optimal regulation under fixed rules for income distribution abstract it is by now well known that if arbitrary lump sum transfers are feasible then the optimal regulation of firms involves marginal cost pricing here we consider optimal regulation in an economy in which lump sum taxation is possible but the income distribution is in some sense fixed we show that under certain conditions production efficiency and marginal cost pricing are desirable in general however this need not be the case in an economy with increasing returns it is possible that the second best utility possibility frontier is strictly dominated by the pareto frontier and none of the marginal cost pricing equilibria lie on the second best frontier

price setting during low and high inflation evidence from mexico this paper provides new insight into the relationship between inflation and the setting of individual prices by examining a large data set of mexican consumer prices covering episodes of both low and high inflation when the annual rate of inflation is low below 10 15 the frequency of price changes comoves weakly with inflation because movements in the frequency of price decreases and increases partly offset each other in contrast the average magnitude of price changes correlates strongly with inflation because it is sensitive to movements in the relative shares of price increases and decreases when inflation rises beyond 10 15 few price decreases are observed and both the frequency and average magnitude are important determinants of inflation i show that a menu cost model with idiosyncratic technology shocks predicts the average frequency and magnitude of price changes well over a range of inflation similar to that experienced by mexico

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

an extension of the second welfare theorem to economies with nonconvexities and public goods in this paper we report a generalization of the results of foley and guesnerie on the second welfare theorem to economies with arbitrary nonconvex production sets the nature of marginal cost prices in such economies is clarified through the use of the clarke tangent cones

brokerage pricing under competition abstract this paper reexamines the popular assumption that real estate commissions are fixed over time it shows how the competitively determined commission rate responds to changes in the housing market and broker cost conditions one testable implication is that competition promotes counter cyclical changes in the commission rate the empirical analysis of commission rate determinants using data covering an entire urban housing market through its downturn and expansion phases reveals the counter cyclical movement in commission rates predicted by the competitive model

lobbying as legislative subsidy professional lobbyists are among the most experienced knowledgeable and strategic actors one can find in the everyday practice of politics nonetheless their behavioral patterns often appear anomalous when viewed in the light of existing theories we revisit these anomalies in search of an alternative theory we model lobbying not as exchange vote buying or persuasion informative signaling but as a form of legislative subsidy a matching grant of policy information political intelligence and legislative labor to the enterprises of strategically selected legislators the proximate political objective of this strategy is not to change legislators minds but to assist natural allies in achieving their own coincident objectives the theory is simple in form realistic in its principal assumptions and counterintuitive in its main implications empirically the model renders otherwise anomalous regularities comprehensible and predictable in a later section we briefly bring preferences back in examining the important but relatively uncommon conditions under which preference centered lobbying should occur

marginal lobbying cost and the optimal amount of rent seeking in some ideal world in which information was free and the desire to promote the public interest prevailed the results developed in this paper would have no relevance the efficient amount of publicly provided goods and services would be known costlessly and the public interest motivation would assure that these quantities were provided in our less than ideal world however things are far different costly lobbying activities provide useful though incomplete information on the relative value of different public outlays but with private interest rather than public interest dominant this lobbying will also be used by special interests as a means of acquiring socially excessive quantities of government services

what lobbying ethics and what for the case of french lobbying consulting firms conversely to the united states lobbying consulting in france is a relatively recent activity and is perceived negatively by a majority of the population influencing public decision making is certainly a sensitive occupation at both managerial and societal levels this is why ethics applied to business can play a central role while establishing the practice of lobbying in france this paper examines the issues and the practices of ethics in lobbying consulting the field for this exploratory study is a lobbying consultancy firm based in france our research is developed through a 3 month participant observation and complemented with secondary data on the lobbying profession in france the results of this research are developed along two lines 1 the practice of ethics in lobbying consultancy firms reveals its limits as well as a framework worth developing the players and the represented client topics are potential dangers for ethical lobbying firms this intervention research has nevertheless allowed us to observe the emergence of an effective regulation approach the ethics of exemplarity as potentially illustrated by a representative actor of the french lobbying consulting profession 2 the stakes of ethics are both internal and external to lobbying consulting professionals in france internally ethics act as a structuring element enabling this profession to establish itself with practices and deontological codes externally it clarifies the relationship between lobbying consultants and their major stakeholders including customers government and the civil society

