complementarities in the search for innovation managing markets and relationships abstract extant research has characterized a firm s search for external knowledge in its innovation activities as either relational or transactional in nature the former implies that a firm chooses and develops collaborative relationships with knowledge sources like universities customers or suppliers while the latter suggests transactions governed by markets for technology we argue that prior literature has ignored that both search strategies are interrelated and complementary adopting one strategy has a higher marginal return on innovation performance if the other one is present moreover we suggest the benefits from complementarity to be higher when a firm is more distant to the technological frontier in the industry and when markets for technology in that industry are shallow we test our hypotheses on a sample of 3921 german firms from 2001 to 2009 and find support for our hypotheses

a rational expectations approach to macroeconometrics frederic s mishkin university of chicago press for the national bureau of economic research chicago 1983 pp xii 172 20 00

some issues concerning interest rate pegging price level determinacy and the real bills doctrine abstract in a recent paper canzoneri henderson and rogoff have shown that it is possible for the monetary authority to peg the nominal interest rate without creating price level indeterminacy in a simplified version of the 1975 sargent wallace model the present paper begins by reviewing that result which involves a limiting case of a money supply rule that depicts the authority as responding to current values of the interest rate then it shows that there exists an alternative rule that will peg the nominal rate without creating indeterminacy but that this rule induces a different pattern of price level fluctuations next the paper considers whether indeterminacy will prevail if the authority tries to effect a peg in a third way by simply standing ready to buy and sell securities at the desired rate finally the implications of the foregoing results are drawn for arguments concerning the real bills doctrine and some critical comments are directed at the recent attempted rehabilitation of that doctrine by sargent and wallace

household s preferences and monetary policy inertia abstract interest rates set by central banks puzzlingly move with a certain inertia we show that household s preferences can be important determinants of the optimal interest rate inertia due to their impact on the efficiency of the monetary policy transmission mechanism

experience learning and returns to scale the experience curve is a tool for forecasting future decreases in average cost as a function of cumulative output volume the extent of an experience effect has profound implications for both pricing strategy and the focus on market share as a managerial objective at the same time the underlying sources of the experience effect are not well understood this article demonstrates that as commonly measured experience effects are aggregated with the effects of increasing returns to scale this implies that standard experience curve estimates are misspecified because they suffer from an omitted variable bias strategic implications of the experience scale link are discussed

central bank preferences and macroeconomic equilibrium abstract we investigate the behavior of an optimizing monetary authority in an economy described by a simple as ad model we develop a simple methodology for deriving the optimal policy and the associated model solution for various forms of the authority s objectives in our empirical work we focus on one of these specifications in which the authority cares about both the rate of inflation and the level of price innovations which boost real output in our model along the lines of barro and gordon 1983b estimating the model on post war us data we find that the revealed weight on price surprises is significant but only around a third of that on inflation the estimated elasticity of output with respect to price surprises is around one quarter but statistically insignificant

fighting inflation with high interest rates the small open economy case under flexible prices in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used both to reduce inflation and to defend the domestic currency this paper analyzes the effectiveness of such a policy in the context of an open economy with flexible prices and exchange rates a temporary increase in the interest rate on money reduces the price level on impact but inflation follows an explosive path afterwards the domestic currency appreciates on impact but begins to depreciate immediately thereafter hence the analysis does not support the use of high interest rates in disinflationary programs copyright 1995 by ohio state university press

economies of scope and economies of agglomeration abstract agglomeration economies are economies external to the firm and plant but internal to a particular location in this paper the notion of agglomeration economies is formally investigated the implications of the concept for urban structure and industrial organization are then traced under specified considerations weak economies of agglomeration as defined in this paper are shown to be necessary for the existence of an urban area

price level trend stationarity and the instruments and targets of monetary policy an empirical note abstract the application of a stationarity test to floating exchange rate period data indicates a trend reverting price level in switzerland with a base money targeting central bank whereas for the countries with interest rate oriented monetary policy germany japan uk usa the data suggest a difference stationary or trend break behavior of the price level

asymmetric interest rate smoothing the fed approach abstract the central bank could have asymmetric preferences for interest rate smoothing depending on the direction of the monetary policy s stance an empirical analysis for the volcker greenspan period strongly supports this possibility for the federal reserve

in defense of base drift the federal reserve has been criticized for allowing the base from which it calculates its target growth paths for the monetary aggregatesto drift from year to year in response to past deviations from target drift in the base implies that target misses permanently affect the levels of the monetary aggregates using a simple theoretical model this paper shows that the optimal degree of base drift consistent withprice stability depends on the importance of permanent versus transitory income and velocity disturbances neither zero base drift nor complete base drift are likely to be compatible with price stability copyright 1986 by american economic association

