economic deregulation days of reckoning for microeconomists economic deregulation of american industry is one of the most important experiments in economic policy of our time 1 in 1977 17 percent of u s gnp was produced by fully regulated industries 2 by 1988 following ten years of partial and complete economic deregulation of large parts of the transportation communications energy and financial industries that total had been cut significantly to 6 6 percent of gnp 3 the political forces behind the decision to change the market conditions under which roughly 600 billion of u s output is produced were strong and varied but according to political scientists martha derthick and paul quirk 1985 p 36 deregulation would never have occurred if economists especially microeconomists had not generally supported it through their research 4 in retrospect it is fair to ask were microeconomists able to develop a theoretical and empirical framework to explain regulation and its effects and to form predictions of deregulation s effects were they able to predict the actual effects of deregulation this paper surveys the evidence to address these questions and of

environmental regulations and market power the case of the korean manufacturing industries abstract in korea economic growth between 1980 and the mid 1990s was barely affected by environmental regulations it could be the case that industries with more market power exercised more political power which was translated into less expensive regulation e g less rigorous monitoring or enforcement efforts in this paper we test a negative relationship between market power and the contribution of environmental regulations to productivity growth a restricted cost function is jointly estimated with an inverse supply relation to measure the productivity growth effect of regulations and the degree of market power in 15 sub industries in the korean manufacturing industries over the period 1983 93

the use of parametric and non parametric frontier methods to measure the productive efficiency in the industrial sector a comparative study abstract parametric frontier models and non parametric methods have monopolised the recent literature on productive efficiency measurement empirical applications have usually dealt with either one or the other group of techniques this paper applies a range of both types of approaches to an industrial organisation setup the joint use can improve the accuracy of both although some methodological difficulties can arise the robustness of different methods in ranking productive units allows us to make a comparative analysis of them empirical results concern productive and market demand structure returns to scale and productive inefficiency sources the techniques are illustrated using data from the us electric power industry

can we explain inflation persistence in a way that is consistent with the microevidence on nominal rigidity this paper adopts the impulse response methodology to under stand inflation persistence it has often been argued that existing models of pricing fail to explain the persistence that we observe we adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting we also evaluate how far the theories are consistent with recent evidence on price and wage rigidity we find that allowing for a distribution of durations can take us a long way to solving the puzzle of inflation persistence but not all the way yet

the signaling effect of raising inflation abstract this paper argues that central bankers should temporarily raise inflation when anticipating liquidity traps to ensure the credibility of otherwise time inconsistent forward guidance policies as stable inflation in normal times either stems from central bankers desire to maintain credibility or from aversion to inflation the private sector is unable to infer the central banker s willingness to follow through on promises from observing stable inflation jeopardizing the efficiency of forward guidance policy we show that this signaling motive can justify temporary deviations of inflation from target well above 2 but also that the low inflation volatility during the great moderation was insufficient to ensure fully efficient forward guidance when needed

substitution possibility between unpriced pulp and wastepaper in the u s paper and paperboard industry a greater use of recycled wastepaper would preserve virgin forests as well as reducing the amount of wastepaper going to landfills these environmental goals depend critically on the elasticity of substitution between pulp and wastepaper in producing paper and paperboard since most of the pulp consumed by u s paper mills and paperboard mills is transferred internally from vertically integrated pulp mills the price data on pulp is not available this paper constructs an econometric model which enables us to estimate the substitution possibility between unpriced pulp and wastepaper in the u s paper and paperboard industry empirical results show that the elasticity of substitution between unpriced pulp and wastepaper is positive but not statistically significant

on the mis measurement of legislator ideology and shirking in this paper we show that current statistical measures of legislator s shirking are implicitly based on the electoral concept of a unique majority rule equilibrium point in the policy space where elections are contested we note that such equilibria do not exist generically and present statistical results showing that cross sectional regressions where legislators voting indices are predicted by district average demograhic and economic data are mis specified we also discuss a weaker equilibrium construct the uncovered set and present statistical evidence showing that differences in voting behavior between senators from the same state are positively related to the heterogeneity of the electorate we argue that current evidence alleged to show shirking by senators is equally consistent with senators who perfectly represent an idiosyncratic constituency that cannot be represented by district average data

liberalisation and r d in network industries the case of the electricity industry abstract electricity sector liberalisation has coincided with a significant decline in r d spending this paper reviews the industrial organisation literature on r d and innovation to explore the likely causes of the decline in r d spending in the electricity sector meanwhile r d productivity and innovative outputs in utilities and equipment suppliers appear to have improved however a lasting decline in r d expenditure can have a negative long term effect on technological progress and innovation in the sector we conclude that the decline in r d could have been predicted from the literature we also discuss the need to reorient the post liberalisation technology policy

innovations and issues in monetary policy panel discussion martin feldstein 1 chairman alan greenspan s remarks today give us an opportunity to understand his thinking about monetary policy and about the federal reserve s actions during the past 15 years it was a period of substantial accomplishment that no doubt reflects in considerable measure the views of the chairman himself the fed s primary goal price stability has been achieved with inflation down from 4 percent at the end of the 1980 s to about 1 5 percent now the 2 percentage point difference between the interest rate on conventional treasury bonds and on inflation indexed bonds tips shows that financial markets expect inflation will remain at about 2 percent for at least the next decade