ioffe s normal cone and the foundations of welfare economics abstract we announce an example of an economy with an infinite dimensional commodity space for which the extension of the second fundamental theorem of welfare economics is valid if marginal rates of substitution are formalized in terms of either the clarke normal cone or the ioffe normal cone but in which the former is strictly contained in the latter this is in direct contradiction to the finite dimensional situation

a coasean general equilibrium model of regulation abstract although marginal cost pricing is necessary for welfare maximization firms that produce under conditions of decreasing average cost incur losses if they price at marginal cost in this paper the coase two part tariff is extended to several cases of common costs by assessing surplus in order to recover the losses of the regulated natural monopolist the existence of equilibria in these cases is demonstrated three models are considered in the context of an arrow debreu private ownership economy a model of the regulated monopolist who charges hookups to both households and firms who use the good a model of the regulated natural monopolist who is allowed to make positive economic profit and finally a model where two or more monopolists are under the control of a single regulator

implications of state dependent pricing for dynamic macroeconomic models abstract state dependent pricing sdp models treat the timing of price changes as a profit maximizing choice symmetrically with other decisions of firms using quantitative general equilibrium models which incorporate a generalized s s approach we investigate the implications of sdp for topics in two major areas of macroeconomic research the early 1990s sdp literature and more recent work on persistence mechanisms first we show that state dependent pricing leads to unusual macroeconomic dynamics which occur because of the timing of price adjustments chosen by firms as in the earlier literature in particular we display an example in which output responses peak at about a year while inflation responses peak at about 2 years after the shock second we examine whether the persistence enhancing effects of two new keynesian model features namely specific factor markets and variable elasticity demand curves depend importantly on whether pricing is state dependent in an sdp setting we provide examples in which specific factor markets perversely work to lower persistence while variable elasticity demand raises it

argentina s convertibility plan and the imf almost six years have passed since argentina introduced a currency board system called convertibility it consists of a one for one peg between the peso and the u s dollar and full backing of the monetary base with international reserves in spite of its resounding success in reducing inflation there is still a considerable degree of skepticism in the world although not so much in argentina about whether convertibility is a suitable monetary arrangement for the long run prestigious economists have argued that convertibility was a useful tool to stop hyperinflation in argentina but that it is not suitable for countries facing less dramatic conditions see john williamson 1995 and the speeches by max corden stanley fischer and williamson in world bank 1997 according to them even argentina should think of abandoning this system as a way to promote economic growth and higher employment international institutions like the international monetary fund and the world bank have been extremely supportive of convertibility in argentina but in private they are concerned about what sebastian edwards former world bank chief economist for latin america has called the exit problem i e how a country like argentina can get out of the commitment to a fixed exchange rate without risking price stability

marketing ethics some dimensions of the challenge we should seek an ethic internal to marketing arising from marketing s societal function rather than imposing some add on ethic this suggests that marketing should enhance the information and the freedom the potential customer brings to the market transaction defining and achieving this information and freedom is difficult but marketers suggest that the market itself drives out major violators a suggestion less persuasive concerning increasingly complex goods and services marketing also is tempted to appeal to our baser darker side these problems are better addressed through self regulation guided by a vision of advertising and business in the service of society and by the marketer s own sense of integrity than through external regulation

menu costs and phillips curves this paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation sellers can change price only by incurring a real menu cost we calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new u s data set of individual prices due to klenow and kryvtsov the prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies the model is also used to conduct numerical experiments on the economy s response to various shocks in none of the simulations we conducted did monetary shocks induce large or persistent real responses