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

scale of production and choice of technique in the engineering industries in developing countries this article examines the relationship between scale of production optimal choice of technique and costs for three engineering industries nuts and bolts iron founding and machine tools in all three industries costs of production fell as the scale of output increased this was associated with switches of technique and the spread of fixed costs over a larger number of units the capital output ratio fell and labour productivity increased with increases in scale while in most cases the capital labour ratio increased the implications of these findings are briefly discussed

learning by doing and competition in the early rayon industry in this article i derive a structural econometric model of learning by doing from a dynamic oligopoly game unlike previous empirical models this model is capable of testing hypotheses concerning both the technological nature and strategic implications of learning i estimate the model with firm level data from the early u s rayon industry the empirical results show that there were considerable differences across firms in both proprietary and spillover learning the results also indicate that the two leading firms took their rival s reactions into account when choosing their strategies

firm size and the nature of innovation within industries the case of process and product r d the effect of firm size on the allocation of r d effort between process and product innovation is examined it is hypothesized that relative to product innovations process innovations are less saleable in disembodied form and spawn less growth this implies that the returns to process r d will depend more on the firm s output at the time it conducts its r d than the returns to product r d incorporating this distinction in a simple model the authors derive and test predictions about how the fraction of r d devoted to process innovation varies with firm size within industries

why exchange rate bands monetary independence in spite of fixed exchange rates abstract the paper argues that the reason real world fixed exchange rate regimes usually have finite bands instead of completely fixed exchange rates between realignments is that exchange rate bands counter to the textbook result give central banks some monetary independence even with free international capital mobility the nature and amount of monetary independence is specified informally and in a formal model and quantified with swedish krona data altogether the amount of monetary independence appears sizable for instance an increase in the swedish krona band from zero to about 2 percent may reduce the krona interest rate s standard deviation by about a half

the optimal design of interest rate target changes most central banks currently implement monetary policy by targeting a short term interest rate this paper asks what is the optimal form for such interest rate targeting given the objectives facing central banks we find the optimal rule is for the central bank to change the target rate whenever the deviation between its preferred rate and the current target rate reaches some critical level and in this case the target rate is changed by a discrete amount in the direction of its preferred rate despite the simplicity of this rule we are able to replicate a number of puzzling features of interest rate targeting observed in practice as well as explain some dynamic properties of market interest rates

the fed and short term rates is it open market operations open mouth operations or interest rate smoothing abstract it is widely believed that the fed controls the federal funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the funds rate recently however several analysts have suggested that the fed need not conduct open market operations to change the funds rate rather they argue it is sufficient that the fed indicate its desire for the funds rate this paper notes that there is yet a third alternative the interest rate smoothing hypothesis that suggests that the fed does not move rates per se but rather smooths the transition of rates to the new equilibrium required by economic shocks this paper tests the open market and open mouth alternatives using a methodology first used by cook and hahn journal of monetary economics 1989a 331 finding no evidence that either open market operations or open mouth operations can account for the close relationship between the funds rate and the funds rate target a variety of evidence consistent with the interest rate smoothing hypothesis is considered the results suggest that many changes in the fed s funds rate target are an endogenous response to economic events and suggest that an alternative way to identify exogenous changes in policy is to identify exogenous changes in the fed s funds rate target

money stock targeting base drift and price level predictability lessons from the u k experience abstract it is controversial whether money stock targeting without base drift i e following a trend stationary growth path makes the price level more predictable in the presence of permanent shocks to money demand we develop a procedure that is not subject to the lucas critique applying this procedure to the case of the u k we find that the variance of the trend inflation rate in the u k would have been reduced by more than one half if the bank of england had not allowed base drift

labor heterogeneity wage bargaining and agglomeration economies abstract the modern economy is characterized by increasing returns to scale diverse production technology and specialized labor requirements with heterogeneous production technology increasing returns to scale and specific labor requirements we show that average productivity increases with the size of the labor market the larger the size of the market the better the matches between workers and firms resulting in lower on the job training costs through the wage bargaining between firms and workers the savings in training costs are transmitted into higher wages

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

the influence of unanticipated money growth on real output some cross country estimates two major propositions can be deduced from the theories of the business cycle developed in 4 14 15 161 1 monetary growth affects real output only if it is unanticipated 2 the impact on output of unanticipated monetary growth declines the more unpredictable monetary growth becomes proposition 1 has been tested on u k data in 2 3s on u s data in 5 6 7 and on canadian data in 19 the best known but somewhat informal test of proposition 2 is contained in 15 on data from a cross section of eighteen countries l in this paper we apply the method described in 3 to test proposition 1 using data from a range of countries furthermore we develop and discuss a formal method of testing proposition 2 and apply that method to the same data our main conclusion is that neither proposition can be decisively rejected

interest rate smoothing and price level trend stationarity abstract this paper discusses the definition and mechanics of central bank interest rate smoothing under rational expectations a tension arising between interest rate smoothing and macroeconomic stabilization objectives induces non trend stationary price level and money stock behavior the paper thereby helps explain why such nominal non stationarities are widely observed further implications are drawn for base drift distribution of real returns on long term fixed rate nominal debt and operating characteristics of interest rate pegs and policy instruments

