targeting inflation by constant interest rate forecasts this paper reviews the concept of constant interest rate inflation forecast cir targeting it stresses the time inconsistent nature of cir targeting and provides a new method for constructing cir forecasts consistently in the context of models with forward looking variables a dynamic new keynesian model with forward looking price setting is used as an illustration suggesting that the main reason for choosing a relatively long forecast targeting horizon lies in the monetary authorities objective to smooth interest rate movements as greater nominal and real stabilization is achieved at a relatively short inflation forecast targeting horizon

optimal policy in markov switching rational expectations models abstract in this paper we consider the optimal quadratic control problem of markov switching linear rational expectation models these models are general and flexible tools for modelling not only regime but also model or parameter uncertainty we show first how to find the solution of a markov switching linear rational expectation model based on this solution we then show how to apply dynamic programming to find the optimal time consistent policy and the resulting nash stackelberg equilibrium suitable modifications of the algorithm allow to deal with the non re case in which the policymaker and the private sector hold different beliefs or probabilities over regime change we also show how the optimisation procedure can be employed to obtain the optimal policy under commitment as an illustration we compute the optimal policy in a small open economy subject to stochastic structural breaks in some of its key parameters

united kingdom inflation targeting and the exchange rate the uk s monetary policy strategy is one of floating exchange rates and inflation forecast targeting with the targeted measure referring to consumer prices we consider whether it is welfare reducing to target inflation in the cpi rather than in a narrower index and the role of the exchange rate in the transmission of monetary policy actions to cpi inflation it is appropriate to model imports as intermediate goods rather than goods consumed directly by households this leads to a simpler transmission mechanism of monetary policy while also offering a sustainable explanation of the weakness of the exchange rate inflation relationship and making consumer price inflation an appropriate monetary policy target

the overvaluation of sterling since 1996 how the policy makers responded and why a large and sustained nominal appreciation in 1996 8 led to a serious and continuing overvaluation of sterling which has been associated with severe pressure on the manufacturing sector the policy makers had difficulty in understanding past and forecasting future movements of sterling they considered but rejected suggestions for foreign exchange market intervention and suggestions that interest rates should be set differently to reduce the overvaluation and relieve pressure on the tradable goods sector one reason was that the exchange rate might react to such decisions in an erratic way but if that is so the monetary framework needs to be revisited

trade union growth in ireland and the interdependence of the irish and united kingdom labor markets abstract this paper finds that the unemployment rate differential between ireland and the united kingdom is an important determinant of the rate of irish trade union growth

nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

dynamic responses to changing demand a model of the reallocation process in small and large municipalities in norway local government priorities between local services are analysed in a community preference model emphasizing income effects and demographic factors the model is built into a partia adjustment framework with endogenous speed of adjustment to study the dynamic responses of local governments to shifting demand the empirical analysis of the reallocation process separates between small and large municipalities in terms of population size serious sluggishness of the adjustment is documented with large municipalities experiencing stronger inertia than the small the small authorities have been able to respond more effectively to the restructuring pressure from demographic shift

monetary policy rules in theory and in practice evidence from the uk and the us given the large amount of interaction between research on monetary policy and its practice this article examines whether some simple monetary policy rules that have been proposed in the academic literature part of which has originated from within central banks provide a reasonable characterization of actual policy in the united kingdom and the united states the article finds the simple rule that describes best the actual us monetary policy is a speed limit rule with dynamics whilst for the uk it is a forward looking rule the simpler dynamics in the uk s monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

the effect of fringe benefits on employment fluctuations in u s automobile manufacturing the authors present a theoretical and empirical analysis of employment adjustment by u s automobile manufacturers the model allows for variable elasticities of substitution among labor and other inputs and between hours and workers they use total compensation as their measure of labor cost the authors labor effectiveness function has diminishing marginal returns to hours the speed of employment adjustment depends on the relative costs of straight time and overtime hours copyright 1991 by mit press