price setting with menu cost for multi product firms we model the decisions of a multiproduct firm that faces a fixed menu cost once it is paid the firm can adjust the price of all its products we characterize analytically the steady state firm s decisions in terms of the structural parameters the variability of the flexible prices the curvature of the profit function the size of the menu cost and the number of products sold we provide expressions for the steady state frequency of adjustment the hazard rate of price adjustments and the size distribution of price changes all in terms of the structural parameters we study analytically the impulse response of aggregate prices and output to a monetary shock the size of the output response and its duration both increase with the number of products they more than double as the number of products goes from 1 to 10 quickly converging to the response of taylor s staggered price model

how large is the government spending multiplier evidence from world bank lending this paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers the approach relies on two features unique to many low income countries 1 borrowing from the world bank finances a substantial fraction of public spending and 2 actual spending on world bank financed projects is typically spread out over several years following the original approval of the project these two features imply that fluctuations in spending on world bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years and so are unlikely to be correlated with shocks to output in the current year world bank project level disbursement data are used to isolate the component of public spending associated with project approvals from previous years which in turn can be used to estimate government spending multipliers in a sample of 29 aid dependent low income countries the estimated multipliers are small reasonably precisely estimated and rarely significantly different from zero

more facts about prices france before and during the great recession using microprice data we document new facts on price rigidity in france i each month 20 1 of prices are changed which compares to 24 1 in the united states excluding sales however the fraction of prices modified each month is about the same in france and in the united states around 17 ii the distribution of price changes is quite dispersed iii the frequencies of price increases and decreases contribute a lot to inflation variations and price increases are more frequent in january even when sales are excluded iv sales contribute significantly to the volatility of inflation but play a minor role in the transmission of macroeconomic fluctuations to prices and v during the great recession patterns of price adjustment were only slightly modified

price setting under uncertainty about inflation abstract we analyze the manipulation of inflation statistics that occurred in argentina starting in 2007 to test the relevance of informational frictions in price setting we estimate that the manipulation of statistics was associated with a higher degree of price dispersion this effect is analyzed in the context of a quantitative general equilibrium model in which firms use information about the inflation rate to set prices reporting inaccurate measures of the cpi entails significant welfare losses especially in economies with volatile monetary policy

rigidities and adjustments of daily prices to costs evidence from supermarket data we assess the extent of inertia in grocery retail prices using data on prices and costs from a large supermarket chain in colombia relative to previous work our analysis benefits from encompassing a wide variety of products availability of reliable replacement cost data and the daily frequency of the data we confirm the existence of significant nominal rigidities in reference prices three months and even more so in reference costs about six months but differing depending on the type of product being on average smaller in the case of perishable goods using a non linear autoregressive distributed lag nardl approach to cointegration we examine the path of prices relative to costs and determine the speed of adjustment of prices to shocks we find significant mean reversion but also uncover asymmetries in response to positive and negative changes in costs as a novel finding we uncover evidence of the effect of market concentration input price volatility along with own labels and the perishable nature of products on the likelihood of price asymmetry in response to costs changes

optimal pricing of the portuguese telephone service a first attempt is made at finding the optimal two part tariff for portugese telephone service a theoretical model of consumer demand is presented and the two part tariff which maximizes social welfare is derived the model is then calibrated using portugese data and previous econometric studies the optimal long run two part tariff consists of an access charge that is close to twice the marginal cost of access and a usage charge 25 above the marginal cost of use the level of the optimal two part tariff depends mainly on the marginal cost of taxation and on an index of aversion to inequality the structure of the optimal two part tariff depends mainly on the ratio between the marginal consumer s usage level and the average usage level although the cost estimates are very tentative the results suggest that the 1986 usage charge was greater than optimum no similar conclusion can be drawn with respect to the acces charge

managing the risks of corporate political donations a utilitarian perspective this paper applies a utilitarian analysis to corporate political donations unlike the more common rights based analyses it is argued that the optimal policy is the one that best satisfies society s rational preferences concerning donor influence adequate financing donor pressure and the cost of maintaining and enforcing the democratic system this analysis suggests that a ban is best if it would be generally observed and sufficient financing from other sources is available otherwise a donation cap is a better option further lobbyists should be banned from donating small gifts and drafting bills for candidates the impact of disclosure and other risk management mechanisms are also considered