a review of uncertainties in technology experience curves abstract the use of log linear experience curves or learning curves relating reductions in the unit cost of technologies to their cumulative production or installed capacity has become a common method of representing endogenous technical change in energy economic models used for policy analysis yet there are significant uncertainties in such formulations whose impact on key model results have been insufficiently examined or considered this paper reviews the major types of uncertainty in log linear experience curves and their effect on projected rates of cost reduction uncertainties are found not only in the learning rate parameter of a log linear model but also in the functional form that determines the shape of an experience curve evidence for alternative forms such as an s shaped curve is reviewed along with case studies that demonstrate the uncertainties associated with cost increases during early commercialization of a technology a phenomena that is widely recognized but rarely quantified or incorporated in learning models additional factors discussed include the effects of learning discontinuities institutional forgetting and the influence of social economic and political factors we then review other models of causality which aim to improve modelers ability to explain and predict the influence of other underlying processes that contribute to technology cost reductions in addition to learning ignoring other types of underlying mechanisms can create a false sense of precision and overestimate the true contribution of learning currently however uncertainties in such multi factor models remain large due to the difficulties of estimating key parameters such as private sector r d investments and extending models of a specific technology to a broader suite of technologies and cost projections pending the development and validation of more robust models of technological change we suggest ways to significantly improve the characterization and reporting of current learning model uncertainties and their impacts on the results of energy economic models to help reduce the potential for drawing inappropriate or erroneous policy conclusions

non stationarities in macro economic time series further evidence and implications two sources of non stationarities in the mean of macro economic time series are investigated the empirical evidence for several countries clearly implies that differencing is to be preferred to the assumption of a deterministic linear time trend this result is somewhat weaker with respect to the analogous choice between seasonal differencing and seasonal dummy variables it is recommended that the time series properties of the variables considered in empirical work be carefully checked because the estimated relationships may heavily depend on the chosen detrending procedure les non stationarites dans ies chroniques macro economiques resultats supplmentaires et implications l auteur examine deux sources de non stationarite dans la mnoyenne des chroniques macroeconomiques les resultats d analyses de donnees pour plusieurs pays montrent clairement qu on doit preferer l usage d un processus de differences finies a l emploi d une tendance lineaire deterministe ce resultat est un peu moins robuste pour ce qui est du choix analogue entre l utilisation de differences saisonnieres par rapport a

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

the great inflation and the greenbook abstract can the story of evolving federal reserve beliefs in the conquest of american inflation simultaneously explain the great inflation and the forecasts published in the greenbook during that time if sargent is correct then evolving beliefs should be reflected not only in policy outcomes but also in greenbook forecasts in this paper they are by conditioning on the greenbook it is show that both inflation outcomes and greenbook forecasts can be rationalised by evolving beliefs the results improve on recent empirical evidence that has been criticised for relying on unrealistic beliefs that produce forecasts inconsistent with the greenbook

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

interest rate targeting abstract the paper develops a model in which the monetary authority successfully targets the nominal interest rate while also holding down the forecast variance of the price level the latter objective pins down the extent of monetary accommodation to shifts in the demand for money and other shocks and thereby makes determinate the levels of money and prices at each date empirical evidence for the united states suggests that the model s predictions accord reasonably well with observed behavior for nominal interest rates growth rates of the monetary base and rates of inflation

impact of plant size and focus on productivity an empirical study recent popular business literature has suggested that there is a significant trend in the united states for firms to decrease the size and increase the focus of manufacturing plants they operate and that this leads to higher productivity this paper tests empirically the validity of these claims we analyze data on virtually the entire population of manufacturing plants in the united states and find that contrary to the popular business literature the average size of plants increased during the period 1972 1984 however consistent with the popular notion the rate of growth in plant size slowed considerably and even turned negative for a category of large plants plant focus did increase during this period we then investigate the relationship between productivity and plant characteristics including plant size and plant focus overall our results do not support the popular argument that reduction in plant size results in productivity gains however we do find support for this argument in some two digit sic industries also scale economies in the entire population decreased over the period 1972 1982 we also find only limited support for the popular argument that plant focus increases productivity

monetary aggregation and the neutrality of money zisimos koustas this article tests the long run neutrality of money proposition using quarterly u s data over the period from 1960 1 to 1996 2 and the methodology suggested by king and watson 1997 paying particular attention to the integration and cointegration properties of the variables comparisons are made among simple sum divisia and currency equivalent ce monetary aggregates using the anderson et al 1997a 1997b series of divisia and ce monetary aggregates jel e40 e50 c32 i introduction the aim of this article is to investigate a long run question about the role of money in monetary policy whether changes in the conduct of monetary policy influence the growth rate of output as lucas 1996 p 661 puts it so much thought has been devoted to this question and so much evidence is available that one might reasonably assume that it had been solved long ago but this is not the case in fact recently fisher and seater 1993 and king and watson 1997 contribute to the literature on testing quantity theoretic propositions by developing tests using recent advances in the theory of nonstationary regressors and show that meaningful long run neutrality and superneutrality tests can only be constructed if both nominal and real variables satisfy certain nonstationarity conditions and that much of the older literature violates these requirements in this paper in the spirit of serletis and koustas 1998 and koustas and serletis 1999 we test the long run neutrality and superneutrality of money using the king and watson 1997 methodology paying particular attention to the gains that can be achieved by rigorous use of microeconomic and aggregation theoretic foundations in the construction of money measures this is accomplished by making comparisons among simple sum divisia and currency equivalent ce monetary aggregates using the anderson et al 1997a 1997b data see anderson et al 1997a 1997b for more details we also pay attention to the integration and cointegration properties of the variables because meaningful neutrality and superneutrality tests critically depend on such properties the organization of the article is as follows the next section briefly discusses the problem of the definition aggregation of money in section iii we investigate the univariate time series properties of the variables as these properties are relevant for some problems of potential importance in the practical conduct of monetary policy as well as for estimation and hypothesis testing in section iv we test the long run neutrality and superneutrality of money propositions using the king and watson 1997 structural bivariate autoregressive methodology paying particular attention to the integration and cointegration properties of the data the final section concludes ii the many kinds of money the monetary aggregates currently in use by the federal reserve are simple sum indices in which all monetary components are assigned a constant and equal unitary weight this index is m in 1 m sigma sup n sub i 1 x sub i where x sub i is one of the n monetary components of the monetary aggregate m this summation index implies that all monetary components contribute equally to the money total and it views all components as dollar for dollar perfect substitutes there is no question that such an index represents an index of the stock of nominal monetary wealth but cannot in general represent a valid structural economic variable for the services of the quantity of money over the years there has been a steady stream of attempts at properly weighting monetary components within a simple sum aggregate with no theory however any weighting scheme is questionable barnett 1980 derived the theoretical linkage between monetary theory and aggregation and index number theory he applied economic aggregation and index number theory and constructed monetary aggregates based on diewert s 1976 class of superlative quantity index numbers