economies of vertical integration in the swiss electricity sector over the last two decades several european nations have introduced reforms to their electricity sector generally these reforms require a legal and functional unbundling of vertically integrated companies these unbundling processes may reduce the possibilities that exist to fruitfully exploit the advantages of vertical integration the goal of this paper is to empirically analyze the presence of economies of scale and vertical integration in the swiss electricity sector economies of vertical integration between electricity production and distribution result from reduced transaction costs better coordination of highly specific and interdependent investments and less financial risk different econometric specifications for panel data including a random effects and a random coefficients model have been used to estimate a quadratic multi stage cost function for a sample of electricity companies the empirical results reflect the presence of considerable economies of vertical integration and economies of scale for most of the companies considered in the analysis moreover the results suggest a variation in economies of vertical integration across companies due to unobserved heterogeneity

real business cycles sticky wages or sticky prices the impact of technology shocks on us manufacturing in this paper we examine empirically the predictions of a range of theoretical models which give a prominent role to technology shocks in explaining business cycles to this end we estimate 4 digit sic industry level var models for us manufacturing using real output the real wage and utilization corrected measures of technology and labor input our results support both sticky wage dge and rbc models over sticky price dge models moreover they cast some doubt on the importance of technology shocks as propulsive mechanism for business cycles at the industry level

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

market structure and the pricing of electricity and natural gas us electricity and natural gas markets have traditionally been serviced by one of two market structures in some markets electricity and natural gas are sold by a regulated dual product monopolist while in other markets electricity and natural gas are sold by separate regulated single product monopolies i analyze whether electricity and natural gas prices depend on the market structure and compare these results to the predictions of a number of theories the results are most consistent with the political economy theories suggesting that regulators respond to interest group activity

does central bank transparency impact financial markets a cross country econometric analysis blinder et al 2001 argues that more open public disclosure of central bank policies may enhance the efficiency of markets we examine this claim by studying for a set of seven industrialized countries whether selected central banks moves toward more open disclosure during the 1990s improved or worsened the predictability of the corresponding national financial markets employing methodologies analogous to campbell and schiller 1991 we find that for all countries the forecasting error has decreased for interest rates on the respective government bonds across most maturity lengths and that the expectations hypothesis has generally performed better at the short end of the yield curve our results also tentatively show that the effects are stronger for central banks that made the move to greater disclosure compared to those banks that resisted increasing the public s information set these findings are consistent with tabellini s 1987 view that central bank secrecy will hinder the smooth functioning of financial markets

outsiders at the bank of england s mpc the monetary policy committee mpc of the bank of england which was established in may 1997 consists of five internal and four external members we study the voting record and show that insiders dissent rarely and typically for higher rather than lower rates whereas outsiders dissent more often prefer lower rates and disagree with the majority when economic growth slows moreover their dissents forecast future interest rate changes we show that a model in which outsiders dislike output below potential more than output above replicates the observed voting pattern well

first impressions matter signalling as a source of policy dynamics we provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model first all policymaker types should become less tough on inflation over time and secondly types that weigh output more should have a more pronounced shift voting data from the bank of england s monetary policy committee strongly support both predictions counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle and improves the committee designer s welfare implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes

capital resource substitution and the discount effect in depletable resources it is a central proposition of the economics of natural resources that an increase in the discount rate will cause an increase in the rate of extraction for depletable minerals this traditional discount effect derives from treating the resource stock as a kind of capital which will be left in unprocessed form only when the opportunity cost of so doing is low the hotelling rule 10 this relationship is a cornerstone of the contention by some resource economists that a competitive resource industry extracts too fast for it is held that risk raises the discount rate used by resource firms above the optimal rate for society the high real discount rates of recent years in this view were also seen as a major contributor to the depressed mineral markets of the early 1980s mineral extraction and processing is highly capital intensive however and the opportunity cost of capital will be increased by a higher discount rate when this disinvestment effect is included gordon 5 in fact showed that the overall discount effect is ambiguous neher 13 and farzin 2 employing specialized assumptions concerning the extractive technology subsequently showed the sign of the effect to depend on the relative present values of capital and resource costs in overall mineral extraction and processing the purpose of this paper is to extend neher and farzin s result by analyzing the discount effect in terms of general resource industry characteristics such as the elasticity of demand and of substitution as well as the shares of capital and unprocessed resources in overall cost we then attempt to apply our results in the third section of the paper using parameters estimated by others for a number of resource industries given these parameters it appears that the usual effects of discount changes do apply with respect to the value and price of the unprocessed resource an increase in the discount rate increasing the demand and lowering the value of the raw mineral but this is not the case with respect to the processed resource because of relatively high capital intensity over half of the mineral industries surveyed appear to behave as non resource industries in that they can be expected to reduce overall processed mineral output in response to a discount rate increase 1 neher following gordon employed a model in which mineral output is identical with the raw resource input and in which capital cost is a fixed proportion of the total cost of extracting the resource this implies the average cost of extraction is simply the sum of average capital and resource costs unlike in the model to follow and could realistically apply only to the very first stage of mineral processing

derivation of long run factor demands from short run responses abstract the concept of the restricted cost function provides a dual approach to the analysis of short run technology it allows also under curvature restrictions inference of the different possible equilibria according to constraints on the firms moreover in this paper the properties of the restricted cost function are spelled out substitution possibilities related to the different regimes are also derived from the restricted cost function this theoretical framework is applied to characterize the french cereal producing sector by using a cross section of farms

