allocating resources however actual transactions whether inter or intrafirm can be evaluated in terms of the extent to which they combine both of these mechanisms an especially revealing example of this is the exchange of goods between two profit centers in the multi profit center firm three of the most common arrangements or transfer pricing polices for effecting these transactions are examined here exchange autonomy transfers depend primarily on price with no or minimal use of authority mandated full cost transfers involve a substantial exercise of authority relative to the use of price mandated market based transfers use both authority and price in important ways for all three policies the transaction costs of these internal transactions may exceed these costs on external transactions

testing alternative theories of the firm transaction cost knowledge based and measurement explanations for make or buy decisions in information services firms boundary choices have undergone careful examination in recent years particularly in information services while transaction cost economics provides a widely tested explanation for boundary choice more recent theoretical work advances competing knowledge based and measurement cost explanations similar to transaction cost economics these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance these theories however offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make buy choices traditional empirical specifications of make buy models are unable to comparatively test among these alternative theories by developing and testing a model of comparative institutional performance rather than institutional choice we examine the degree of support for these competing explanations of boundary choice hypotheses are tested using data on the governance of nine information services at 152 companies our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex requiring integration of transaction cost knowledge based and measurement reasoning 1998 john wiley sons ltd

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

information technology and transnational integration theory and evidence on the evolution of the modern multinational enterprise reflecting amplified hazards in cross border exchange and imperfections in markets for intangibles internalization has been central in multinational enterprise mne theory this centrality notwithstanding the fact is that internalization coheres with lower powered incentives and carries an implicit drawback namely higher realized production costs with the emergence and deployment of information and communication technology ict modern mnes are reshaping their transnational governance to address this cost the modern mne uses ict to mitigate transaction costs and evolves more to arm s length exchange to incentivize lower production costs a testable prediction is that mnes in industries more susceptible to and employing more ict will exhibit a reduced propensity for transnational integration we examine this hypothesis using available data from 1982 to 1997 for us mnes across all manufacturing sectors regression results and robustness tests are strongly congruent with the prediction this study a first to explore empirically the role of ict in the evolution of transnational exchange suggests that mne theory until now founded primarily on transaction cost economics and a cross border control theory of value capture is more likely to keep pace with developments in mne practice by opening up to incentive theories of exchange governance and a cross border coordination theory of value creation

is the us dollar a suitable anchor for the newly proposed gcc currency responses of inflation and non oil output growth from the gulf cooperation council gcc countries to monetary policy shocks from the united states us were estimated to determine whether there is evidence to support the us dollar as the anchor for the proposed unified currency a structural vector autoregression identified with short run restrictions was employed for each country with fed funds rate as the us monetary policy instrument non oil output growth and inflation the main results suggest that for inflation the gcc countries show synchronised responses to monetary policy shocks from the us which are similar to inflation in the us and for non oil output growth there is no clear indication that us monetary policy can be as effective for the gcc countries as it is domestically consequently importing us monetary policy via a dollar peg may guarantee only stable inflation for the gcc countries not necessarily stable non oil output growth if the non oil output response is made conscientiously and there are concerns over the dollar s ability to perform its role as a store of value a basket peg with both the us dollar and the euro may be a sound alternative as confirmed by the variance decomposition analysis of our augmented svar with a proxy for the european short term interest rate

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

the assessment monetary and fiscal policy in the 1980s the emphasis is on policy in the uk though many of the issues that arise e g about the links between monetary and fiscal policy or the concern over persistent deficits and debt are general being faced by other countries as well the uk s policy has however been more extreme and under the medium term financial strategy mfts more explicit than elsewhere the purpose of this assessment is not primarily prescriptive rather it is an alytical intended to lay out some of the major theoretical and empirical issues that underlie policy choice and to stimulate debate