monetary policy under the labour government the first 13 years of the mpc this paper examines the performance of monetary policy under the new framework established in 1997 up to the end of the labour government in may 2010 performance was relatively good in the years before the crisis but much weaker from 2008 the new framework largely neglected open economy issues while the treasury s emu assessment in 2003 can be interpreted in different ways the new framework may have contributed to some extent to the eruption and depth of the financial crisis from 2008 but mon etary policy eventually responded in a bold and innovative way overall the design and operation of mon etary policy were much better than in earlier periods but there is room for significant further evolution

exchange rate pass through exchange rate volatility and exchange rate disconnect abstract this paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass through from changes in exchange rates to consumer prices exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables the paper shows the ingredients necessary to construct such an explanation for exchange rate volatility in addition to the presence of local currency pricing we need a incomplete international financial markets b a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized and c stochastic deviations from uncovered interest rate parity together it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals and disconnected from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals

simple monetary policy rules and exchange rate uncertainty abstract we analyze the performance and robustness of some common simple rules for monetary policy in a new keynesian open economy model under different assumptions about the exchange rate model adding the exchange rate to an optimized taylor rule that responds to cpi inflation gives only small improvements in terms of economic stability in most model configurations the taylor rule is also slightly more robust to uncertainty about the exchange rate model than are rules that respond to the rate of exchange rate depreciation our results thus indicate that the taylor rule is sufficient to stabilize a small open economy also under exchange rate model uncertainty

short run employment functions when the speed of adjustment depends on the unemployment rate a bstratacross industry and country comparisons have found the speed of adjustment in short run employment functions to be positively related to the rate of unemployment the present paper develops a time series model in which the reaction coefficient varies with unemployment and estimates it for the manufacturing sectors of the eight oecd countries for which suitable data are available the new model is non linear and is estimated using full information maximum likelihood procedures application of the log likelihood ratio test finds that the new vanable reaction coefficient model is superior to the fixed reaction coefficient model for the united states canada australia austria ireland and the united kingdom

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

monetary policy rules macroeconomic stability and inflation a view from the trenches i estimate a forward looking monetary policy reaction function for the federal reserve for the periods before and after paul volcker s appointment as chairman in 1979 using information that was available to the fomc in real time from 1966 to 1995 the results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods this contradicts the hypothesis based on analysis with ex post constructed data that the instability of the great inflation was the result of weak fomc policy responses to expected inflation a difference is that prior to volcker s appointment policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious drawing on contemporaneous accounts of fomc policy i discuss the implications of the findings for alternative explanations of the great inflation and the improvement in macroeconomic stability since then

cooperation productivity and profit sharing firm specific assets generate an ex post bargaining problem over surplus division and rational workers may collude to obtain a surplus share in nonpecuniary form through restriction of effort conversely profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring since productive effort yields positive externalities to workers under contractual surplus sharing in simultaneous tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium sized metalworking capitalist firms in west germany proxies for human capital and organizational factors were included

do social protection transfers reduce poverty and vulnerability to poverty in pakistan household level evidence from punjab empirical studies in different developing countries have investigated the impact of social protection sp on ex post poverty however few studies analysed the impact of sp on ex ante vulnerability to poverty vtp this paper contributes to the literature by evaluating the impact of sp on vulnerability to poverty vtp and poverty rates among households in the punjab province of pakistan a hierarchical modelling approach is used to analyse the multiple indicator cluster survey mics 2011 data of about 90 000 households matching methods and simultaneous endogenous switching regression are used to control for potential selection bias and estimate average treatment effects our results show that sp has a positive impact in reducing household poverty and vtp but this impact is mainly driven by a short term flood relief cash transfer programme pension of government employees and households regular purchase from utility store network