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

the international context for industrialisation in the coming decade export orientated industrialisation strategies are currently in vogue whether as an active choice by ldcs or as a consequence of pressure from the imf and the world bank the attractiveness of these strategies stems from the historic success of the nics particularly south korea taiwan singapore and hong kong yet there are signs that the changing nature of the global economy will have a major impact on industrialisation in peripheral economies and in particular on eoi strategies this paper focuses on four aspects of this changing international climate restricted market access radical electronics based technical change the nature of the structural adjustment programmes enforced by the imf and the world bank and the effect of increased military expenditures in the third world

some propositions on cost functions abstract in this paper a model is developed for a firm producing to an order which specifies a quantity and a delivery date for output the order serves to constrain a production program which minimizes the discounted cost of producing at a constant output rate the model is formed by augmenting a homogenous production function with a learning hypothesis and deriving a cost function the cost function is then compared to several results due to alchian hirshleifer and oi

on the optimality of interest rate smoothing abstract this paper studies some continuous time cash in advance models in which interest rate smoothing is optimal we consider both deterministic and stochastic models in the stochastic case we obtain two results of independent interest i we study what is to our knowledge the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time and ii we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem we also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium focusing on the particular example of an economy with externalities

radial and non radial decompositions of profit change with an application to indian banking abstract grifell tatje and lovell grifell tatje e lovell c a k 1999 profits and productivity management science 45 1177 1193 made significant contributions to the literature on the extended radial dea framework by decomposing profit change into six mutually exclusive components their approach however poses two basic problems first the radial estimates on these components might give conflicting signals about the direction of profit change after the full radial efficiencies are achieved when slacks are present second evaluations of these components using base period prices as weights can be potentially misleading to address these concerns we first introduce non radial dea models and then provide a few strong theoretical arguments in favor of using as weights either current period prices or an average price covering both periods to value the contributions of each of these components the indian banking sector is taken as a case study to illustrate the radial and non radial decompositions of profit change so as to empirically examine the role of competition on profit change and its drivers our broad empirical results are as follows first radial and non radial models yield diametrically opposite results on the contributions of various components second the increasing efficiency change trends in all ownership groups after 2002 indicate that the government reform process instituted on the banking industry has had a favorable effect on the performance of the indian banking sector third despite the fact that nationalized banks are the oldest banks their output and resource allocation behaviors do not reflect their learning experience

taking two steps at a time on the optimal pattern of policy interest rates abstract most central banks change interest rates in steps of 25 50 or 75 basis points at scheduled dates this paper models the optimal step size and frequency of policy decisions in contrast to the existing literature we argue that a fixed step size facilitates policy decisions which we assume are taken by a monetary policy committee the step pattern depends on the variability of the optimal interest rate policymakers uncertainty and institutional aspects of the committee the model extends the literature by predicting that interest rates are occasionally adjusted by two or more steps

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

monetary policy transmission interest rate rules and inflation targeting in three transition countries in 1991 the rate of inflation in the czech republic hungary and poland was between 35 and 70 at the end of 2001 it is below 8 we setup a small structural macro model of these economies to explain the process of disinflation contrary to a widespread skepticism which permeated a large part of previous research on these issues we show that a simple open macroeconomic model along the lines of svensson 2000 journal of international economics with forward looking inflation and exchange rate expectations can adequately characterize the relationship between the output gap inflation the real interest rate and the exchange rate during the course of transition we use the estimated models to interpret the main features of monetary policy in each country and identify the channels of policy transmission we characterize the policy rules and assess the relative importance of the interest rate channel on aggregate demand and the exchange rate channel which affects both aggregate demand and supply in determining the path of dis inflation in the same context we also tentatively analyze the consequences of attempting a faster path of disinflation finally we evaluate the appropriateness of the inflation targeting framework which has been adopted recently in all three countries and discuss to what extent it represents a discontinuity with the past