environmental regulations and productivity growth the case of fossil fueled electric power generation this paper measures and analyzes the effect of sulfur dioxide emission restrictions on the rate of productivity growth in the electric power industry over the 1973 79 business cycle a firm specific measure of regulatory intensity is developed which depends on the severity of the emission standard the extent of enforcement and the unconstrained emission rate relevant to each utility the results indicate that emission regulations result in significantly higher generating costs primarily from the increased use of low sulfur fuels the average rate of productivity growth was reduced by 0 59 percentage points per year for constrained utilities

the substitutability of nuclear capital for thermal capital and the shadow price in the korean electric power industry as part of ongoing efforts to reduce co2 emissions by increasing the proportion of the energy mix relying on nuclear power it may be useful to substitute nuclear power for thermal power wherever possible thereby substantially reducing the need to use fossil fuels in order to evaluate the contribution of nuclear power to potential co2 reduction this study examines the substitutability of thermal capital and nuclear capital in the korean electric power industry by utilizing the input distance function additionally the unit costs of thermal capital and nuclear capital are compared in terms of their shadow prices which are defined as the opportunity costs inherent to one additional unit of capital increase deriving from a reduction in labor the empirical results presented herein indicate that nuclear capital is readily substituted for thermal capital but the substitutability of thermal capital for nuclear capital is relatively low the shadow price ratio of nuclear capital to thermal capital is estimated to be 15 9 on average showing an upward trend over the years from 1982 to 2010

the ups and downs of capitalism ben bernanke is a leading macroeconomist who has contributed extensively to the literature on business cycles monetary policy the role of financial markets in economic fluctuations inflation targeting and the economics of the great depression he is one of the six economists who form the nber business cycle dating committee a group that determines the dates of recessions in the us in this article interview professor bernanke discusses issues relating to the great depression of the 1930s and problems relating to inflation in the latter half of the twentieth century

the response of real wages to unanticipated money growth abstract this paper investigates the response of real wages to unanticipated money growth in the light of equilibrium theories of the business cycle these theories in their main different versions do not deliver a common and unambiguous hypothesis on this issue while some models implu a countercyclical real wage response during monetary cycles others yield the opposite result of a procyclical real wage econometric analysis of annual and quarterly u s data reported in the paper indicates that there is a weak negative real wage response to an unanticipated increase in money growth

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

separability test for the electricity supply industry this paper examines the vertical integration issue of the electricity industry this industry is typically vertically integrated and heavily regulated the paper investigates the potential technological efficiency loss due to the vertical disintegration using the translog production function three separability hypotheses using the allen uzawa elasticity of substitution are tested to examine the feasibility of various degrees of disintegration of the current industry structure all three separability hypotheses are rejected and the cost of disintegration is estimated further estimates indicate that the electricity industry appears to have exhausted economies of scale unlike other deregulated industries disintegration of the electricity industry will entail technological efficiency loss

stabilisation policy targets and unemployment in imperfectly competitive economies this paper argues that the rate of equilibrium unemployment depends on the objectives of the central bank in a model where the central bank uses monetary policy to stabilise the economy we show that unemployment and inflation will be lower with an inflation target than with targets for output money or nominal gdp the intuition for this is that the elasticities of demand in both the product and the labour markets are greater when there is an inflation target we show that this leads to a lower mark up of price over marginal cost and makes wages more sensitive to unemployment

an overhaul of doctrine the underpinning of uk inflation targeting this paper argues that the inflation targeting regime prevailing in the united kingdom is not the result of a change in policymaker objectives by conducting an analysis of u k policymakers that parallels romer and romer s 2004 study of federal reserve chairmen i demonstrate that policymaker objectives have been essentially unchanged over the past five decades instead the crucial underpinning of u k inflation targeting has been an overhaul of doctrine a changed view of the transmission mechanism this overhaul can be understood in terms of changes in policymakers views on the values of a few key parameters in their specifications of the economy s is and phillips curves specifically the changed views pertain to the issues of whether interest rates enter the is equation and the extent of policymaker influence on those rates whether the level of the output gap appears in the phillips curve when the gap is negative and whether a speedlimit term matters for inflation dynamics contrary to conventional wisdom changing views on the expected inflation term in the phillips curve do not play a role

a simple empirical measure of central banks conservatism in this paper we suggest a simple empirical and model independent measure of central banks conservatism based on the taylor curve this new indicator can easily be extended in time and space whatever the underlying monetary regime of the considered countries we demonstrate that it evolves in accordance with the monetary experiences of 32 oecd member countries from 1980 and is largely equivalent to the model based measure provided by krause mendez southern economic journal 2005 we finally bring forward the interest of such an indicator for further empirical analysis dealing with the preferences of central banks

changes in uk monetary policy rules and discretion in practice abstract in october 1992 following sterling s departure from the exchange rate mechanism britain adopted a new framework for monetary policy that comprised two components first an explicit target for inflation and second institutional changes designed to give greater influence to the bank of england by increasing the transparency and openness of the process by which interest rates are set this paper analyses those changes from the perspective of the debate on rules versus discretion and argues that an appropriate design of institutional arrangements can provide incentives for central bankers to pursue the first best state contingent monetary policy

check bouncing and fiscal irresponsibility evidence of nonideological shirking by legislators kalt and zupan have measured ideological shirking by legislators here we present evidence concerning nonideological shirking we demonstrate that representatives with more overdrawn checks tend to be more fiscally irresponsible with fiscal irresponsibility measured by national taxpayer union ratings and by representatives voting behavior on the recent house balanced budget amendment vote