beggar thy neighbour exchange rate regime misadvice from misapplications of mundell 1961 and the remedy economists invoke mundell 1961 in arguing for the general policy of a flexible exchange rate regime as a means of restoring equilibria after shocks but there is a discrepancy between the intent of the general policy and attempts at its implementation as identified by specific changes in exchange rates when we assemble the set of specific changes called for by distinct economists operating as advocates for individual countries these are uniformly in the form of beggar thy neighbour advice i e travesties of objectively identifying disequilibria and a menace to international cooperation and peace this paper traces the unintended travesties to problems of complexity and uncertainty problems that implicitly are assumed absent in mundell 1961 rendering the situation so simple that equilibria are transparent the problems remained essentially unaddressed when economists extended mundell 1961 via expected utility theory since this theory also ignores the impossibility of maximising and the complexities of central bankers private firms and others in doing the evaluation stage in reaching decisions the problems can be overcome by modelling within skat the stages of knowledge ahead theory this paper points to experimental evidence in support of the view that under all sorts of disequilibrating shocks currency unions outperform flexible currencies by eliminating the inefficiencies generated by exchange rate uncertainty

monetary policy and the exchange rate the british monetary authorities began the decade with a commitment to a policy of decelerating monetary growth as the centrepiece of their economic strategy a policy of outright benign neglect towards the exchange rate was a stated accompaniment by the end of 1990the centrepiece of policy was adherence to the exchange rate mechanism of the ems albeit initially within the wider band option although the commitment to counter inflationary policy objectives and to a nominal anchor as a means of achieving these remained the same the anchor had been changed at the intermediate target level there had been a revolution

the role of the exchange rate in monetary policy rules for a country that chooses not to permanently fix its exchange rate through a currency board or a common currency or some kind of dollarization the only alternative monetary policy that can work well in the long run is one based on the trinity of i a flexible exchange rate ii an inflation target and iii a monetary policy rule while not often put into this threepart format the desirability of such a monetary policy in an open economy is in my view the clear implication of three corresponding strands of recent monetary research i research on fixed exchange rates regimes including the influential 1995 article the mirage of fixed exchange rates by maurice obstfeld and kenneth rogoff and the many analyses of the breakdown of fixed exchange rate regimes in the late 1990 s ii research on the practical success with inflation targeting by ben bernanke et al 1999 and iii research on the benefits of simple monetary policy rules see e g taylor 1999a this clear policy implication however does not end the debate about how exchange rates should be taken into account in formulating monetary policy even if one excludes capital controls and sterilized exchange market intervention from consideration because they are not effective or attractive ways to de link exchangerate movements from the domestic interest rate a crucial question remains how should the instruments of monetary policy the interest rate or a monetary aggregate react to the exchange rate should policymakers avoid any reaction and focus instead on domestic indicators such as inflation and real gdp or is the rule of thumb that a substantial appreciation of the real exchange rate furnishes a prima facie case for relaxing monetary policy as characterized by obstfeld and rogoff 1995 p 93 a better monetary policy rule or perhaps policymakers should heed the obstfeld rogoff warning that substantial departures from ppp purchasing power parity in the short run and even over decades make such a policy reaction to the exchange rate undesirable more generally if one accepts the trinity concept of monetary policy in an open economy then what is the role of the exchange rate in the monetarypolicy rule

buffer stocks and labor demand further evidence this paper presents estimates of a multivariate flexible accelerator model of labor demand hours and the number of production workers which shows that stocks of finished goods unfilled orders and materials inventories have significant impacts upon labor demand univariate time series models are used to capture expectations of the determinants of desired stocks new orders real wages and real raw materials prices and these magnitudes are found to follow a random walk without drift expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs real wage forecasting errors are found to be important for hours demand

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

optimal horizons for inflation targeting abstract in this paper we investigate the problem of selecting an optimal horizon for inflation targeting in the united kingdom since there are two key ways of thinking about an optimal horizon we look at optimal horizons for both of these interpretations in addition to see whether our results are robust in the face of model uncertainty we compute optimal horizons for two different models with divergent structural and dynamic characteristics