managing learning resources for consecutive product generations abstract in this paper we study how a firm should allocate its learning resources when it is concurrently producing two consecutive generations of one product we define learning resources as scarce firm specific resources that a firm allocates towards the improvement of the cost quality or timeliness of its existing products and processes we use empirically tested models for demand substitution and learning curves to formulate this problem and we present our results as propositions with regard to the optimal time at which a firm should direct all its learning resources to the newer product generation depending on the substitution rate of the two product generations the learning rate and the level of cross learning results indicate that learning resources should be managed through a firm wide coordination process that will spread rather than concentrate learning resources not in static but in a dynamic way to ensure continued high returns from these learning resources

price stability and the ecb s monetary policy strategy abstract this paper focuses on the price stability objective within the framework of the single monetary policy strategy it starts by reviewing what this objective which is common to all central banks means second this paper focuses exclusively on the anchoring of short to medium term inflation expectations part 2 several measures show that this anchoring is effective a two pillar small structural macro economic model framework is used to analyze the impact that this anchoring of expectations has on the determination of the short to medium term inflation rate from this point of view observed inflation in the euro area seems to be in line with the theory and the ecb s action seems to be very effective third we focus on the other aspect of monetary stability the degree of price level uncertainty and the anchoring of inflation expectations in the medium to long term even though this assessment is more difficult than it is in the short to medium term since we only have a track record covering 6 years various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ecb

dynamic monetary control and interest rate stabilization abstract interest rate stabilization results in an instrument shortage that complicates monetary control by introducing strategic considerations into the trading desk s decision problem the paper demonstrates that when expected future open market operations influence current bank and depositor behavior an instrument shortage is necessary and sufficient for the commitment policy to be time inconsistent and for the discretionary policy to be suboptimal i e worse than the commitment policy the moving average component of the commitment policy is of higher order than the discretionary policy under either regime the expected value of the representative bank is increasing in the trading desk s emphasis on interest rate stability

a review of learning rates for electricity supply technologies a variety of mathematical models have been proposed to characterize and quantify the dependency of electricity supply technology costs on various drivers of technological change the most prevalent model form called a learning curve or experience curve is a log linear equation relating the unit cost of a technology to its cumulative installed capacity or electricity generated this one factor model is also the most common method used to represent endogenous technical change in large scale energy economic models that inform energy planning and policy analysis a characteristic parameter is the learning rate defined as the fractional reduction in cost for each doubling of cumulative production or capacity in this paper a literature review of the learning rates reported for 11 power generation technologies employing an array of fossil fuels nuclear and renewable energy sources is presented the review also includes multi factor models proposed for some energy technologies especially two factor models relating cost to cumulative expenditures for research and development r d as well as the cumulative installed capacity or electricity production of a technology for all technologies studied we found substantial variability as much as an order of magnitude in reported learning rates across different studies such variability is not readily explained by systematic differences in the time intervals geographic regions choice of independent variable or other parameters of each study this uncertainty in learning rates together with other limitations of current learning curve formulations suggests the need for much more careful and systematic examination of the influence of how different factors and assumptions affect policy relevant outcomes related to the future choice and cost of electricity supply and other energy technologies

is there a role for commodity prices in the design of monetary policy some empirical the consumer price index in the united states follows a non trend stationary stochastic process that describes the index as drifting randomly upward without bound monetarists have long pointed to similar properties in the time series of monetary aggregates as the source of this incipient inflation their solution to this problem is close adherence by the central bank to targets for a monetary or reserve aggregate that correspond to slow and steady monetary growth with any periods of excessive monetary growth subsequently offset this would produce monetary series that are trend stationary if the demand for money is reasonably stable price series would also become trend stationary and for properly chosen targets the price level would be bounded with a mean inflation rate of zero

discount window borrowing and money market interest rates this paper introduces a coherent framework for analyzing the role of discount window aspects of monetary policy it deals explicitly with discount window regimes used by european central banks in many european countries commercial banks have virtually limited access to borrowed reserves the framework is used to analyze what this feature means for the effects of policy instruments and exogenous shocks

a monetary interpretation of the poincare stabilization of 1926 the stabilization of the french franc and economy in mid 1926 under premier raymond poincar6 was so dramatic that it became known as the poincar6 miracle this reform and the economic problems that precipitated it attracted considerable analytical interest during the 1920s lately economists and historians have returned to reexamine this episode yeager 32 focused on it as an example of a country pulling back from the brink of hyperinflation kindleberger 14 used it as an example of the effects of destabilizing expectations sargent 23 pointed to it in support of the contention that a convincing change in regime can quickly stabilize an economy with high inflation without the necessity of prolonged unemployment all three as well as others view the episode as one that hinged critically on a change in fiscal policy as poincar6 moved decisively to balance the budget our purpose is not to disagree with whether a regime change took place or to challenge any particular view of the transition costs of stabilization we argue instead that what poincar6 did was to alter immediately the nature of the monetary regime that was the source of the instability in the french economy during the 1920s if one were to seek a historic parallel for what poincar6 did it would not be in the stabilizations that ended the big hyperinflations that sargent 24 yeager 32 and others 4 17 18 have studied rather it would be in the spirit of the famous accord worked out between the u s treasury and the federal reserve in 1951 2

