the predictive content of the output gap for inflation resolving in sample and out of sample evidence this paper evaluates potential explanations for the sometimes poor forecasting performance of the phillips curve one explanation is that out of sample metrics are noisy or equivalently have relatively low power another potential explanation is instability in the coefficients of the model to assess these forces this paper compares sample forecasting results to results from bootstrap simulations of models that either assume stability or allow breaks in the coefficients of the model this analysis indicates that a significant portion of the weakness of the out of sample evidence is attributable to power limitations but instabilities in the coefficients on the output gap also play a role

the out of sample success of term structure models as exchange rate predictors a step beyond abstract a large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate however there is evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities this paper proposes a term structure forecasting model of exchange rates based on a regime switching vector equilibrium correction model which is novel in this context our model significantly outperforms both a random walk and to a lesser extent a linear term structure vector equilibrium correction model for four major dollar rates across a range of horizons

monetary policy shifts and the stability of monetary policy models since the publication 1976 of the classic lucas critique researchers in empirical macroeconomics have endeavored to specify models that capture the underlying dynamic decision making behavior of consumers and firms who require forecasts of future events recently a number of researchers have developed simple models that have become the workhorses for monetary policy analysis the models vary considerably with regard to optimizing foundations and explicit treatment of expectations however relatively little effort has been devoted to testing the empirical importance of the lucas critique for these simple models can one find specifications that are policy invariant this paper develops and implements a set of tests for several monetary policy models used extensively in the literature in particular we attempt to test the robustness of optimizing versus nonoptimizing models to changes in the monetary policy regime we present evidence that shows that some forward looking models from the recent literat

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

the forecasting power of real interest rate gaps an assessment for the euro area the real interest rate gap irg the gap between the short term real interest rate and its natural level is a theoretical concept that has attracted much attention in central banks in recent years this article aims at clarifying its practical relevance for monetary policy in real time for this purpose it provides an empirical assessment of the usefulness of a semi structural versus purely statistical estimates of the real irg for predicting policy relevant macroeconomic variables in the euro area however mixed the results confirm that semi structural estimates of the real irg deserve being added to the central banks toolbox

should oil prices receive so much attention an evaluation of the predictive power of oil prices for the u s economy i introduction oil prices are monitored by consumers firms financial market traders and government officials and are the subject of much media coverage this in large part reflects the view that higher oil prices tend to be followed by inflation and recessions 1 early work by hamilton 1983 as well as recent papers by hamilton 2003 and lee and ni 2002 have provided convincing evidence of a relationship between oil prices and future economic activity 2 much of the literature has focused on whether oil prices improve the fit of a benchmark model via examination of impulse response functions as done by lee and ni 2002 or hypothesis testing as done by hamilton 2003 guo and kliesen 2005 discussed a number of theoretical explanations for the oil price macroeconomy relationship the textbook explanation is that higher oil prices represent an increase in production costs causing a fall in output and higher inflation another strand of literature has argued that large oil price movements cause uncertainty about future oil prices or costly reallocation of labor 3 causing large oil price movements to have asymmetric effects on the economy even to the point that both positive and negative oil price movements hurt output along these lines hamilton 1996 motivated the construction of a net oil price increase nopi variable by arguing that it is the behavior of oil prices relative to recent experience that matters this implies that the only time oil shocks have an impact on gross domestic product gdp is when the price of oil is above the high of the previous year for many purposes though the relevant question is whether the information in oil prices can be used to improve forecasts of macroeconomic variables examples include federal reserve policymaking using the price of oil as an indicator variable private sector planning and portfolio management for these applications it should be of interest to evaluate the historical out of sample forecast performance of models that include oil prices moreover impulse response functions and hypothesis tests are not able to provide information about how much out of sample forecasts can be improved 4 this paper evaluates forecasts of different measures of output inflation and monetary policy all of which are important macroeconomic variables that can plausibly be expected to respond to oil shocks based on both economic theory and media reports we apply standard out of sample predictive ability tests to data covering the period january 1986 to december 2004 this time period has seen substantial variation in the price of oil from a low of 11 per barrel in late 1998 to a high of 53 per barrel in october 2004 and includes two gulf wars as well as multiple boom and bust cycles if oil prices have value as an indicator variable it should clearly be present in our sample as oil price fluctuations of this magnitude will explain a large proportion of the variance of the macroeconomic variables our results suggest that there are few cases where models with oil prices are even able to improve upon the forecasts of simple autoregressive ar models this finding is robust to changes in specification that allow for nonlinearities the use of rolling estimation windows to account for possible parameter instability the use of industry level data and changes in the forecast horizon to ensure that our results are not due to low power of the predictive ability tests that we employ we show that the potential forecasting gains from including oil prices are in most cases close to 0 we conclude that oil prices provide little information about the future direction of the economy the rest of the paper proceeds as follows the next section describes our methodology section iii describes the data section iv presents and discusses the results of tests for predictive ability of oil prices for the macroeconomic variables and section v concludes the paper