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

programs for the poorest learning from the igvgd program in bangladesh abstract this article examines a program that seeks to reach bangladesh s hardcore poor by combining elements of livelihood protection food aid with livelihood promotion skills training and microfinance bangladesh rural advancement committee s income generation for vulnerable group development program has deepened the outreach of its poverty reduction activity and achieved impressive results detailed local level fieldwork revealed however that program practice differed markedly from program plans this is found to have important implications for both future program design and the understanding of who does not benefit from such innovative programs we conclude that while such programs mixing livelihood protection and promotion should be a major focus for anti poverty strategies there will remain a role for more traditional social welfare schemes

how do exchange rates co move a study on the currencies of five inflation targeting countries abstract this paper does three things first it explores the type of asymmetry in exchange rate correlation for five inflation targeting countries we show their currencies co move more closely with the currencies of some influential foreign countries during joint appreciations than joint depreciations against a world currency second it establishes empirically the linkage between interest rate differentials and exchange rate correlation we find evidence that both widening and narrowing interest rate differentials will reduce the correlation third it proposes a new version of the asymmetric dynamic conditional correlation model the model proves to be capable of providing great insight into the two issues investigated

inflation targeting during asset and commodity price booms the recent global economic crisis originated in the midst of a commodity price boom that had triggered sharp increases in inflation in many world countries the crisis also came in the context of a rally in asset prices and large domestic imbalances in the united states this paper uses a small open economy dynamic stochastic general equilibrum dsge model to design the correct monetary policy response to a protracted supply shock and examines how that response would change when many become credit constrained like in a credit crunch and when spending of those who can still borrow becomes very sensitive to the interest rates because of overleveraging using a version of the model with kalman learning the paper also evaluates the implications of a loss of target credibility showing how rules must be adjusted when the authorities commitment to the inflation target has been eroded the appropriate response to future evolutions of the price of oil including to large downward corrections from the current level is also evaluated copyright 2010 oxford university press

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

solving for optimal simple rules in rational expectations models this paper presents algorithms that solve for optimal simple monetary policy rules in rational expectations models with precommitment and discretion the algorithms are applied to the models in fuhrer j money credit banking 29 1997 214 clarida et al j econ lit 37 1999 1661 and rudebusch econ j 112 2002 402 to examine the efficiency properties of operational policy rules we show that optimized taylor type rules preform well in these models but that aside from the fuhrer moore model this result is sensitive to whether the central bank can respond to current period shocks taylor type rules that are operational in the sense that they do not respond to current period information are found to be highly inefficient in the rudebusch model and in the clarida et al 1999 model

inflation targeting as constrained discretion this paper suggests a simple framework for modeling inflation targeting as constrained discretion although it is widely claimed that inflation targeting has been successful in maintaining low and stable inflation an announcement of an inflation target does not by itself mean that central bankers are precommiting to how they conduct monetary policy in comparison to the assumption of many theoretical studies central banks conduct monetary policy in a discretionary fashion and rarely precommit to a rule in reality therefore the central bank in this paper is modeled as discretionary yet faced with a constraint that an average of future inflation over a certain horizon should be kept on or near the preannounced target level it is natural to add this constraint to the central banker s optimization problem since inflation targeting involves one way or another an evaluation of the performance over a certain horizon so it is argued that the better outcome of inflation targeting does not come from a commitment but from constrained discretion this paper also sheds some light on optimal targeting horizon

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

the demand for money a variable adjustment model abstract standard models of the demand for money employ the partial adjustment framework in which the adjustment parameter is specified as a constant over the entire sample period this paper relaxes this assumption the adjustment parameter is specified as a function of the short term interest rate the variable adjustment model is estimated using us quarterly data spanning the 1959 iii 1983 iv period and is found to reject the constant partial adjustment model