on the inefficiency of two part tariffs the partial equilibrium literature on two part tariffs suggests that if a commodity is produced under increasing returns efficiency can be achieved through marginal cost pricing and a suitable choice of entry fees fixed charge which may vary from consumer to consumer we show that this partial equilibrium intuition cannot be extended beyond some special cases even with a consumer specific fixed charge it is possible that none of the equilibria yield pareto efficiency furthermore it may be impossible to achieve pareto efficiency through any specification of taxes which are levied solely to cover losses hotelling 1939 and lerner 1944 among others see for example the surveys by ruggles 1949 1950 argued that firms operating under increasing returns to scale should be regulated to equate their marginal cost to the price of the output and the resulting losses financed through lump sum taxes being concerned primarily with efficiency issues the proponents of the marginal cost pricing principle did not advocate any particular distribution of the lump sum taxes among the consumers after the ensuing debate see for example ruggles 1950 there seems to have been a general agreement that marginal cost pricing is necessary for efficiency while admitting this coase 1946 presented an illuminating analysis of the drawbacks of what he called the hotelling lerner solution and also proposed an alternative solution it will be useful to begin by briefly recalling coase s criticism of the hotelling lerner solution apart from the practical problem of collecting lump sum taxes he emphasized two distinct drawbacks of the hotelling lerner scheme he claimed that this solution would not necessarily guarantee efficiency in the sense that it might lead to a marginal cost pricing equilibrium in which a positive amount of the commodity was produced whereas it would be better not to produce the commodity at all this can be restated simply as the argument that in the presence of non convexities marginal conditions need not guarantee global optimality there may be several marginal cost pricing equilibria some efficient and some inefficient as such this phenomenon can hardly be ruled out coase s second objection to the hotelling lerner solution was that it could effectively alter the income distribution if for instance a lump sum tax was imposed on all the consumers but only some of them consumed the commodity produced by the firm operating under increasing returns to scale then there would effectively be a redistribution in favour of those who consumed this subsidized commodity it was natural to keep the issue of efficiency separate from that of equity and coase argued that the hotelling lerner solution

cost share equilibria a lindahlian approach abstract we offer a new formalization of lindahl s equilibrium notion for public goods which yields an endogenous theory of profit distribution in line with the benefit approach to taxation increasing returns in the production of public goods are not a priori excluded our equilibrium notion coincides with kaneko s ratio equilibrium for economies with only one public good by reinterpreting the commodity space the equilibrium concept can be applied to economies with purely private goods or with externalities in the pure private good case our concept singles out allocations that are efficient and where individual net payments agree with average cost

optimal discretionary monetary policy in a micro founded model with a zero lower bound on nominal interest rate abstract this paper investigates optimal discretionary monetary policy under the zero lower bound on the nominal interest rate zlb in the case of a distorted steady state due to monopoly and taxation solving a fully nonlinear micro founded fnl model using a global method i find that the central bank in a more distorted economy would cut the interest rate less aggressively under a particularly adverse demand shock this occurs because inflation and nominal interest rates are higher on average making the zlb less likely to bind and causing the economy to escape from the zlb sooner however the social planner would choose the optimal inflation rate of approximately zero the result emerges because the unconditional benefit of avoiding the zlb is not big enough to offset the cost of higher relative price dispersion when inflation is significantly positive in addition i show that the conventional linear quadratic lq method is inaccurate in the case of a sufficiently distorted steady state

an ethical approach to lobbying activities of businesses in the united states this paper presents an ethical approach to the use of lobbying within the context of the relationships among u s organizations their lobbyists and government officials after providing a brief history of modern day lobbying activities lobbying is defined and described focusing on its role as a strategic marketing tool then ethical frameworks for understanding the impact of these practices on various external constituencies are delineated with an emphasis on the communitarian movement advanced by etzioni consistent with the call for informed advocacy by laczniak 1993 the paper closes with an examination of the ethics of specific lobbying activities

on marginal cost pricing with given tax subsidy rules we provide an existence proof for generalized marginal cost pricing with given tax subsidy rules the novelty is that our approach allows for economic environments where all the generalized marginal cost pricing equilibria are inefficient in the aggregate an example is recalled in order to suggest how non pathological these environments are