cap mtr versus environmentally targeted agricultural policy in marginal arable areas impact analysis combining simulation and survey data on june 2003 the final version of the common agricultural policy mid term review cap mtr was published the driving forces of this policy change include inter alia the compliance with world trade organization wto negotiations requirements improvement of social support for agricultural policy adjustment to budget constraints and adaptation of agricultural practices to environmental requirements this article reviews how this policy performs in marginal areas regarding one of those objectives the provision of environmental outputs related to agricultural activity as an alternative to this reform a policy based on agri environmental measures designed to maximize environmental outputs is proposed both options are evaluated from a cost effectiveness point of view data from a farm survey and a positive mathematical programming model for a cereal steppes agro system in spain are combined in order to simulate the effects of this reform and our alternative instrument on several environmental indicators results show that in marginal areas where land abandonment is a clear threat more environmental output can be achieved for the same cost while maintaining if not increasing the levels of achievement for the other goals

ranking farms with a composite indicator of sustainability the assessment of sustainability at farm level has been growing in popularity over the last few years this article contributes to this line of research by building up composite indicators for different facets social economic environmental and global of farm sustainability using a methodological approach that combines data envelopment analysis dea and multicriteria decision making mcdm methods and assigns common weights to each individual sustainability indicator this approach is applied to a database of 163 farms located in the campos county a region belonging to the dry lands of the spanish northern plateau using 12 individual indicators of sustainability our findings show that both economic and environmental composite sustainability indicators are positively correlated but that this is not the case for the social indicator we also check the influence of a set of variables on farm sustainability using bootstrapping statistical techniques and showing that increasing farm size membership in agricultural cooperatives and farmers medium and upper agricultural specific technical education all exert a significant positive influence on sustainability these results provide clues for policy makers that intend to design sustainability increasing structural agricultural policies

impacts of free trade agreements on agricultural trade creation and trade diversion this paper evaluates agricultural trade creation and diversion effects of the most important free trade agreements ftas trade creation and diversion effects are estimated using a poisson pseudo maximum likelihood ppml estimator with various fixed effects to deal with heteroskedasticity and zero trade observations the analysis finds that ppml estimation is preferred to ols and the estimated impacts of ftas are different if zero trade observations are considered the asean china preferential trade agreement eu 15 eu 25 and southern african development community agreements have generated large increases in agricultural trade among their members

measuring the immeasurable a survey of sustainability indices sustainability indices for countries provide a one dimensional metric to valuate country specific information on the three dimensions of sustainable development economic environmental and social conditions at the policy level they suggest an unambiguous yardstick against which a country s development can be measured and even a cross country comparison can be performed this paper reviews the explanatory power of various sustainability indices applied in policy practice we show that these indices fail to fulfill fundamental scientific requirements making them rather useless if not misleading with respect to policy advice

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

the quest for prosperity without inflation abstract in recent years activist monetary policy rules responding to inflation and the level of economic activity have been advanced as a means of achieving effective output stabilization without inflation advocates of such policies suggest that their flexibility may yield substantial stabilization benefits while avoiding the excesses of overzealous discretionary fine tuning such as is thought to characterize the experience of the 1960s and 1970s in this study i present evidence suggesting that these conclusions are misguided using an estimated model i show that when informational limitations are properly accounted for activist policies would not have averted the great inflation but instead would have resulted in worse macroeconomic performance than the actual historical experience the problem can be attributed in large part to the counterproductive reliance of these policies on the output gap the analysis suggests that the dismal economic outcomes of the great inflation may have resulted from an unfortunate pursuit of activist policies in the face of bad measurement specifically overoptimistic assessments of the output gap associated with the productivity slowdown of the late 1960s and early 1970s

measuring macroeconomic performance in the oecd a comparison of european and non european countries abstract we study the macroeconomic performance of 19 oecd countries over the period 1970 1990 performance is defined in terms of the ability of a country s macroeconomic managers to provide four services to their citizens a high level of real gdp per capita a low rate of inflation a low rate of unemployment and a favorable trade balance we use linear programming techniques to construct a best practice macroeconomic performance frontier and to measure the performance of each country in each year relative to the frontier we then add two environmental disamenities carbon and nitrogen emissions to the service list and repeat the analysis to see if the performance rankings change throughout the analysis emphasis is placed on a comparison of the performance of 14 european oecd countries with that of five non european oecd countries we find that performance rankings do change and that the relative performance of the european countries declines when the environmental disamenities are added to the service list