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

impact of information technology capital on firm scope and performance the role of asset characteristics this research draws on transaction cost and resource based theory to examine how information technology it capital moderates the relationship between different types of assets and firm scope both vertical integration and diversification the analysis suggests that it capital enables firms with narrowly valuable assets to be less vertically integrated and less diversified and enables firms with broadly valuable assets to be more vertically integrated and more diversified the moderating influence of it capital on the relationship between different types of assets and firms vertical and product market scope is consistent with transaction cost as well as resource based traditions abstract from author

using private forecasts to estimate the effects of monetary policy i develop a methodology that uses the forecasts of market participants and of policy makers to estimate the effects of monetary policy on output and inflation my approach has advantages over the standard practice of fitting a vector autoregression to the data i apply my methodology to data on output interest rates and prices i find that even using the federal reserve board s greenbook forecasts to control for the policy maker s information set prices rise initially in response to a monetary contraction this finding undermines the standard justification for including an index of commodity prices in vars

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

fragmenting global business processes a protection for proprietary information this study shows that when sourcing business services in foreign countries the fragmentation of processes across production units acts as an operational level adjustment variable for firms to adapt their information protection approach to the regulative environment of the host country they have selected and to the possibility to use internal controls over the activities performed abroad we hypothesize that when the above mechanisms are not available firms are more likely to fragment processes across multiple foreign production units instead of collocating all process tasks in the same unit thanks to it enabled integration capabilities firms can exploit the complementarities between the dispersed fragments of a process while reducing the misappropriation hazard of individual fragments empirical results and robustness tests are strongly congruent with these hypotheses we find also that the propensity to turn to the process fragmentation protection mechanism increases with firm host country specific experience and with the alternative value of the proprietary information involved in the activity sourced abroad

why do manufacturing facilities introduce environmental management systems improving and or signaling performance abstract in this paper we explore the motivation for the introduction of environmental management systems and their certification a distinction is drawn between their role in bringing about better compliance or improved performance and as external indicators of good environmental practices to both other market participants and regulatory authorities drawing upon a database of approximately 4000 facilities in seven oecd countries empirical evidence is found for the role that both factors play in encouraging the adoption and certification of ems s but that the relative importance of different factors varies according to facility size

the assessment strategic policy dilemmas for the 1990s in europe this is most obvious in the growing concern over unemployment which at about 12 per cent has now reached a level exceeding even that reached in the great depression most developed countries moreover face or at least think they face a fiscal crisis hie fact that problems of high public borrowing and rising national debt stocks are self evidently in part a result of recession slow growth and in europe persistent unemployment does not make the situation any more comfortable conventional responses of the fiscal kind whether macroeconomic or in the form of directed labour m rket measures seem to be blocked off and though the situation varies considerably between countries there are limits to the use of monetary p licy imposed by worries over inflation or by exchange rate objectives such as those which were embodied in the now disintegrating exchange rate mechanism erm even without formal ex change rate commitments or objectives increasing international integration limits the freedom of ma noeuvre for any one country

entry and exit decisions in flexible teams the present study identifies a major limitation of current research on multinational enterprises mnes joint decision making in a distributed setting is of critical importance in practice but has received little attention in our theories to address this gap in knowledge we examine the effects of flexible decision teams when mnes assess turbulent markets remarkably flexible teams composed of fallible evaluators can outperform what is usually thought of as an optimal decision our main result supports the claims advanced in recent empirical studies structural flexibility can help mnes achieve high levels of performance even in conditions of turbulence

regional macroeconomic policy fiscal federalism and european integration i the issues from a theoretical viewpoint there is nothing very special about that particular set of regional group this paper is about how the role of macroeconomic ings policy changes as regions or countries coalesce into larger groupings and as integration occurs no one the obvious context that motivates this analysis is expects a very small region say an individual a the political economic debate over monetary union firm or a town to have a macroeconomic policy let in europe what are the gains and losses for a alone a separate currency however as the domain country in giving up a separate exchange rate and a of attention or analysis expands as regions are in separate monetary policy how should the roles of an accounting sense consolidated macroecomonetary and fiscal policy change but the ques nomic problems become more evident and fions apply downwards as well as upwards should macroeconomic policy has more and more of a regional authorities design and implement their role traditionally it is countries that carry out own fiscal policies should they perhaps have macroeconomic policy and have currencies but separate currencies