price smoothing policies a welfare analysis in post wwii experience u s monetary authorities have attempted to eliminate seasonal fluctuations in prices and nominal interest rates developments in financial markets and recently discovered empirical regularities regarding the seasonal cycle seem to make these activities questionable using a money in the utility function model this paper analyzes the welfare properties of price and interest rate smoothing policies and the sense in which the distinction between seasonal and cyclical fluctuations is relevant it is shown that smoothing policies are welfare improving but not optimal and that the origin of the shocks not the persistence of the fluctuations is relevant in formulating policies

entry and learning this paper shows the difficulties associated with discerning the impact of learning and pressures of competitive entry on the price and cost of production in commodity markets it shows that the patterns of price and cost movements over time will be dramatically affected by the entry of new competitors if firms possess u shaped average cost curves entry alone can generate price and cost declines which look like learning induced reductions alternatively cost increases may occur even when learning is quite strong this research has dramatic managerial and empirical implications managers operating in highly competitive environments subject to rapid entry must put more emphasis on the role of their own day to day decisions in affecting cost the fact that costs have declined may have nothing to do with learning but may be driven by their reactions to competitive pressures investigators empirically estimating learning curves must also be cognizant of the role entry plays in affecting cost simple compa

branching scale economies and banking costs abstract in this paper we develop and estimate a model of bank costs based on a theory of the branch cost function first we show that convenient branch location is important to banking customers and implies that banks do not necessarily operate branches at minimum average cost this theoretical result provides a rationale for including branch variables in the bank cost function second we estimate a statistical cost equation derived explicitly from assumptions about the branch cost function and including branch output variables our empirical results suggest substantial economies of scale at the branch level but no economies from expansion by branching finally we show that the resulting cost structure of the banking industry does not imply that a highly concentrated banking structure is necessary for efficiency thus economies of scale would not be expected to force small banks out of the market even if current restrictions on interstate banking are liberalized

a quarterly model of unanticipated monetary growth output and the price level in the u k 1963 1978 abstract this paper develops and estimates using quarterly data from 1963 to 1978 a three equation model of the u k economy in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in the money supply expectations of monetary growth are assumed to be muth rational the model was estimated using efficient procedures and tests of the over identifying restrictions were favourable to the model specification in particular anticipated monetary growth was found to have no significant effect on output

what s experience got to do with it sources of cost reduction in a large specialty chemicals producer conventional learning curves relating unit cost to measures of production experience are estimated for 221 specialty chemicals produced by a fortune 500 company detailed records on cost and r d coupled with insights from company personnel are used to explain the variation across products in the rate of cost reduction products that exhibited the strongest relationship between unit cost and measures of production experience were subject to specific initiatives particularly process r d the r d was not however generally motivated or informed by production experience however cumulative past output the most commonly used measure of production experience was related to expected future output which conditioned the expected future returns from r d and the choice of r d projects thus cumulative output was connected to unit costs through its role in conditioning incentives to undertake process r d rather than as a proxy for production experience this suggests that the strong relationship commonly found between unit cost and measures of production experience may reflect incentives to reduce cost as much as learning from production experience

monetary shocks and the nominal interest rate this paper reconsiders the effects of monetary shocks on the nominal interest rate in a standard macroeconomic model it is determined that when the policy objective is controlling the money stock money supply shocks generate a situation of excess demand for money the positive relationship between nominal interest rates and monetary innovations in the united states following the 1979 change in regime is thus not puzzling but perfectly consistent with standard theory nominal interest rate decreases are possible only when fine tuning rules are adopted copyright 1992 by the london school of economics and political science

bank behavior interest rate determination and monetary policy in a financial system with an intraday federal funds market abstract this paper has two purposes one is to construct a formal model of the determination of and relationships between interest rates on funds with 24 hour overnight and intraday terms the second is to use this model to examine the likely effects of alternative federal reserve proposals for addressing the issue of intraday extension of federal reserve credit in the form of daylight overdrafts of bank reserve accounts it is demonstrated that present proposals all entail potentially significant drawbacks for monetary policy

experience curves and industrial policy abstract experience curves purport to show that average real price or costs of a product decrease with its cumulative output and are used to justify increases in industrial concentration on efficiency grounds but the published evidence for their existence is not always convincing even if they do exist they are merely mongrel relationships reflecting many economic forces including technical progress and economies of scale in addition to learning or experience they should not be generalised to all products or be used to underpin industrial policy

small businesses as a research subject some reflections on knowledge of small businesses and its effects on economic theory most economists agree in their view of small and medium sized enterprises or small businesses smes as a marginal scientific subject they may go so far as to ignore them either because they think these economic units do not lend themselves to conventional economic studies studies which for instance take into account the sacred cow theory of economies of scale or because they see them as being not really different from big businesses

uncovered interest parity monetary policy and time varying risk premia abstract in a recent paper mccallum argued that monetary policy behavior can be responsible for the apparent empirical failure of uncovered interest parity uip the present paper investigates whether optimizing policy behavior can account for the observed regime dependence of uip evidence the main result is that the tradeoff between interest rate and exchange rate stability is a potential candidate for the explanation of the apparent failure of uip and that the consideration of policy reactions can explain why deviations from uip differ systematically by the exchange rate regime