from hyperination to stable prices argentina s evidence on menu cost models we review and extend several comparative statics results of xed menu cost models of price setting rms facing real idiosyncratic shocks such as the type studied by golosov and lucas 2007 as well as by many others these results are confronted with their empirical counterparts using the micro data underlying argentina s consumer price index for a time period where ination rates vary from almost 5000 per year

business ethics from the internal point of view the notion that the firm and economic activity in general is inherently amoral is a central feature of positive economics that is also widely accepted in business ethics theories as disparate as stockholder and stakeholder theory both leave this central assumption unchallenged each theory argues for a different set of external ethical restrictions but neither adequately provides an internal connection between business and the ethical rules business people are obliged to follow this paper attempts to make this connection by arguing that the purpose of business is to produce a good or service for trade trade involves both a respect for individual autonomy and property rights and squarely places moral norms internal to the practice of business trade is not a contingent activity of business it is a practice rule which also provides the common sense boundary between business and charity on the one hand and crime on the other business and those who engage in it are from the internal point of view bound by the purpose of trade and not just the laws of the land

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

is perfect price discrimination really efficient welfare and existence in general equilibrium we examine the welfare properties of surplus maximization by embedding a perfectly discriminating monopoly in an otherwise standard arrow debreu economy although we discover an inefficient equilibrium we validate partial equilibrium intuition by showing i that equilibria are efficient provided that the monopoly goods are costly and ii that a natural monopoly can typically use personalized two part tariffs in these equilibria however we find that pareto optima are sometimes incompatible with surplus maximization even when transfer payments are used we provide insight into the source of this difficulty and give some instructive examples of economies where a second welfare theorem holds

prices are sticky after all abstract economists have interpreted the evidence that prices change every four months as implying that sticky prices cannot be important for monetary transmission theory implies that this interpretation is correct if most price changes are regular but not if a large fraction are temporary as in the data since regular prices are much stickier than temporary ones our models predict that the stickiness of the aggregate price level matches that in a standard calvo model or a standard menu cost model in which micro level prices change about once a year in this sense prices are sticky after all

precautionary price stickiness abstract this paper proposes a model in which retail prices are sticky even though firms can always change their prices at zero cost instead of imposing a menu cost we assume that more precise decisions are more costly in equilibrium firms optimally make some errors in price setting thus economizing on managerial time both the time cost of choice and the resulting risk of errors give firms an incentive to leave their prices unchanged until they perceive a sufficiently costly deviation from the optimal price we show that this error prone control cost framework helps explain many puzzling observations from microdata however on the macroeconomic side pricing errors do little to explain the real effects of monetary shocks

inflation and price setting in a natural experiment abstract we analyze the behavior of price setters in poland during the transition from a planned to a market economy using a large disaggregated data set the size and frequency of price changes as well as relative price variability all increase as inflation rises the effect of expected inflation on relative price variability is much stronger than the effect of unexpected inflation despite the unusual economic environment the results are qualitatively identical and quantitatively stronger than those in lach and tsiddon 1992 journal of political economy 100 349 389

price stickiness in ss models new interpretations of old results abstract what is the relation between infrequent price adjustment and the dynamic response of the aggregate price level to monetary shocks the answer to this question ranges from a one to one link calvo g 1983 prices in a utility maximizing framework journal of monetary economics 12 383 398 to no connection whatsoever caplin a spulber d 1987 menu costs and the neutrality of money quarterly journal of economics 102 703 726 the purpose of this paper is to provide a unified framework to understand the mechanisms behind this wide range of results in doing so we propose new interpretations of key results in this area which in turn suggest the kind of ss model that is likely to generate substantial price rigidity among these new interpretations we revisit caplin and spulber s monetary neutrality result we show that when price stickiness is measured in terms of the impulse response function this result is not a consequence of aggregation as is often assumed but is due instead to the absence of price stickiness at the microeconomic level we also show that the selection effect according to which units that adjust their prices are those that benefit the most is neither necessary nor sufficient to account for the higher aggregate flexibility of ss type models compared to calvo models instead the key concept is the contribution of the extensive margin of adjustment to the aggregate price response the aggregate price level is more flexible than suggested by the microeconomic frequency of adjustment if and only if this term is positive