change and complementarities in the new competitive landscape a european panel study 1992 1996 this paper addresses three weaknesses in the literature on new organizational forms the limited mapping of the extent of contemporary organizational change confusion about how contemporary changes link together and the lack of systematic testing of the performance consequences of this kind of change drawing on a large scale survey of organizational innovation in european firms the paper finds widespread but not revolutionary change in terms of organization structure processes and boundaries using the economics notion of complementarities the paper develops contingency and configurational approaches to suggest that organizational innovations will tend to cluster in particular ways and that the performance benefits of these innovations depend on their clustering complementarities in performance are explored from both inductive and deductive perspectives consistent with the expectations of complementarity theory high performing firms appeared to be innovating more and differently than low performing firms again consistent with complementarities piecemeal changes with the exception of it were found to deliver little performance benefit while exploitation of the full set of innovations was associated with high performance though few european firms were found to exploit the complementarities of new organizational practices those that did enjoyed high performance premia

forgiveness in vertical relationships incentive and termination effects two types of contractual solutions have been proposed for resolving incentive conflicts in vertical relationships formal and relational i e enforceable or not by third parties much is known about the optimal structure of formal contracts but relatively little is known about the structure of relational contracts we study a core feature of the latter the conditions leading to continuation of the relationship whose prospect gives relational contracts their force we build a formal model of a vertical relationship between two parties that endogenizes the choice of the minimum performance necessary for continuation as a function of the values of contractibles noncontractibles and outside options the model highlights a basic trade off between providing strong incentives for the present incentive effect and safeguarding relationships for the future termination effect the stable relationships that follow from a more forgiving contract are more important under certain conditions when a lot of value is jointly created by exchange partners i e high contractible value high noncontractible value or unattractive outside options however strong incentives from a less forgiving contract are more important under other conditions when a formal contract is insufficient and a relational contract is most important i e high noncontractible relative to contractible value we discuss implications for the choice of governance of interorganizational relationships

what lies between market and hierarchy insights from internalization theory and global value chain theory in this paper we suggest that internalization theory might be extended by incorporating complementary insights from gvc theory more specifically we argue that internalization theory can explain why lead firms might wish to externalize selected activities but that it is largely silent on the mechanisms by which those lead firms might exercise control over the resultant externalized relationships with their gvc partners we advance an explanation linking the choice of control mechanism to two factors power asymmetries between the lead firms and their gvc partners and the degree of codifiability of the information to be exchanged in the relationship

monetary policy inflation expectations and the price puzzle this article re examines the var evidence on the price puzzle and proposes a new theoretical interpretation using actual data and two identification strategies based on zero restrictions and model consistent sign restrictions we find that the positive response of prices to a monetary policy shock is historically limited to the sub samples that are typically associated with a weak interest rate response to inflation using pseudo data generated by a sticky price model of the us economy we then show that the structural vars are capable of reproducing the price puzzle only when monetary policy is passive the omission in the vars of a variable capturing expected inflation is found to account for the price puzzle observed in simulated and actual data structural vector autoregressions svars are widely used for measuring and understanding the effects of monetary policy innovations on the aggregate economy while most results in the var literature are consistent with economic intuition and macroeconomic theory the typically found positive and significant reaction of the price level on impact to a monetary policy shock is a fact that most monetary models

closed or open innovation problem solving and the governance choice scholars have recently highlighted the promise of open innovation in this paper we treat open innovation in it s different forms and manifestations as well as internal or closed innovation as unique governance forms with different benefits and costs we discuss how each governance form whether open or closed is composed of a set of instruments that access a different types of communication channels for knowledge sharing b different types of incentives and c different types of property rights for appropriating value from innovation we focus on the innovation problem as the central unit of analysis arguing for a match between problem types and governance forms which vary from open to closed and which support alternative forms of solution search in all the goal of this paper is to provide a comparative framework for managing innovation where we delineate and discuss four categories of open innovation governance forms markets partnerships contests and tournaments and user or community innovation and compare them with each other and with two internal or closed forms of innovation governance authority and consensus based hierarchy

