cross checking monetary policy and equilibrium determinacy under interest rate stabilization abstract previous studies show that a smaller weight on the rule based policy under a cross checking monetary policy can easily achieve the unique rational expectations equilibrium this result is turned over however when the central bank s loss function contains interest rate stabilization as well as inflation and output stabilization

asymmetric international minimum quality standards and vertical differentiation this paper develops a two country model of a vertically differentiated duopoly that spans two countries which are not integrated without additional costs equilibrium qualities prices profits and consumer s surplus are compared when 1 minimum quality standards are identical and 2 standards differ across countries both markets turn out to be connected by the quality choices of the two firms both firms prices in the two countries and their profits are lower whereas consumer s surplus and the two offered qualities are higher in both countries if no firm is forced out of the country s market with the more demanding minimum quality standard copyright 1995 by blackwell publishing ltd

the induced innovation hypothesis and energy saving technological change we develop a methodology for testing hicks s induced innovation hypothesis by estimating a product characteristics model of energy using consumer durables augmenting the hypothesis to allow for the ine uence of government regulations for the products we explored the evidence suggests that i the rate of overall innovation was independent of energy prices and regulations ii the direction of innovation was responsive to energy price changes for some products but not for others iii energy price changes induced changes in the subset of technically feasible models that were offered for sale iv this responsiveness increased substantially during the period after energy efficiency product labeling was required and v nonetheless a sizable portion of efficiency improvements were autonomous

the non optimality of proposed monetary policy rules under timeless perspective commitment abstract in a near canonical forward looking model the timeless perspective form of commitment typically provides outcomes that are on average superior to those resulting from discretion the specific condition that appears in the literature is however not optimal from the relevant perspective

toward a theoretical model of voluntary overcompliance abstract we explain why some firms voluntarily overcomply with environmental regulation in our model all consumers value environmental quality but differ in their willingness to pay which depends on their income levels publicly available information on environmental performance of firms enables consumers to identify clean firms firms participate in a two stage duopoly game where they first choose their levels of cleaning technology and next engage in price competition the market gets segmented by income levels a minimum standard binding on the dirty firm has the effect of improving the performance of the cleaner firm a subsidy obtains the same competitive outcome

model uncertainty and delegation a case for friedman s k percent money growth rule model uncertainty affects the monetary policy delegation problem if there is uncertainty with regards to the determination of the delegated objective variables the central bank will want robustness against potential model misspecifications we show that with plausible degree of model uncertainty delegation of the friedman rule of increasing the money stock by k percent to the central bank will outperform commitment to the social loss function flexible inflation targeting the reason is that the price paid for robustness under flexible inflation targeting outweighs the inefficiency of money growth targeting imperfect control of money growth does not change this conclusion

quality leadership when regulatory standards are forthcoming in many markets governments set minimum quality standards while some sellers compete on the basis of quality by exceeding them such quality leadership strategies often win public acclaim especially when they involve environmental attributes using a duopoly model of vertical product differentiation we show that if the high quality firm can commit to a quality level before regulations are promulgated it induces the regulator to weaken standards and welfare falls our results raise doubts about the social benefits of corporate self regulation and highlight the dangers of lengthy delays between legislative mandates for new regulations and their implementation

how important is precommitment for monetary policy we quantify the welfare differential between precommitment and discretionary monetary policy in three estimated models of the u s economy by calculating the permanent deviation of inflation from target that in welfare terms is equivalent to moving from discretion to precommitment using a range of reasonable central bank preference parameters this inflation equivalent ranges from 0 05 to 3 6 percentage points with a mid point of either 0 15 or 1 1 5 percentage points depending on the model in addition to the degree of forward looking behavior we show that the existence of transmission lags and or information lags is crucial for determining the welfare gain from precommitment

cross checking optimal monetary policy with information from the taylor rule abstract this paper shows that monetary policy should be delegated to a central bank that cross checks optimal policy with information from the taylor rule placing some weight on deviations from a taylor rule reduces the stabilization bias of discretionary monetary policy

should central bankers discount the future a note abstract optimal monetary policy under discretion is analysed in a new keynesian model with rule of thumb pricing the paper finds that social welfare increases if the policy maker does not discount the future the welfare improvement rises with the extent of intrinsic inflation persistence

inflation dynamics and the cost channel of monetary transmission evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so called cost channel of monetary transmission in this paper we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in g7 countries we augment the so called hybrid new keynesian philips curve by letting firms costs for external funds rise with the short run nominal interest rate our estimates reveal that the magnitude of this cost channel strongly varies between countries including member countries of the emu in accordance with differences in their financial systems simulations of a new keynesian model further show that the presence of the cost channel substantially affects the transmission of monetary policy shocks in particular the inflation response