the learning curve and pricing in the chemical processing industries data on 37 chemical products are used to test a number of hypotheses about the learning curve and industrial price behavior the results document a strong and consistent learning effect learning is found to be a function of cumulated industry output and cumulated investment rather than calendar time standard economies of scale appear significant but small in magnitude relative to the learning effect variations in the slope of the learning curve are linked to differences in r d expenditures and capital intensity market concentration is found to be a strong influence on price flexibility and the timing of learningrelated price changes

the macroeconomic implications of financial deregulation abstract this paper explores the possible macroeconomic consequences of financial deregulation in an institutional environment where deregulation raises risks in banking the central bank is supposed to maximize an objective function in which the probability of bank failure is an argument it is then shown that the usual tradeoffs between policy objectives imply that financial deregulation will lead to more interest rate smoothing than would otherwise take place and further that because of restricted entry into banking deregulation will call for some inflation the transition toward deregulation raises special problems which are likely to require a more gradual approach toward the stationary equilibrium

how predictable is technological progress abstract recently it has become clear that many technologies follow a generalized version of moore s law i e costs tend to drop exponentially at different rates that depend on the technology here we formulate moore s law as a correlated geometric random walk with drift and apply it to historical data on 53 technologies we derive a closed form expression approximating the distribution of forecast errors as a function of time based on hind casting experiments we show that this works well making it possible to collapse the forecast errors for many different technologies at different time horizons onto the same universal distribution this is valuable because it allows us to make forecasts for any given technology with a clear understanding of the quality of the forecasts as a practical demonstration we make distributional forecasts at different time horizons for solar photovoltaic modules and show how our method can be used to estimate the probability that a given technology will outperform another technology at a given point in the future

long run profit functions for multiproduct firms a long run specification of the multiproduct profit function is developed from the restricted profit function the multiproduct restricted profit function and the envelope condition are used to estimate the optimal long run levels of the quasi fixed factor formulas for long run marshallian elasticities of substitution and transformation economies of scope product specific and overall economies of scale and economic measures of capacity utilization are developed for the translog functional form the methodology is illustrated by a case study of the new england otter trawl industry

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

does the fed act gradually a var analysis abstract the tendency for changes in the federal funds rate to be implemented gradually has been considered evidence of an interest rate smoothing objective for the federal reserve this paper investigates whether gradual funds rate movements can be explained by the dynamic structure of the economy and the uncertainty surrounding that structure without recourse to including an ad hoc interest rate smoothing argument in the fed s objective function in the absence of parameter uncertainty the optimal policy involves more aggressive movements in the funds rate than observed parameter uncertainty however limits the responsiveness of the interest rate as a result the optimal policy under parameter uncertainty can account for a considerable portion of the gradualism observed

technical change and scale economies given stochastic demand and production abstract this paper provides a formal attempt to separate the effects of changes in scale and technology for a relatively general class of queuing models the paper makes a distinction between the output rate and capacity while changes in technology affect the output rate and lead to larger indivisible production units this change in the output rate has often been confused in the literature as a change in scale as a result the importance of scale economies claimed has often been due more to the potential for technological change not the potential for scale economies inherent to these queuing processes

learning and the behavior of potential entrants this is the publisher s version also available electronically from https editorialexpress com cgi bin rje online cgi action view year 1984 issue sum page 281 tid 120733 sc 7okbhr2g

monetary policies in interdependent economies an open economy explanation for base drift and price level non trend stationarities abstract most nations have experienced base drift of their money stocks and associated price level non trend stationarities recent explanations for this fact have emphasized tensions among various possible objectives of central banks in closed economy or small open economy frameworks in contrast this paper explores structural and policy interdependence among economies as an explanation for price level non trend stationarities it demonstrates that such interdependence can induce central banks to follow non trend stationary policies even if they desire only to smooth prices in their home economies

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

decomposing capacity utilization in data envelopment analysis an application to banks in india abstract this paper briefly reviews the existing methods of capacity utilization in nonparametric framework from economic perspectives and then suggests an alternative in the light of limitations therein in the spirit of work by coelli et al coelli t j grifell tatje e perelman s 2002 capacity utilisation and profitability a decomposition of short run profit efficiency international journal of production economics 79 261 278 we propose two methods radial and non radial to decompose the input based physical technological capacity utilization into various meaningful components viz technical inefficiency ray economic capacity utilization and optimal capacity idleness a case study of indian banking industry is taken as an example to illustrate the potential application of these two methods of decomposition our two broad empirical findings are that first competition created after financial sector reforms generates high efficiency growth and reduces excess capacity second the cost gap of the short run cost from the actual cost is higher for the nationalized banks over the private banks indicating that the former banks though old do not reflect their learning experience in their cost minimizing behavior

tests of a rational expectations structural neutrality model with persistent effects of monetary disturbances abstract this paper describes tests of a rational expectations structural neutrality resn model capable of accounting for the persistent effects of aggregate demand shocks the model imposes the identifying restriction that only contemporaneous shocks to aggregate demand affect a vector stochastic process of highly cyclic real variables tests are performed using a well known measure of unanticipated monetary change as the demand disturbance the results suggest that resn models observationally inequivalent from keynesian models can be constructed in such a way as to account for observable relationships between monetary and real variables