an efficient frontier in organization design organizational structure as a determinant of exploration and exploitation this paper develops a parsimonious process level theory that connects organizational structure to exploration and exploitation toward this end it develops a mathematical model of organizational decision making that combines an information processing approach in the spirit of sah and stiglitz sah rk stiglitz je 1986 the architecture of economic systems hierarchies and polyarchies amer econom rev 764 716 727 with elements from signal detection theory the model is first used to explore a design space of organizations and identify trade offs and dominance relationships among alternative organization designs the paper then studies open questions in the organization design literature such as the extent to which exploration and exploitation can be produced by one organization and what is the effect of organization size on exploration more broadly this research speaks to calls for the introduction of more process level explanations in the organizations literature the paper concludes with testable hypotheses and managerially relevant insights

explaining the swollen middle why most transactions are a mix of market and hierarchy why are firms sometimes more efficient than markets at organizing transactions why are most transactions arrayed neither at the pure market nor at the pure hierarchy end of the continuum but rather in the swollen middle incorporating features of both market and hierarchy why don t firms make greater use of price incentives this paper addresses these three questions by developing a model of the choice of institution one key building block is the distinction between organizing methods hierarchy and the price system and institutions firms and markets hierarchy and the price system are two distinct methods for organizing transactions each with particular costs and benefits markets and firms are institutions which use one or both of these methods although markets predominantly use prices and firms rely principally on hierarchy there is not a one to one correspondence between prices and markets or between hierarchy and firms indeed the paper argues that it is generally more efficient to use a mix of both methods than to specialize in either the paper focuses on the enforcement properties of prices and hierarchy hierarchy controls individuals directly by constraining their behavior by imposing behavior constraints while prices do it indirectly by measuring their outputs through price constraints under hierarchy individuals receive a salary to do as told while self employed individuals governed by the price system are rewarded on the basis of their output each system has its own biases using prices maximizes effort minimizes shirking but incites individuals to inflate the price and or reduce the quality of their output it encourages cheating relying on hierarchy results in the opposite bias under hierarchy individuals are not paid in function of their output but instead are rewarded for following directives they have thus strong incentives to minimize effort to shirk unless properly supervised but being paid a fixed sum to follow orders they have few incentives to cheat hence the price system experiences low shirking but potentially high cheating costs while hierarchy faces low cheating but high shirking costs organizing costs are the sum of shirking and cheating costs any given transaction will be organized by the mix of price and hierarchy i e by the mix of price and behavior constraints that minimizes organizing costs a transaction will be organized within a firm if the reduction in cheating costs achieved by replacing price constraints by behavior constraints exceeds the resulting increase in shirking costs and by the market in the opposite case the paper shows that cheating and shirking costs increase more than proportionately as one concentrates in either pure price or behavior constraints hence using a mix of both methods generally minimizes the sum of cheating and shirking costs this explains why most transactions exhibit features of both markets and hierarchy the paper shows clearly the tradeoff involved between price and behavior constraints it explains the costs and benefits of using two types of price incentives in firms piecework and profit centers and predicts when they will be used

selective intervention and internal hybrids interpreting and learning from the rise and decline of the oticon spaghetti organization infusing hierarchies with elements of market control has become a much used way of simultaneously increasing entrepreneurialism and motivation in firms however this paper argues that such internal hybrids particularly in their radical forms are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making this theme is developed and illustrated using the case of the world leading hearing aids producer oticon in the beginning of the 1990s oticon became famous for its radical internal hybrid the spaghetti organization recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means neglecting however that about a decade later the spaghetti organization has given way to a more traditional matrix organization in contrast an organizational economics interpretation of oticon organizational changes is developed this lens suggests that a strong liability of the spaghetti organization was the above incentive problem frequent managerial meddling with delegated rights led to a severe loss of motivation and arguably caused the change to a more structured organization refutable implications are developed and the discussion is broadened to more general issues of economic organization