monetary policy in the uk the authors argue that the institutional dimension of the bank of england monetary policy and the role the uk hm treasury assumes in this framework are both firmly based on the new consensus in macroeconomics ncm this is also the theoretical framework upon which the inflation targeting element of monetary policy is firmly based this paper discusses these aspects of uk monetary policy and then assesses the policy that has been pursued since 1997 with some reference made to the period between 1992 and 1997 when a version of the framework was introduced the strategy has been successful in terms of keeping uk inflation rates within the targets set by hm treasury however a number of problematic issues are highlighted and discussed

robust monetary policy with competing reference models abstract the existing literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model in this paper we show that such rules may perform very poorly in the more general case in which non nested models represent competing perspectives about controversial issues such as expectations formation and inflation persistence using bayesian and minimax strategies we then consider whether any simple rule can provide robust performance across such divergent representations of the economy we find that a robust outcome is attainable only in cases where the objective function places substantial weight on stabilizing both output and inflation in contrast we are unable to find a robust policy rule when the sole policy objective is to stabilize inflation we analyze these results using a new diagnostic approach namely by quantifying the fault tolerance of each model economy with respect to deviations from optimal policy

pitfalls of forward looking monetary policy a distinctive feature of the procedures recently adopted by inflation targeting central banks is their forward looking character forecasts of the economy s future evolution conditional upon alternative policies play a central role in the banks deliberations to an extent that the procedures adopted are sometimes characterized as forecast targeting this emphasis upon the future consequences of policy is unsurprising in an approach that tries to maintain as transparent as possible a relation between the banks9 decisions and the ultimate goals of monetary policy after all current decisions can still affect the future but not the past nonetheless common descriptions of how inflation targeting is or should be practiced go too far in proposing purely forward looking procedures i shall argue instead that an optimal framework for the conduct of monetary policy must generally be history dependent in ways

communication by central bank committee members different strategies same effectiveness the paper assesses the communication strategies of the federal reserve the bank of england and the european central bank and their effectiveness we find that the effectiveness of communication is not independent from the decision making process the paper shows that the federal reserve has been pursuing a highly individualistic communication strategy amid a collegial approach to decision making while the bank of england is using a collegial communication strategy and highly individualistic decision making the european central bank ecb has chosen a collegial approach both in its communication and in its decision making assessing these strategies we find that predictability of policy decisions and the responsiveness of financial markets to communication are equally good for the federal reserve and the ecb this suggests that there may not be a single best approach to designing a central bank communication strategy

economies of scale in nuclear power generation current prospects for the expansion of nuclear electric generating capacity appear dim there has not been a domestic order placed for a nuclear power plant since 1978 and over 80 plants have been cancelled since the early 1970s while a host of economic political and environmental factors are responsible for the current state of the nuclear power industry concern has increasingly focused on the cost effectiveness of nuclear power with critics arguing that nuclear power is not an economically feasible alternative economies of scale are a crucial consideration in addressing nuclear power costs at the plant level scale economies could be associated with the size of generating units or with multiunit siting if the former is important the strong trend toward larger reactors would imply that all else equal electricity produced by new plants should cost less than previous experience would indicate siting several reactors at a plant which is common practice in france for example would lead to lower costs if the latter factor is important despite the importance of these issues virtually no empirical evidence on economies of scale in nuclear power operations is available 2 existing studies of nuclear power production costs 20 7 26 23 22 typically specify some plant size and type often the proverbial 1 000 mwe plant and sum up the costs of the inputs required to run it including a capital cost by contrast cost analyses for fossil fueled electricity generation are more sophisticated 3 perhaps the first application of econometric modeling in this area was by nerlove 19 however a more up to date example is the study of christensen and greene 4 who estimated a translog cost function using cross sections of privately owned utilities in 1955 and 1970 straightforward application of christensen and greene s techniques to nuclear power is prob

measuring economies of vertical integration in network industries an application to the water sector this paper provides a framework that aims at distinguishing the technological economies of vertical integration from the vertical economies resulting from an inefficient input allocation due to upstream market imperfections to illustrate our analysis we use consistent panel data econometric methods to estimate cost functions on a sample of north american water utilities contrary to what has been found for other network industries electricity and gas for instance we show that the global and technological economies of vertical integration are not significant except for the smallest utilities