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

how forward looking is the fed direct estimates from a calvo type rule we estimate an alternative type of monetary policy rule according to which the central bank targets a discounted infinite sum of expected inflation and output gaps empirical results suggest that the fed has a mean forward horizon of 4 to 8 quarters

monetary policy for an open economy an alternative framework with optimizing agents and sticky prices the new open economy macroeconomics seeks to provide an improved basis for monetary and exchange rate policy through the construction of open economy models that feature rational expectations optimizing agents and slowly adjusting prices of goods this paper promotes an alternative approach for constructing such models by treating imports not as finished consumer goods but rather as raw material inputs to the home economy s productive process this treatment leads to a clean and simple theoretical structure that has some empirical attractions as well a particular small economy model is calibrated and its properties exhibited primarily by means of impulse response functions the preferred variant is shown to feature a pattern of correlations between exchange rate changes and inflation that is more realistic than provided by a more standard specification important recent events are interpreted in light of the alternative models

inflation persistence and robust monetary policy design this paper examines the performance of optimised interest rate rules when there is uncertainty about a key determinant of the monetary transmission mechanism namely the degree of persistence characterising the inflation process the paper focuses on the euro area and utilises two variants of an estimated small scale macroeconomic model featuring distinct types of staggered contracts specifications which induce quite different degrees of inflation persistence the paper shows that a cautious monetary policy maker is well advised to design and implement interest rate policies under the assumption that inflation persistence is high when there is considerable uncertainty about the prevailing degree of inflation persistence such policies are characterised by a relatively aggressive response to inflation developments and exhibit a substantial degree of inertia

maintaining price stability how long is the medium term using a small estimated forward looking model of the euro area economy this paper analyses the determinants of the optimal monetary policy horizon for maintaining price stability first the optimal policy horizon for a price level objective is generally longer than that for an inflation objective second the policy horizon becomes longer the greater the weight on other objectives like minimising output gap and interest rate variability third the optimal policy horizon is shorter the higher the degree of forward lookingness in the economy and the greater the slope of the phillips curve finally even if society cares only about inflation stabilisation it often pays to give the central bank a price level objective provided the horizon is optimally chosen to be somewhat longer

the timeless perspective vs discretion theory and monetary policy implications for an open economy abstract compared to the standard phillips curve an open economy version that features a real exchange rate channel leads to a markedly different target rule in a new keynesian optimizing framework under optimal policy from a timeless perspective tp the target rule involves additional history dependence in the form of lagged inflation the target rule also depends on more parameters notably the discount factor as well as two is and two phillips curve parameters stabilization policy in this open economy model is no longer isomorphic to policy in a closed economy because of the additional history dependence in an open economy target rule price level targeting is no longer consistent with optimal policy the gains from commitment are smaller in economies where the real exchange rate channel exerts a direct effect on inflation in the phillips curve

monetary policy rules for an open economy the most popular simple rule for the interest rate due to taylor 1993a is meant to inform monetary policy in economies that are closed on the other hand its main open economy alternative i e ball s 1999 rule based on a monetary conditions index mci may perform poorly in the face of specific types of exchange rate shocks and thus cannot offer guidance for the day to day conduct of monetary policy in this paper we specify and evaluate a comprehensive set of simple monetary policy rules that are suitable for small open economies in general and for the united kingdom in particular we do so by examining the performance of a battery of simple rules including the familiar taylor rule and mci based rules a la ball this entails comparing the asymptotic properties of a two sector open economy dynamic stochastic general equilibrium model calibrated on united kingdom data under different rules we find that an inflation forecast based rule ifb i e a rule that reacts to deviations of expected inflation from target is a good simple rule in this respect when the horizon is adequately chosen adding a separate response to the level of the real exchange rate contemporaneous and lagged appears to reduce the difference in adjustment between output gaps in the two sectors of the economy but the improvement is only marginal importantly an ifb rule with or without exchange rate adjustment appears robust to different shocks in contrast to naive or ball s mci based rules