taxing the multinational enterprise on the forced redesign of global value chains and other inefficiencies the taxation of the multinational enterprise mne has been a continuing concern for policymakers we argue that the changing nature of the mobile mne e g its improved ability to fine slice the value chain and disperse it geographically makes it increasingly important to rethink current tax policies first there should be more focus on the inefficiencies that arise when taxation leads to the inefficient location of mne activities thus mnes may shift activities to low tax jurisdictions that offer lucrative pecuniary and non pecuniary incentives but do not enable their investments to maximize their contribution to global value creation second international tax regimes should ensure that mnes pay for their consumption of local public goods and public finance scholars have long known that the taxation based distortions are minimized when the tax objects are immobile however the bulk of current tax policies are aimed at corporate profits that are both poor proxies for the consumption of local public goods as well as extremely mobile integrating theory from international business public finance and economic geography our analysis demonstrates that moving the incidence of taxation from corporate profits to dividends and consumption would unambiguously improve both wealth creation and efficiency

monetary transmission mechanism in central and eastern europe surveying the surveyable this paper surveys recent advances in empirical studies of the monetary transmission mechanism mtm with special attention to central and eastern europe cee our results indicate that the strength of the exchange rate pass through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so called composition effect the asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic household house prices may become an exception with higher levels mortgage lending and with high owner occupancy ratios while the credit channel could be a powerful channel of monetary transmission as new funds raised on capital markets are close to zero in cee it is actually not as both commercial banks and non financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies the moderately good news is however that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area

the impact of information and communication technology adoption on multinational firm boundary decisions this article evaluates the effect of adopting internet enabled information and communication technology ict adoption on the decision to reorganize production across national borders foreign boundary decision by multinational enterprises mnes using a transaction cost framework we argue that ict adoption influences foreign boundary decisions by lowering coordination costs both internally and externally for the firm we propose that the heterogeneity in the technology s characteristics namely complexity and the production processes degree of codifiability moderate this influence using a difference in differences methodology and exploiting the richness of confidential us census bureau microdata we find that overall ict adoption is positively associated with greater likelihood of in house production as measured by increases in intra firm trade shares furthermore we find that more complex forms of ict are associated with larger increases in intra firm trade shares finally our results indicate that mnes in industries in which production specifications are more easily codified in an electronic format are less likely to engage in intra firm relative to arm s length trade following ict adoption

agency costs and innovation abstract stylized facts indicate that small firms are responsible for a disproportionate share of innovative research there are many possible explanations for this fact the paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations it is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes mixing hard to measure activities innovation with easy to measure activities routine is particularly costly since it will either lead to misallocation of attention across tasks or to misallocation of risk larger firms are at a comparative disadvantage in conducting highly innovative research because of the costs associated with managing a heterogeneous set of tasks it is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets both of which are hostile to innovation

excess liquidity bank pricing rules and monetary policy abstract this paper studies the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections the demand for excess reserves is determined by precautionary factors and the opportunity cost of holding cash it is argued that excess liquidity may impart greater stickiness to the deposit rate in response to a monetary contraction and induce an easing of collateral requirements on borrowers which in turn may translate into a lower risk premium and lower lending rates as a result asymmetric bank pricing behavior under excess liquidity may hamper the ability of a contractionary monetary policy to lower inflation

analyzing the effects of us monetary policy shocks in dollarized countries identifying monetary policy shocks is difficult therefore instead of trying to do this perfectly this paper exploits a natural setting that reduces the consequences of shock misidentification it does so by basing conclusions upon the responses of variables in three dollarized countries ecuador el salvador and panama they import us monetary policy just as genuine us states do but have the advantage that non monetary us shocks are not imported perfectly consequently this setting reduces the effects of any mistakenly included non monetary us shocks while leaving the effects of true monetary shocks unaffected results suggest that prices fall after monetary contractions output does not show a clear response

structural models of the liquidity effect in this paper we examine a number of recent studies that claim to have obtained a well defined liquidity effect using structural var models based on broad measures of money these studies can be distinguished in terms of the identifying restrictions sample periods and frequency of data used we show that estimation of the structural coefficients of all these models can be achieved by instrumental variable methods where the instruments are predetermined variables and the estimated structural errors from other equations in the system overall our judgment is that the evidence for a liquidity effect from these studies is much less certain than suggested in the original papers primarily because of the poor quality of the instruments used in estimation and the sensitivity of the estimates to the sample period used