measuring farm sustainability and explaining differences in sustainable efficiency abstract a major objective of european agricultural policy is to have a sustainable and efficient farming sector that is applying environmentally friendly production methods policy makers aim to combine a strong economic performance and a sustainable use of natural resources therefore it is important to measure and to assess farm sustainability for a large dataset of flemish dairy farms a valuation method that is based on the concept of opportunity costs is used to calculate and analyze differences among the sample farms with respect to the creation of sustainable value but more important than measuring the creation of sustainable value is to analyze differences in sustainable efficiency therefore sustainable efficiency measures are calculated and differences in sustainable efficiency are explained using panel data an effect model captures the determinants of sustainable efficiency of the studied farms the empirical model shows that in general larger farms have a higher sustainable efficiency also farmer s age and dependency on support payments proved to be determining characteristics for observed differences in sustainable efficiency

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

estimating potential output as a latent variable this article proposes a new method for estimating potential output in which potential real gross domestic product gdp is modeled as an unobserved stochastic trend and deviations of gdp from potential affect inflation through an aggregate supply relationship the output and inflation equations together form a bivariate unobserved components model which is estimated via maximum likelihood through the use of the kalman filter algorithm the procedure yields a measure of potential output and its standard error and an estimate of the quantitative response of inflation to real growth and the output gap

output gaps and monetary policy in the emu area abstract several considerations suggest that the ecb may respond to emu wide output gaps in setting policy estimated reaction functions indicate that central banks respond to output gaps a taylor rule in which the central bank responds to inflation and the gap accounts for recent movements in interest rates in the emu area and optimal control exercises conducted in estimated econometric models suggest that reacting to the gap may be optimal even if the central bank cares solely about inflation in this paper we obtain point estimates with associated confidence bands of the emu wide output gap using uc models

multicriteria decision analysis and environmental economics an approximation abstract a multicriteria approach to address basic problems in environmental economics is proposed in this paper the methodology is underpinned by the wellknown multicriteria method called compromise programming together with some recent results relating the compromise sets with the traditional optimisation of the utility functions to illustrate the proposed methodology the following two cases are suggested 1 the reconciliation between economic environmental as well as recreational objectives inherent to the management of an environmental asset such as forestry system and 2 its application to the appraisal of environmental improvements or damages when nonmonetary objectives are involved

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

technical efficiency and farm size a conditional analysis the relationship between technical efficiency and size might be affected by farm heterogeneity we analyse this relationship conditional on a set of control variables these control variables are chosen using a production model where technical efficiency is introduced as a parameter as a result technical efficiency affects both the input demand and the output supply of a profit maximising producer the empirical application explores these issues using panel data of dairy farms in spain

theory ahead of language in the economics of unemployment this paper discusses from the perspective of modern theories of unemployment several unemployment concepts that have been used over the years it argues that many of these concepts are of limited value and are dominated by a few simple concepts that are basic in the analysis of stochastic general equilibrium models

mind the gap a monetarist view of the open economy phillips curve abstract in many countries inflation has become less responsive to domestic factors and more responsive to global factors over the past decades we introduce money and credit into the workhorse open economy new keynesian model with this framework we show that i an efficient forecast of domestic inflation is based solely on domestic and foreign slack and ii global liquidity global money as well as global credit is tied to global slack in equilibrium then motivated by the theory we evaluate empirically the performance of open economy phillips curve based forecasts constructed using global liquidity measures such as g7 credit growth and g7 money supply growth instead of global slack as predictive regressors using 50 years of quarterly u s data we document that these global liquidity variables perform significantly better than their domestic counterparts and outperform in practice the poorly measured indicators of global slack that global liquidity proxies for

measuring and explaining scale efficiency with the parametric approach the case of greek tobacco growers estimates of technical and scale inefficiencies of tobacco farms in greece during the period 1991 1995 are obtained by using the parametric approach the degree of technical efficiency was found to be lower than the degree of scale efficiency and thus a greater portion of overall inefficiency is due to producing below the production frontier than to producing at an inefficient scale in addition the vast majority of farms in the sample exhibited suboptimal scale implying that output should be expanded to reach the optimal scale empirical results are provided to determine the impact of various socioeconomic demographic and geoclimatic indicators on technical and scale efficiency