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

strategic choice of quality when quality is costly the persistence of the high quality advantage in a two firm two stage model of vertical product differentiation i show that for every convex fixed cost function of quality the firm that chooses the higher quality at the first stage earns the higher profits the result holds for the pure strategy equilibrium in the simultaneous quality game and it holds as well if firms choose their qualities in sequential order

epa s voluntary 33 50 program impact on toxic releases and economic performance of firms abstract this paper examines the motivations for participation in the voluntary 33 50 program and the program s impact on the toxic releases and economic performance of firms in the u s chemical industry it demonstrates that the benefits due to public recognition and the potentially avoided costs of liabilities and compliance under mandatory environmental regulations provide strong incentives for participation after controlling for sample selection bias and the impact of other firm specific characteristics this paper shows that program participation led to a statistically significant decline in toxic releases over the period 1991 93 the program also had a statistically significant negative impact on the current return on investment of firms but its impact on the expected long run profitability of firms was positive and statistically significant

the taylor rule and optimal monetary policy where it denotes the fed s operating target for the federal funds rate pt is the inflation rate measured by the gdp deflator yt is the log of real gdp and y t is the log of potential output identified empirically with a linear trend the rule has since been subject to considerable attention both as an account of actual policy in the united states and elsewhere and as a prescription for desirable policy taylor argues for the rule s normative significance both on the basis of simulations and on the ground that it describes u s policy in a period in which monetary policy is widely judged to have been unusually successful taylor 1999 suggesting that the rule is worth adopting as a principle of behavior here i wish to consider to what extent this prescription resembles the sort of policy that economic theory would recommend i consider the question in the context of a simple but widely used optimizing model of the monetary transmission mechanism which allows one to reach clear conclusions about economic welfare the model is highly stylized but incorporates important features of more realistic models and allows me to make several points that are of more general validity out of concern for the robustness of the conclusions reached the analysis here addresses only broad qualitative features of the taylor rule and attempts to identify features of a desirable policy rule that are likely to hold under a variety of model specifications

optimal monetary policy with the cost channel in the standard new keynesian framework an optimizing policy maker does not face a trade off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices an ad hoc exogenous cost push shock is typically added to the inflation equation to generate a meaningful policy problem in this paper we show that a cost push shock arises endogenously when a cost channel for monetary policy is introduced into the new keynesian model a cost channel is present when firms marginal cost depends directly on the nominal rate of interest besides providing empirical evidence for a cost channel we explore its implications for optimal monetary policy we show that its presence alters the optimal policy problem in important ways for example both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy

how robustness can lower the cost of discretion model uncertainty has the potential to change importantly how monetary policy is conducted making it an issue that central banks cannot ignore using a standard new keynesian business cycle model this paper analyzes the behavior of a central bank that conducts policy under discretion while fearing that its model is misspecified the main results are as follows first policy performance can be improved if the discretionary central bank implements a robust policy this important result is obtained because the central bank s desire for robustness directs it to assertively stabilize inflation thereby mitigating the stabilization bias associated with discretionary policymaking second the central bank s fear of model misspecification leads it to forecast future outcomes under the belief that inflation in particular will be persistent and have large unconditional variance raising the probability of extreme outcomes private agents however anticipating the policy response make decisions under the belief that inflation will be more closely stabilized that is more tightly distributed than under rational expectations finally as a technical contribution the paper shows how to solve with robustness an important class of linear quadratic decision problems

the fungibility of health aid reconsidering the reconsidered abstractlu et al found that health aid displaces domestically raised government health expenditure which renders health aid at least partially fungible these findings are questioned in the fungibility of health aid reconsidered van de sijpe s emphasis on disaggregating on and off budget aid is a valid contribution although his empirical conclusions are overstated we re evaluate the data he criticises and find they sufficiently capture on budget aid to re measure health aid fungibility we update the lu et al data adding 23 countries and four years of data despite the confidence we have in these data we employ two estimation specifications each of which addresses the measurement error discussed by van de sijpe the extended data and alternative methods show that development assistance for health channelled to governments remains significantly fungible

monetary policy by committee consensus chairman dominance or simple majority this paper studies the theoretical and empirical implications of monetary policy making by committee under four different voting protocols the protocols are a consensus model where a supermajority is required for a policy change an agenda setting model where the chairman controls the agenda a dictator model where the chairman has absolute power over the committee and a simple majority model where policy is determined by the median member these protocols give preeminence to different aspects of the actual decision making process and capture the observed heterogeneity in formal procedures across central banks the models are estimated by maximum likelihood using interest rate decisions by the committees of five central banks namely the bank of canada the bank of england the european central bank the swedish riksbank and the u s federal reserve for all central banks results indicate that the consensus model fits actual policy decisions better than the alternative models this suggests that despite institutional differences committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions

duopoly and quality standards abstract in the absence of sunk costs a low quality producer benefits from a mildly restrictive quality standard whereas a high quality producer suffers from it consumers welfare increases if the firm producing the higher quality does not increase its quality significantly in response to the increase in quality by its rival a sufficiently severe standard causes exit from the industry when there are no sunk cost the high quality producer exits first

voluntary environmental agreements good or bad news for environmental protection abstract there has been growing interest in the use of voluntary agreements vas as an environmental policy tool this article uses a simple model to determine whether vas are likely to lead to efficient environmental protection we consider cases where polluters are induced to participate either by a background threat of mandatory controls the stick approach or by cost sharing subsidies the carrot approach the results suggest that the overall impact on environmental quality could be positive or negative depending on a number of factors including the allocation of bargaining power the magnitude of the background threat and the social cost of funds