the recognition and reward of employee performance this paper examines when and to what extent an individual s relative wage depends on his her productivity relative to others doing the same job starting wages were influenced by background characteristics and training cost realizations but not by relative productivity wages one year later were influenced by productivity but the effects were small the wage elasticity was 2 at small establishments and 0 at establishments with over 400 employees the wage response to relative productivity and training costs was weaker in small labor markets suggesting that wages do not fully respond to performance because of the firm specificity of job performance differentials

reducing incremental costs associated with the delegation of incentive contracting decisions an analysis of planning and control decisions in a manufacturing setting in the presence of moral hazard abstract we compare and contrast two specific regimes involving the centralization and delegation of the incentive contracting decision in manufacturing organizations in the centralization regime a single individual simultaneously makes the allocation of demand to production facilities and determines the incentive compensation scheme for the managers at the facilities under the delegation regime the demand allocation is decided upon initially by a superior and the incentive contracting decision is subsequently made by a subordinate who is neither of the two managers in charge of the production facilities using the principal agent paradigm which assumes that the managerial efforts are unobservable we demonstrate that the centralization regime performs no worse than the delegation regime for situations where strategic or other requirements necessitate firms to opt for the delegation of the incentive contracting decision we propose a heuristic that significantly increases the likelihood of mimicking the allocation and contracting decisions made under the centralized regime

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

the price puzzle reconsidered abstract a large literature has employed structural vector autoregressive svar models to investigate the empirical effects of u s monetary policy many of these models regularly produce a price puzzle a rise in the aggregate price level in response to a contractionary innovation to monetary policy unless commodity prices are included conventional wisdom maintains that commodity prices resolve the price puzzle because they contain information that helps the federal reserve forecast inflation i examine a number of plausible alternative indicator variables and find little correlation between an ability to forecast inflation and an ability to resolve the price puzzle additionally a sub sample investigation reveals that evidence of a price puzzle is associated primarily with the 1959 1979 sample period and that most indicators including commodity prices cannot resolve the puzzle over this period

indeterminacy change points and the price puzzle in an estimated dsge model abstract we extend lubik and schorfheide s 2004 testing for indeterminacy an application to u s monetary policy american economic review 94 190 217 likelihood based estimation of dynamic stochastic general equilibrium dsge models under indeterminacy to encompass a sample period the includes both determinacy and indeterminacy by implementing a change point methodology chib s 1998 estimation and comparison of multiple change point models journal of econometrics 86 221 241 by letting the data provide estimates of the dates of the determinacy regimes and allowing the estimates of structural parameters to be the same across regimes we obtain more precise estimates of the differences in characteristics such as the impulse responses across the regimes the most striking finding about the indeterminacy regime which is estimated to coincide with the great inflation of the 1970s is that it exhibits the price puzzle in that the inflation rate rises immediately and in a sustained manner following a positive interest rate shock thus the price puzzle might have been a genuine phenomenon under indeterminacy rather than a false finding to be excised through specification search and parameter restrictions

self fulfilling expectations and the inflation of the 1970s evidence from the livingston survey abstract using survey data on expectations we examine whether the response of monetary policy to sudden movements in expected inflation contributed to the persistent high inflation of the 1970s the evidence suggests that prior to 1979 the fed accommodated temporary shocks to expected inflation which then led to persistent increases in actual inflation we do not find this behavior in the post 1979 data among commonly cited factors oil and fiscal shocks do not appear to have triggered an increase in expected inflation that eventually resulted in higher actual inflation

reconsidering monetary policy an empirical examination of the relationship between interest rates and nominal gdp growth in the u s u k germany and japan abstract the rate of interest the price of money is said to be a key policy tool economics has in general emphasised prices this theoretical bias results from the axiomatic deductive methodology centring on equilibrium without equilibrium quantity constraints are more important than prices in determining market outcomes in disequilibrium interest rates should be far less useful as policy variable and economics should be more concerned with quantities including resource constraints to investigate we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth examining the relationship between 3 month and 10 year benchmark rates and nominal gdp growth over half a century in four of the five largest economies we find that interest rates follow gdp growth and are consistently positively correlated with growth if policy makers really aimed at setting rates consistent with a recovery they would need to raise them we conclude that conventional monetary policy as operated by central banks for the past half century is fundamentally flawed policy makers had better focus on the quantity variables that cause growth