determining output and inflation variability are the phillips curve and the monetary policy reaction function responsible i introduction the natural rate hypothesis that no long run trade off exists between inflation and unemployment has won over most macroeconomists a new trade off between the variability of inflation and the variability of output has lately attracted considerable attention instead of minimizing a weighted sum of the levels of inflation and unemployment the central bank s objective function minimizes a weighted sum of the variances of inflation and output given this loss function for the central bank a great deal of theoretical research has been undertaken as to which type of monetary policy rule is both efficient and robust clarida et al 1999 and an edited volume by taylor 1999b investigate various monetary policy rules in this article i explore the determinants of inflation and output variability first in a theoretical study i present the theoretical studies of taylor 1994 svensson 1997 and ball 1999a and investigate how the policy parameters in a taylor monetary policy reaction function are related to the variability of output and inflation computational experiments show that first as monetary policy makers increase their degree of responsiveness to inflation the variability of inflation falls but the variability of output increases second if policy makers increase their policy response to output gaps the variances of both inflation and output decrease in addition the experiments illustrate that the changes in the variability of output and inflation can be the result of changes in the responsiveness of prices to output gaps the second part of the article provides cross country evidence regarding the relationship of inflation and output variability to both the policy parameters of the monetary policy reaction function and the slope parameter of the phillips curve by analyzing data from 20 organisation for economic cooperation and development oecd countries this study estimates the parameters of the monetary policy reaction function and the slope parameter of the phillips curve and examines the relationships between the estimated parameters and the variability of output and inflation although there have been numerous empirical investigations of monetary policy reaction functions taylor 1999a clarida et al 2000 among others there is very little empirical evidence concerning a relationship between the parameters in the policy reaction function and the variability of output and inflation for several countries furthermore there is even less empirical literature that considers the relationship between the policy parameters and output and inflation variability in a cross country framework this study attempts to extend the empirical analysis to a group of countries by using international data 1 there are two main findings first inflation will be low and stable in countries where the monetary policy rule has large reaction coefficients and second output will have large fluctuations in countries where the phillips curve is relatively flat 2 the rest of this article is divided up into four sections section ii provides an overview of the taylor svensson ball tsb model the relationship between the model s parameter values and inflation and output variability is explored through simulations section iii describes the empirical data for the 20 oecd countries and reports the estimated parameters of the tsb model section iv presents the results of the cross country regressions used to evaluate the determinants of inflation and output variability finally section v offers conclusions ii the tsb model assumptions the tsb model describes the economy in three equations 1 sub t beta i sub t 1 pi sub t 1 r sup lambda sub t 1 u sub t 2 pi sub t pi sub t 1 alpha sub t 1 e sub t 3 i sub t pi

regulation capital vintage and technical change in the electric utility industry this paper presents estimates of the rate of technical change in the electric power industry over the period 1951 78 the estimated model directly incorporates the effects of rate of return regulation and uses both a time trend and a vintage index to represent disembodied and embodied technical change respectively the results indicate that disembodied technical change was the primary source of cost reduction during 1951 70 and that tighter regulation as represented by a one point reduction in the rate of return would have reduced the rate of technical change by an average of 1 2 during 1951 78 34 references 18 footnotes 3 tables

the performance of forecast based monetary policy rules under model uncertainty we investigate the performance of forecast based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics we identify the key characteristics of rules that are robust to model uncertainty such rules respond to the one year ahead inflation forecast and to the current output gap and incorporate a substantial degree of policy inertia in contrast rules with longer forecast horizons are less robust and are prone to generating indeterminacy in light of these results we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences

on optimal capacity expansion for domestic processing of an exhaustible natural resource abstract the issue of optimal capacity expansion for domestic processing of exhaustible natural resource exports in a small open economy is analyzed in the context of non malleable capital a complete qualitative characterization of the optimal dynamic paths for resource extraction domestic processing and capacity expansion is obtained it is shown that the presence of capital stock adjustment costs which vary directly with the rate of capacity expansion in the resource processing sector implies a presumption in favor of a policy of domestic processing and that the optimal pattern of capacity expansion is of the front end loading variety

the own wage elasticity of labor demand a meta regression analysis firms labor demand responses to wage changes are of key interest in empirical research and policy analysis however despite extensive research estimates of labor demand elasticities remain subject to considerable heterogeneity in this paper we conduct a comprehensive meta regression analysis to re assess the empirical literature on labor demand elasticities building on 942 elasticity estimates from 105 different studies we identify sources of variation in the absolute value of this elasticity heterogeneity due to the theoretical and empirical specification of the labor demand model different datasets used or sectors and countries considered explains more than 80 of the variation in the estimates we further find substantial evidence for the presence of publication selection bias as estimates of the own wage elasticity of labor demand are upwardly inflated

do markets care who chairs the central bank this paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy to measure these effects we assemble a new dataset of appointment announcements from 15 countries and conduct an event study analysis on exchange rates bond yields and stock prices our main findings are threefold first exchange rates and bond yields display a statistically significant response to the announcement of a new governor especially when the appointee s identity was not anticipated in advance second the reactions are especially pronounced for central banks lacking either independence or a clear nominal anchor third new governors are not generally perceived to lack credibility there is no tendency for announcements to be associated with jumps in inflation expectations

identifying sources of macroeconomic and exchange rate fluctuations in the uk abstract using quarterly data for the period 1985 1 2011 1 this paper uses a stylised open economy structural var model to identify the types of shocks responsible for macroeconomic fluctuations in the uk economy the stylised model implies a set of short run restrictions that allow for the identification of the shocks the importance of each shock is determined by examining forecast error variance decompositions impulse response functions and implied long run or permanent effects the results presented here imply that two shocks called the technology and is shocks are relatively more important than other shocks monetary shocks do exhibit long run monetary neutrality but clearly monetary policy is not responsible for a meaningful share of output and employment fluctuations during the sample period the estimated var and structural disturbances imply that the model accurately reflects the uk economy there is little evidence of a price puzzle or an exchange rate puzzle evidence against uncovered interest rate parity in response to an unexpected monetary policy tightening

on targeting frameworks and optimal monetary policy we show that speed limit policy a monetary policy strategy that focuses on stabilizing inflation and the change in the output gap consistently outperforms flexible inflation targeting and flexible price level targeting in empirical medium scale dsge models under discretionary policymaking in contrast to small scale new keynesian models this welfare ranking of the targeting frameworks is not overturned when inflation dynamics are mostly backward looking importantly the performance of the speed limit policy shows less sensitivity to its parameterization than other frameworks that target the inflation rate or the price level

economies of scale and technological progress in electric power production the case of brazilian utilities abstract this paper examined the cost structure of the electricity generation companies in brazil during the period 2000 2010 by using a translog cost function that imposes no restrictions on production technology and allows for the existence of non homotheticity the hypothesis that economies of scale are a typical feature of the generation market in brazil and in general are not exhausted at lower levels of production is not rejected this result supports the vision that indivisibilities restrict efficiency gains from free market competition in the brazilian electricity generation and most of the last restructuring in the industry regulation was based on this assumption furthermore over the sample period technological progress led to cost reductions in electric power supply these technological improvements take the form of both a neutral technological effect as well as a non neutral fuel effect which prevails over the capital and labor saving technical changes