state dependent or time dependent pricing does it matter for recent u s inflation in the 1988 2004 micro data collected by the u s bureau of labor statistics for the cpi price changes are frequent every 4 7 months depending on the treatment of sale prices and large in absolute value on the order of 10 the size and timing of price changes varies considerably for a given item but the size and probability of a price change are unrelated to the time since the last price change movements in aggregate inflation reflect movements in the size of price changes rather than the fraction of items changing price due to offsetting movements in the fraction of price increases and decreases neither leading time dependent models taylor or calvo nor 1 st generation state dependent models match all of these facts some 2 nd generation state dependent models however appear broadly consistent with the empirical patterns

two part marginal cost pricing equilibria existence and efficiency two part tariffs are explored in a general equilibrium model with increasing returns to scale two part marginal cost pricing equilibria are not generally paretoefficient the second fundamental theorem of welfare economics may also fail we introduce a notion of consumer surplus as the willingness to pay for access to the increasing returns good the individuals s hookup charge is set to a fixed fraction of his consumer surplus if aggregate consumer surplus exceeds the losses of the regulated monopoly then exact two part marginal cost pricing equilibria exist further for efficient allocations having positive net surplus the second fundamental theorem of welfare economics holds

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

optimal price setting with observation and menu costs we study the price setting problem of a firm in the presence of both observation and menu costs in this problem the firm optimally decides when to collect costly information on the adequacy of its price an activity which we refer to as a price review upon each review the firm chooses whether to adjust its price subject to a menu cost and when to conduct the next price review this behavior is consistent with recent survey evidence documenting that firms revise prices infrequently and that only a few price revisions yield a price adjustment the goal of the paper is to study how the firm s choices map into several observable statistics depending on the level and relative magnitude of the observation vs the menu cost the observable statistics are the frequency of price reviews the frequency of price adjustments the size distribution of price adjustments and the shape of the hazard rate of price adjustments we provide an analytical characterization of the firm s decisions and a mapping from the structural parameters to the observable statistics we compare these statistics with the ones obtained for the models with only one type of cost the predictions of the model can with suitable data be used to quantify the importance of the menu cost vs the information cost we also consider a version of the model where several price adjustment are allowed between observations a form of price plans or indexation we find that no indexation is optimal for small inflation rates

the real effects of monetary shocks in sticky price models a sufficient statistic approach abstract we prove that the ratio of kurtosis to the frequency of price changes is a sufficient statistic for the real effects of monetary shocks measured by the cumulated output response following the shock the sufficient statistic result holds in a large class of models which includes taylor 1980 calvo 1983 reis 2006 golosov and lucas 2007 nakamura and steinsson 2010 midrigan 2011 and alvarez and lippi 2014 several models in this class are able to account for the positive excess kurtosis of the size distribution of price changes that appears in the data we review empirical measures of kurtosis and frequency and conclude that a model that successfully matches the microevidence on kurtosis and frequency produces real effects that are about four times larger than in the golosov lucas model and about 30 percent below those of the calvo model we discuss the robustness of our results to changes in the setup including small inflation and leptokurtic cost shocks jel e23 e31

monetary non neutrality in a multisector menu cost model empirical evidence suggests that as much as one third of the u s business cycle is due to nominal shocks we calibrate a multisector menu cost model using new evidence on the cross sectional distribution of the frequency and size of price changes in the u s economy we augment the model to incorporate intermediate inputs we show that the introduction of heterogeneity in the frequency of price change triples the degree of monetary non neutrality generated by the model we furthermore show that the introduction of intermediate inputs raises the degree of monetary non neutrality by another factor of three without adversely affecting the model s ability to match the large average size of price changes a single sector model with a frequency of price change equal to the median rather than the mean generates monetary non neutrality similar to that in our multisector model our multisector model with intermediate inputs generates variation in real output in response to calibrated aggregate nominal shocks that can account for roughly 23 of the u s business cycle