is there a core of practical macroeconomics that we should all believe with emphasis on the adjective practical and the normative verb should my answer to the question of this session is a resounding yes indeed i spent a good deal of time between january 1993 and january 1996 acting on the belief that there is such a core macro model so i certainly hope it exists this believable core model falls well short of perfection leaves many questions unanswered and is subject to substantial stochastic errors nonetheless it is both useful and extensively used in policy analysis where contact with reality is a necessity and you cannot beat something with nothing it also closely resembles but does not quite match the way macroeconomics is taught to beginning and intermediate but not to graduate students in this short presentation i will describe briefly the main practical elements that i think we should agree on without worrying too much about their theoretical underpinnings then i will turn to two critical failings of the standard macro model which cry out for theoretical and empirical repair my organizing principle is the textbook exposition that has been standard though not universal in teaching intermediate macroeconomics for years the question is how does it differ from the core model used in policy analysis

has u s monetary policy changed evidence from drifting coefficients and real time data despite the large amount of empirical research on monetary policy rules there is surprisingly little consensus on the nature or even the existence of changes in the conduct of u s monetary policy three issues appear central to this disagreement 1 the specific type of changes in the policy coefficients 2 the treatment of heteroskedasticity and 3 the real time nature of the data used this paper addresses these issues in the context of forwardlooking taylor rules with drifting coefficients the estimation is based on real time data and accounts for the presence of heteroskedasticity in the policy shock the findings suggest important but gradual changes in the rule coefficients not adequately captured by the usual split sample estimation in contrast to orphanides 2002 2003 i find that the fed s response to the real time forecast of inflation was weak in the second half of the 1970s perhaps not satisfying taylor s principle as suggested by clarida gali and gertler 2000 however the response to inflation was strong before 1973 and gradually regained strength from the early 1980s onward moreover as in orphanides 2003 the fed s response to real activity fell substantially and lastingly during the 1970s

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

inflation as a global phenomenon some implications for inflation modeling and forecasting abstract we model local inflation dynamics using global inflation and domestic slack motivated by a novel interpretation of the implications of the workhorse open economy new keynesian model we evaluate the performance of inflation forecasts based on the single equation forecasting specification implied by the model exploiting the spatial pattern of international linkages underpinning global inflation we find that incorporating cross country interactions yields significantly more accurate forecasts of local inflation for a diverse group of 14 advanced countries including the u s than either a simple autoregressive model or a standard closed economy phillips curve based forecasting model we argue that modeling the temporal dimension but not the cross country spillovers of inflation does limit a model s explanatory power in sample and its pseudo out of sample forecasting performance moreover we also show that global inflation without domestic slack often contributes the most to achieve the gains on forecasting accuracy observed during our sample period 1984 q1 2015 q1 this observation according to theory is crucially related to the flattening of the phillips curve during this time period of increased globalization

assessing the lucas critique in monetary policy models empirical estimates of monetary policy rules suggest that the behavior of u s monetary policymakers changed during the past few decades however for that same time period statistical analyses of lagged representations of the economy such as vars often have not rejected the null of structural stability these two sets of empirical results appear to contradict the lucas critique this paper reconciles these results with the lucas critique by showing that the apparent policy invariance of reduced forms is consistent with the magnitude of historical policy shifts and the relative insensitivity of the reduced forms of plausible forward looking macroeconomic specifications to policy shifts

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation

towards indicators of sustainable development for firms a productive efficiency perspective sustainable development can be reflected by various economic social and environmental factors that are closely interconnected with each other and with the additional dimension of time which stresses the long term perspective of several factors due to their central role in human activities and development firms should play an important part in the attainment of sustainability goals the purpose of this paper is to contribute to the methodology of indicators that allow for the assessment of business participation into sustainable development a fundamental standpoint adopted is to view economic social and environmental efficiency as a necessary but not sufficient step towards sustainability to work out indicators we build on both the concepts of cost benefit analysis and the principles of productive efficiency we assume that we have observations on economic social and environmental factors for a set of decision making units dmus e g firms in an industrial sub sector the efficiency of each dmu is computed from a set of observed data using mathematical programming techniques resulting in dmus that are efficient and define the efficiency frontier among the set of dmus and dmus that are inefficient to cope with the multidimensionality of sustainable development it is important not to base decisions on one unique aggregate sustainability indicator instead it is suggested to develop two or three partial indicators that stress different aspects of the problem the proposed indicators could be used as an aid to detect so called factors of unsustainability and hence to provide for recommendations as to the regulations and incentives or managerial practices that will contribute to overall sustainability c 1999 elsevier science b v all rights reserved