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

structural reform of japanese electric power industry separation between generation and transmission distribution this study examines the cost structure of japanese electric power industry to investigate whether a structural reform on the industry really enhances a cost saving benefit to consumers a composite cost function model using a panel data set is used for this study the data set consists of nine electric power companies from 1990 to 2008 based upon the estimation results this study examines whether economies of scale and vertical economies exist in the industry then this study conducts a cost subadditivity test that is a necessary condition of natural monopoly the empirical results indicate that the electric power firms exhibit the status of economies of scale in their transmissions and distributions and the operation as a whole however they do not exhibit economies of scale in their generations thus the transmission operation by integration in a large area can improve its economic efficiency furthermore the industry should introduce more competition in both generation and wholesale power markets where more firms can participate in their power trades this study also empirically confirms that vertical economies have existed in the industry moreover this study confirms that all the estimates in the cost subadditivity test satisfy the necessary condition of natural monopoly where each estimate indicates cost saving in cost subadditivity the test does not guarantee a sufficient condition of natural monopoly however it clearly indicates that the functional separation between generation and transmission will increase total production cost in the industry the complete separation may result in a net loss of economic efficiency if a competition benefit does not exceed an expected economic loss consequently this study suggests that the industrial structure of future japanese electric power industry should be evaluated from not only an expected benefit by introducing competition but also an unbundling cost that occurs with a loss of vertical integration

inflation zone targeting abstract we study optimal monetary policy design in a simple model that deviates from the linear quadratic paradigm and provides a rationale for the practice of inflation zone targeting we show that the presence of either zone quadratic preferences or a zone linear relationship between inflation and economic activity provides strong incentives to deviate from conventional linear policies we calibrate the model based on parameters for the united states and the euro area and employ a numerical dynamic programming algorithm to derive the optimal policies with this algorithm we examine the role of uncertainty model structure and relative preference towards economic stability in determining the width of the implied targeted inflation zone

caution and conservatism in the making of monetary policy does society benefit from the delegation of monetary policy to cautious and conservative central bankers we offer a critical view on the delegation literature and relax seemingly innocuous assumptions about uncertainty and preferences first caution improves credibility but does not obviate the need for central bank conservatism second previous models of delegation have focused on suboptimal forms of conservatism we derive optimal concepts of conservatism that mitigate or eliminate any residual problem of credibility third we rationalize why credible monetary policy may be conducive to stable inflation and output

estimation of market power in a nonrenewable resource industry in nonrenewable resource industries the existence of a markup of price over marginal market cost may reflect the existence of an implicit user cost for the resource rather than market power we show that valid estimates of market power can be obtained by the joint estimation of a restricted cost function and an inverse supply relation estimation of the model with data for the largest firm in the international nickel industry indicates that output price substantially exceeded marginal market cost with most of the difference due to the exercise of market power rather than the user cost of the resource

technological externalities and economies of vertical integration in the electric utility industry abstract this paper investigates economies of vertical integration of the electric utility industry focusing on the technological externality between the generation and transmission distribution stages for this purpose a shadow cost function of the symmetric generalized mcfadden form is estimated using panel data on the transmission distribution stage of nine japanese electric utility firms the results show that there exist the technological externality effects of generation facilities on the cost of the transmission distribution stage suggesting economies of vertical integration

vertical and horizontal scope economies in the regulated us electricity power industry this paper investigates vertical economies between generation and distribution of electric power and horizontal economies between different types of power generation in the u s electric utility industry our quadratic cost function model includes three generation output measures hydro nuclear and fossil fuels which allows us to analyze the effect that generation mix has on vertical economies our results provide sample mean estimates of vertical economies of 8 1 and horizontal economies of 5 4 an extensive sensitivity analysis is used to show how the scope measures vary across alternative model specifications and firm types

demand and supply shocks in italy an application to industrial output abstract we investigate the impact of three different kinds of disturbances on industrial output in italy they originate respectively in aggregate demand technology and the labour supply we first illustrate the theoretical restrictions which permit identification of the three shocks then econometric identification is achieved by extending the blanchard and quah 1989 the american economic review 79 pp 655 673 procedure to a multivariate case our main conclusion is that output variability is significantly affected by technological shocks at all frequencies labour supply disturbances are also relevant while demand shocks have a minor impact on the series although they act in the expected direction therefore the short run behaviour of industrial production is largely explained by supply side shocks