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

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

is it whom you know or what you know an empirical assessment of the lobbying process abstract do lobbyists provide issue specific information to members of congress or do they provide special interests access to politicians we present evidence to assess the role of issue expertis

the elusive costs of inflation price dispersion during the u s great inflation a key policy question is how high an inflation rate should central banks target this depends crucially on the costs of inflation an important concern is that high inflation will lead to inefficient price dispersion workhorse new keynesian models imply that this cost of inflation is very large an increase in steady state inflation from 0 to 10 yields a welfare loss that is an order of magnitude greater than the welfare loss from business cycle fluctuations in output in these models we assess this prediction empirically using a new data set on price behavior during the great inflation of the late 1970s and early 1980s in the united states if price dispersion increases rapidly with inflation we should see the absolute size of price changes increasing with inflation price changes should become larger as prices drift further from their optimal level at higher inflation rates we find no evidence that the absolute size of price changes rose during the great inflation this suggests that the standard new keynesian analysis of the welfare costs of inflation is wrong and its implications for the optimal inflation rate need to be reassessed we also find that nonsale prices have not become more flexible over the past 40 years

ethics and lobbying the case of real estate brokerage members of licensed occupations benefit from legal standards that limit entry into their professions is it ethical for these professionals to give political support to these standards i examined the case of real estate brokers and found that their educational requirements raise average commissions by one quarter of a percentage point costing consumers 5 4 billion per year without improving the quality of brokerage services the case raises interesting ethical issues which are difficult to resolve

inflation in argentina stop and go since the austral plan the austral plan launched in 1985 was argentina s most recent stabilization strategy for reducing high inflation a heterodox program it combined orthodox components tight fiscal policy and monetary restraint with less conventional wage and price controls the austral plan failed to bring inflation down on a sustained basis but it provided useful lessons about the design of heterodox stabilization programs the difficulties of sustaining this type of effort and the consequences of failure

the macroeconomics of trend inflation most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state but most central banks target an inflation rate of about 2 percent many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy in this survey we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers we first review empirical research on the evolution and dynamics of u s trend inflation and some proposed new measures to assess the volatility and persistence of trend based inflation gaps we then construct a generalized new keynesian model that accounts for a positive trend inflation in this model an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations this analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long run inflation target jel e12 e31 e32 e52 e58

real rigidities and nominal price changes a large literature seeks to provide microfoundations of price setting for macro models a challenge has been to develop a model in which monetary policy shocks have the highly persistent efiects on real variables estimated by many studies nominal price stickiness has proved helpful but not su cient without some form of real rigidity or strategic complementarity we embed a model with a real rigidity a la kimball 1995 wherein consumers ee from relatively expensive products but do not ock to inexpensive ones we estimate key model parameters using micro data from the u s cpi which exhibit sizable movements in relative prices of substitute products when we impose a signiflcant degree of real rigidity fltting the micro price facts requires very large idiosyncratic shocks and implies large movements in micro quantities

welfare costs of inflation in a menu cost model recent years have seen substantial prog ress in our understanding of pricing decisions at the micro level access to large scale data sources on prices of individual products has given us rich information on how frequently prices change by what magnitude and how the aggregation of price changes in individual firms maps into aggregate inflation see among many others mark bils and peter j klenow 2005 these facts about price movements are a key input in recent quantitative models of the aggre gate effects of nominal rigidities e g mikhail golosov and robert e lucas 2007 in this paper we use both the new facts and the new quantitative models to revisit an old question namely that of quantifying the welfare benefits of low inflation our model includes two

price dispersion and inflation new facts and theoretical implications abstract in workhorse macroeconomic models price dispersion is a central determinant of welfare the cost of business cycles optimal inflation and the tradeoff between inflation and output stability while price dispersion increases with inflation in the models this relationship is negative in the data due to sales prices the comovement of price dispersion and inflation for regular prices is positive a model with sales can quantitatively match the comovement in the data whereas a range of similar models without sales cannot even for regular prices these findings have important implications for welfare calculations optimal inflation and the effects of monetary shocks