commodity prices interest rates and the dollar this paper sheds light on recent fluctuations in commodity prices we investigate whether a decline in real interest rates and the us dollar contributes to higher commodity prices and whether commodity prices display overshooting behavior in response to changes in real interest rates we analyze the behavior of real prices of crude oil food metals and industrial raw materials the analysis is based on structural var models estimated on quarterly data over the period 1990q1 2007q4 our results suggest that commodity prices increase significantly in response to reductions in real interest rates moreover oil prices and prices of industrial raw materials tend to display overshooting behavior in response to such interest rate changes the evidence also suggests that a weaker dollar leads to higher commodity prices shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in commodity prices

monetary policy in a markov switching vector error correction model monetary policy vector autoregressions vars typically presume stability of the long run outcomes we introduce the possibility of switches in the long run equilibrium in a cointegrated var by allowing both the covariance matrix and weighting matrix in the error correction term to switch we find that monetary policy alternates between sustaining long run growth and disinflationary regimes allowing state changes can also help explain the price puzzle and justify the use of commodity prices as a corrective measure finally we show that regime switching has implications for disinflationary monetary policy and can explain the variety of sacrifice ratio estimates that exist in the literature

measuring the stance of fiscal policy since the balance of public revenue and expenditure varies automatically with the state of capacity utilisation it has been argued for some time that the fiscal surplus or deficit should be cyclically corrected to produce a structural balance for assessing the stance of fiscal policy it is by no means implied by most practitioners that these cyclical fluctu ations have no effect on demand quite the contrary it is simply that the structural bal ance is seen as a more accurate measure of discretionary fiscal policy

policy regimes policy shifts and u s business cycles abstract using an estimated dsge model with monetary and fiscal policy interactions and allowing for equilibrium indeterminacy we find that a passive monetary and passive fiscal policy regime prevailed in the pre volcker period this gave rise to self fulfilling beliefs and unconventional transmission mechanisms of policy shifts unanticipated increases in interest rates increased inflation and output while unanticipated increases in lump sum taxes decreased inflation and output we show that had the monetary policy regime of the post volcker era been in place pre volcker inflation volatility would have been lower by 25 and the rise of inflation in the 1970s would not have occurred

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

solving the price puzzle with an alternative indicator of monetary policy we identify the effects of monetary policy shocks on macroeconomic variables in vars using the divisia m4 measure of money as the policy indicator variable we obtain theoretically sensible responses whether or not a commodity price index is included thus we eliminate the well known empirical puzzles from the var by a novel choice in a policy variable rather than the usual attachment of an ad hoc variable

commodity price shocks and the business cycle structural evidence for the u s this paper evaluates the relative importance of commodity price shocks in the u s business cycle therefore we extend the standard set of business cycle shocks to include unexpected changes in commodity prices the resulting svar shows that commodity price shocks are a very important driving force of macroeconomic fluctuations second only to investment specific technology shocks particularly with respect to inflation neutral technology shocks and monetary policy shocks on the other hand seem less relevant at business cycle frequencies neutral technology shocks rather play an important role at low frequencies

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

a game theoretic explanation of the administrative lattice in institutions of higher learning abstract we provide a game theoretic model of academic organizations focusing on the strategic interaction of prototypical overseers administrators and professors by identifying key principal agent games routinely played in colleges and universities we begin to unpack the black box typically used to conceptualize these institutions our approach suggests an explanation for the seemingly inevitable drift of institutions of higher education into such well documented phenomena as academic ratchet and administrative lattice and builds an understanding of the organizational conditions in which drift would be restrained

worker heterogeneity job screening and firm size a model of job screening is developed in which firms make wage offers to workers based on an imperfect evaluation of their abilities if large firms have higher costs of acquiring information about workers they screen workers with less accuracy and choose a wage compensation scheme different from the one small firms choose this generates the often observed positive correlation between firm size and wages the model also predicts that wage structure and perhaps wage dispersion will differ by firm size and that individuals who acquire more schooling will also choose to work in a larger firm these hypotheses are tested and supported using data from the national longitudinal survey