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

quasi fixed inputs and long run equilibrium in production a cointegration analysis this paper proposes a cointegration approach to testing the validity long run equilibrium in production where capital and labour are taken as quasi fixed inputs previous studies consider only capital as the quasi fixed input and do not take account of the time series properties of the variables assuming implicitly that they are stationary the canonical cointegrating regressions ccr procedure is employed to test for cointegration in both the single equation and the seemingly unrelated regressions framework and long run equilibrium conditions are tested the evidence from us manufacturing reveals that capital and labour are not fully adjusted to their long run optimal values casting doubt on the long run equilibrium hypothesis copyright 2001 john wiley sons ltd

the effects of an increase in power rate on energy demand and output price in korean manufacturing sectors in korea price subsidies for industrial power are provided by the government in order to enhance industrial competitiveness and curb inflation however this repeatedly causes electricity shortages in the peak summer and winter seasons because of over consumption forcing a decline in the demand for electricity by raising power rates would thus help prevent a national blackout lowering dependence on foreign energy and reducing co2 emissions cost effectively this paper simulates the effects of a rise in power rate on demand for electricity and output price by estimating a restricted cost function in which the quantity of raw materials is set to its cost minimizing level jointly with an inverse supply relation for the top three electricity intensive manufacturing sectors the empirical results indicate that a 10 increase in electricity rate would result in 8 0 10 1 less demand across all three manufacturing sectors ceteris paribus the impact on output price is of little statistical significance in the basic metals sector while output price on average falls by 0 16 in the tv and communication equipment sector

inflation targeting regimes abstract this paper divides the monetary frameworks of countries that use an inflation target to define their monetary framework into three different regimes i full fledged inflation targeting ii implicit price stability anchor and iii inflation targeting lite the regimes are differentiated by the clarity and credibility of the commitment to the inflation target the revealed preference for different regimes is related empirically to cross country structural differences in economic and financial development policy implications of moving from one regime to another are drawn especially for emerging market countries aiming at full fledged inflation targeting

targeting nominal income growth or inflation within a simple new keynesian model emphasizing forward looking behavior of private agents i evaluate optimal nominal income growth targeting versus optimal inflation targeting when the economy is mainly subject to shocks that do not involve monetary policy trade offs for society inflation targeting is preferable otherwise nominal income growth targeting may be superior because it induces inertial policy making which improves the inflation output gap trade off somewhat paradoxically inflation targeting may be relatively less favorable the more society dislikes inflation and the more persistent are the effects of inflation generating shocks jel e42 e52 f58

inflation targeting as a means of achieving disinflation in this paper we take an analytical approach to examine possible adverse effects of the use of inflation targeting as a disinflation regime the idea is that a strict interpretation of an inflation target may preserve inflationary distortions after price stability is attained we show that such a policy not only creates a slump in output but may increase macroeconomic volatility substantially in a model in which wages are subject to a taylor staggering structure

real wages and the business cycle the objectives of this review are threefold 1 to characterize the empirical literature on the cyclical behavior of real wages 2 to identify the sources of the differences in results across studies and 3 to enumerate key factors that determine the cyclicality of real wages given a host of measurement and methodological issues drawing firm conclusions is difficult but several generalizations can be made the estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage composition effects play an important but complicated role as well

does exchange rate control improve inflation targeting in emerging economies abstract we investigate the role of exchange rates in inflation targeting emerging economies we give strong evidence that hybrid inflation targeting frameworks where exchange rate is managed deliver a stronger nominal anchor as they show better resistance to the 2007 2008 inflation shock

the relative stickiness of wages and prices i introduction a continuing challenge to macroeconomics is to explain how a purely nominal disturbance produces short term aggregate real effects in the classical paradigm in which wages and prices are perfectly flexible a positive nominal aggregate demand disturbance will cause nominal wages and output prices to rise in the same proportion leaving real wages unchanged thus neither employment nor output will be affected consequently many business cycle theories posit the existence of wage and or price stickiness to explain how nominal aggregate demand disturbances generate real macroeconomic effects according to these theories the failure of nominal wages or prices to fully adjust in the short run to purely nominal disturbances explains why shocks to aggregate demand will cause both employment and output to temporarily deviate from their natural rates the relative importance of wage and price stickiness in the transmission of nominal shocks to the real economy however remains an unsettled issue the purpose of this paper is to exploit evidence on the behavior of real wages in an attempt to assess the relative importance of these two sources of stickiness first consider models emphasizing sticky or slowly adjusting nominal wages 1 if for example output prices are free to adjust but nominal wages are sticky a positive aggregate demand shock will cause prices to rise and real wages to temporarily fall below market clearing levels the fall in real wages will stimulate employment and thus output as the aggregate demand shock induces movement along a stable labor demand curve consequently sticky wage models predict a negative correlation between aggregate demand shocks and real wages if on the other hand wages are flexible while output prices are sticky 2 aggregate demand disturbances and real wages will tend to be positively correlated in the short run in sticky price models imperfectly competitive firms may resist adjusting output prices in response to changes in demand perhaps due to menu costs instead increases in demand are met by corresponding increases in output this requires an increase in labor inputs which in turn requires an increase in the real wage rate if wages are flexible and the labor supply curve is positively sloped thus when prices are sticky but wages are flexible a positive aggregate demand shock is associated with an increase in real wages it may be that neither prices nor wages are fully flexible if prices and wages both exhibit stickiness we would expect real wages to be positively correlated or negatively correlated with aggregate demand shocks depending in large part on whether prices or wages are stickier thus knowledge of the direction of the short run response of real wages to aggregate demand disturbances would offer important evidence on the relative stickiness of nominal wages and output prices if all business cycle fluctuations are due solely to aggregate demand disturbances such evidence could be obtained by examining the cyclical behavior of real wages since regardless of the source of stickiness aggregate demand disturbances are positively correlated with employment and output countercyclical procyclical real wages would indicate that nominal wages are stickier more flexible than output prices indeed some consider the stylized fact of slightly procyclical real wages 3 to be an important challenge to models that emphasize wage stickiness for example bennett mccallum 1986 argues for the superiority of models with sticky output prices since if wage stickiness alone were responsible for the real effects of monetary actions with product prices adjusting flexibly then we should observe countercyclical movements in the real wage that we do not has recently been reconfirmed in a study by bils 1985 gregory mankiw 1987 107 has concluded the final and perhaps most serious problem with the unadorned nominal wage story is that real wages do not move over the business cycle as the theory predicts