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

interest rates and exchange rates under money supply targets the swiss evidence abstract short term effects of monetary policy on interest rates and exchange rates are evaluated with monthly and daily data for switzerland from 1974 to 1991 during this period the swiss national bank generally pursued a policy of targeting the money supply some evidence in favor of liquidity effects on interest rates is found the influence of changes in monetary aggregates is however not very strong both in terms of magnitude and explanatory power and depends on the time period investigated exchange rates do not react systematically to monetary policy actions

monetary instruments and policy rules in a rational expectations environment abstract this paper explores the implications of rational expectations and the aggregate supply theory advanced by lucas 1973 and barro 1976 for analysis of optimal monetary policy under uncertainty along the lines of poole 1970 returning to a topic initially treated by sargent and wallace 1975 not surprisingly these two classical concepts alter both the menu of feasible policy choice and the desirability of certain policy actions in our setup unlike that of sargent and wallace 1975 the systematic component of monetary policy is a relevant determinant of the magnitude of business fluctuations that arise from shocks to the system central bank behavior both the selection of monetary instruments and the framing of overall policy response to economic conditions can work to diminish or increase the magnitude of business fluctuations however the activist policies stressed by the present discussion bear little if any relationship to the policy options rationalized by the conventional analysis of monetary policy under uncertainty in particular in contrast to poole s analysis money supply responses to the nominal interest rate are not important determinants of real economic activity rather the central bank should focus on policies that make movements in the general price level readily identifiable by economic agents

how the european central bank decided its early monetary policy the main goal of this paper is to detect the mechanisms that should rationally stimulate the decision making policies of the european central bank ecb this is carried out under the framework of theoretical principles of interest rate rules firstly we deduce a set of logically advisable guidelines for the strategy actually developed by this central bank then we contrast a wide set of hypotheses with reference to those variables the ecb takes into account on deciding its monetary policy with a flexible treatment regarding the number of months of advance or delay in the explanatory variables the results lead us to the conclusion that the ecb besides adopting a smooth strategy especially bears in mind the expected core inflation rate with a reaction coefficient adjusted to that initially proposed by taylor the economic growth rate though it has a significant positive coefficient matters relatively little and is backward looking finally we evaluate up to what point the behaviour of the ecb is a

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

monetary policy dynamics in the euro area we investigate identification issues in estimated taylor rules embedding two alternative views about monetary policy inertia versus serially correlated shocks in a single equation we show that using euro data it is impossible to discriminate between these two competing representations

the stability of money supply policies that peg the rate of interest this paper examines monetary policies that peg the rate of interest without relying on an interestelastic money supply in one case the money supply is completely predetermined in the sense that it only depends on past disturbances that is current disturbances do not affect the current money supply as is the case with an interest elastic money supply interest elastic money supply rules are shown to be untenable because such interest elasticity if large enough results in dynamic instability economists have long debated the relative desirability and the viability of two alternate monetary policies a fixed money supply and a pegged rate of interest one familiar theme which runs from wicksell through patinkin 6 and finally to sargent and wallace 7 is the possible incompatibility between a pegged rate of interest and a determinate nominal price level using different models and quite different analytical techniques both patinkin 6 and sargent and wallace 7 demonstrate this incompatibility more recently sargent and wallace 8 do not treat a pegged rate of interest and a fixed money supply as mutually exclusive alternatives rather their version of the real bills doctrine is a policy that fixes both the money supply and the rate of interest through the use of one period currency loans while preserving dynamic stability and establishing a determinate equilibrium price level the money supply rules derived below which peg the rate of interest are similar to the policy considered by sargent and wallace 8 since the analytic framework employed below is similar to that used by mccallum 5 canzoneri henderson and rogoff 1 and goodfriend 3 this paper bridges the gap between the sargent wallace treatment of a pegged rate of interest and discussions that employ a more conventional analytic framework section ii derives two interest rate pegging policies by employing the notion of a permanent future rate of money growth defined analogously to permanent income this concept is used to show that policies that peg the rate of interest while preserving dynamic stability are equivalent to policies that fine tune the public s perception of future rates of money growth it is this fine tuning of the public s perception of future rates of money growth rather than a perfectly interest

macroeconomic stability and the preferences of the fed a formal analysis 1961 98 the rate of inflation in the u s has declined from an average of 4 5 in the period 1960 79 to an average of 3 6 in 1980 98 between those two periods the standard deviations of inflation and the output gap have also declined these facts can be attributed to the interaction of three possible factors a shift in central bank preferences a reduction in the variability of aggregate supply shocks and a more efficient conduct of monetary policy in this paper we identify the relative roles of these factors our framework is based on the estimation of a small structural macro model for the u s economy jointly with the first order conditions which solve the intertemporal optimization problem faced by the fed overall our results indicate that the policy preferences of the fed and in particular the implicit inflation target have changed drastically with the advent of the volcker greenspan era in addition we find that the variance of supply shocks has been lower and monetary policy has been conducted more efficiently during this period