decomposing real and nominal yield curves abstract inflation indexed and nominal yield curves capture investors expectations of real short rates and inflation as well as their required compensation for bearing liquidity inflation and real interest rate risk we estimate an affine term structure model that allows us to decompose real and nominal bond yields into these components and use the model to study the transmission of monetary policy the model decompositions imply that the federal reserve s announcements of lsaps lowered yields primarily by reducing real term premia changes in real term premia also account for the strong response of long term real forward rates to federal funds rate surprises

substitution possibilities for unpriced natural resources restricted cost functions for the canadian metal mining industry a bstract the effects of resource depletion on economic growth depend critically on the elasticities of substitution between non renewable natural resources and reproducible inputs estimation of the elasticities of substitution for natural resources has been hindered by the absence of data on their prices which results from the prevalence of vertical integration in natural resource industries in this paper we use the theory of restricted cost functions to develop a general procedure for estimating substitution possibilities for unpriced inputs estimation of the model with data for the canadian metal mining industry indicates that the elasticities of substitution for the natural resource metallic ore are equal to unity

monetary policy rules under heterogeneous inflation expectations this paper evaluates the role of inflation forecast heterogeneity in u s monetary policymaking the deviation between private and central bank inflation forecasts is identified as a significant explanatory factor behind the fed s monetary policy decisions a discretionary policy rule that includes the forecast deviation as an additional argument is estimated empirically for the period 1975 2009 covering the chairmanships of arthur burns george miller paul volcker alan greenspan and the beginning of ben bernanke s term by using inflation forecasts obtained from the federal open market committee s greenbook and the survey of professional forecasters and real time estimates of the output gap the estimated rule appears to provide a consistent description of the fed s policy during the sample period presenting an alternative perspective regarding the key drivers of the high inflation phase in the 1970s as well as of the successful volcker disinflation in the early 1980s and the gradual transition to a regime of lower inflation and high policy credibility that has increasingly characterized monetary policy over the past two decades jel e50 e52 e58

in search of a stylised fact do real wages exhibit a consistent pattern of cyclical variability the paper surveys the studies on the cyclical behaviour of real wages published from the twenties onwards the traditional simple neoclassical model of the labour market suggests that real wages tend to move countercyclically however from a theoretical viewpoint there are few reasons to expect this behaviour once the simple model is extended to account for imperfect competition uncertainty lagged responses or contracting between firms and workers empirical studies give different answers to the problem the contributions reviewed in the paper are arranged roughly in a chronological order the interwar period the postwar pre econometric studies the econometric work using aggregate data the evidence produced on the basis of longitudinal data the analyses of the shock responsiveness of real wages and finally the most recent papers attempting a reconciliation of the somewhat conflicting evidence derived from aggregate and panel data

political hierarchies and political shirking abstract we analyze how citizens can screen candidates for high political office in a political hierarchy in our model politicians differ in willingness to misuse discretionary powers of office those politicians willing to abuse the powers of office knaves can be induced in a hierarchy to reveal their type while in low office thus disqualifying themselves for advancement hierarchy s capacity for screening knaves out of high office depends on the conditions for reappointment to low office a seemingly perverse rule that reappoints shirking politicians can perform well to demonstrate an empirical application we analyze shirking in the house bank check bouncing scandal

should inflation targeting central banks respond to exchange rate movements abstract this paper examines whether it is optimal for inflation targeting central banks to respond to exchange rate movements the paper finds that exchange rate movements can provide a signal on the developments in the economy that the central bank cannot perfectly observe the results suggest that when the degrees of exchange rate pass through and international financial integration are high it is optimal for the central bank to pay more attentions to exchange rate movements these results however depend on two conditions 1 the ability of the central bank to observe the true exchange rate process and 2 the number of real frictions in the model economy

on measuring natural resource scarcity conclusions concerning trends in natural resource scarcity may depend critically on the choice of scarcity index unfortunately the prevalence of vertical integration in natural resource industries has hindered the use of some otherwise desirable scarcity measures in this paper duality theory is used to derive an econometric procedure for estimating one such measure the shadow price of the resource in situ empirical results for the canadian metal mining industry indicate that resource scarcity as measured by this shadow price has decreased substantially over time

what matters when the impact of ecb communication on financial market expectations this article analyses financial markets reaction to european central bank s ecb communication we apply a novel indicator that quantifies the contents of the ecb s introductory statements and allows disentangling ecb statements on prices the real and the monetary sector we provide evidence that it matters what issue the ecb is speaking about especially the ecb s statements on price developments represent important news to financial markets it also matters when the ecb affects markets communication drives maturities above 4 months