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

evaluating the long run impact of an innovative anti poverty programme evidence using household panel data using a four round panel data set from the first phase of the challenging the frontiers of poverty reduction targeting the ultra poor cfpr tup programme of brac we investigate whether a one off transfer of livestock assets improves well being of the very poor women in bangladesh programme impact is assessed on a wide range of monetary and nonmonetary measures of well being using difference in difference dd as well as matching methods we find significant positive long term impact on food security household savings assets and participation in microfinance participant women are less likely to be in distress occupation and more into self employment however the long term effect is much smaller for most outcomes when compared to short and medium run impacts we conclude by discussing the significance of the institutional and regional context for the observed time path of estimated programme effect

hybrid inflation and price level targeting in this paper we investigate the properties of monetary regimes that combine price level and inflation targeting we look both at an optimal control and at a simple rule characterisation of these regimes we derive numerical results by modelling the economy as a small scale open economy re model calibrated on uk data we conclude that 1 the relative merits of price level and inflation targeting as well as of mixes of these two depend on particular modelling and policy assumptions and 2 these merits do not always change gradually and or monotonically as we move from one regime to another

should central banks target consumer prices or the exchange rate in this article we consider two arguments suggesting that monetary authorities in an open economy should target output price inflation and not consumer price inflation the first suggests that output price inflation corresponds to the distortions caused by price rigidity the second shows how policy rules involving consumer price inflation can induce instability because of the feedback from interest rates to consumer price inflation via the exchange rate we examine both arguments in the context of an open economy which is subject to a range of shocks we show that both arguments remain robust but that there is a case for including a terms of trade or real exchange rate gap term in the authorities welfare function alongside the output gap and output price inflation

intertemporal rules with variable speed of adjustment an application to u k manufacturing employment this paper presents a procedure to estimate intertemporal dynamic decision rules where adjustment costs are assumed to be variable the estimation is based on the euler equation for purposes of illustration the authors concentrate on an employment function for the u k manufacturing sector where they find very significant effects of some variables that influence adjustment costs finally they point out an empirical result that has interesting implications when evaluating tests of efficient bargain models copyright 1989 by royal economic society

excess labor and the business cycle this paper compares the medoff fay estimates of labor hoarding during troughs which are based on data from manufacturing plants with aggregate estimates of excess labor on hand the two sets of estimates seem consistent which provides a strong argument in favor of the excess labor hypothesis this is one of the few examples in macroeconomics where a hypothesis has been so strongly confirmed using detailed micro data this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abs this abstract was borrowed from another version of this item

employment adjustment in uk manufacturing this analysis differs from previous studies of labor demand in its explicit inclusion of the costs to the firm of adju sting its workforce these costs include institutional factors such a s employment protection legislation and unions and market factors su ch as the degree of slack in the labor market two questions are addr essed what is the quantitative impact of these forces and does their inclusion improve the fit of a labor demand function the results sh owed these factors to have a strong influence on the rate of hiring f iring and to improve significantly on conventional labor demand funct ions copyright 1988 by royal economic society

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

an examination of the differential patterns in the cyclical behaviour of the employment hours and wages of labour of different skills british mechanical engineering 1963 1978 this paper compares the cyclical behaviour of the employment hours and wage rates of skilled semi skilled and unskilled labour in british mechanical engineering from 1963 to 1978 figure 1 shows the variation of the employment share of skilled and non manual male labour in relation to the cyclical fluctuations during the same period where the cycle measure employed is the percentage deviation of output from its trend value a casual inspection reveals that the percentage of skilled labour in manual employment reaches peaks in the 1967 1972 and 1977 recessions while falling to lows in the 1966 1969 1970 and 1974 booms in similar fashion the percentage of non manual labour in total employment attains a peak in 1972 and 1977 and falls to a low in 1974 1975 these observations indicate that there is a differential cyclical response of the employment of different types of labour and suggest that skilled and non manual employment fluctuate relatively less the fixity and heterogeneity of labour was first highlighted by oi 1962 and becker 1962 the introduction of hiring firing and training costs which vary among different groups of workers implies that the employment behaviour of these groups will differ markedly over the course of the business cycle i e the stock of some groups of labour is relatively fixed in the short run we will be referring to this as the fixed labour hypothesis it applies especially to skilled workers because they usually embody more specific on the job training than lower skill groups during short run cyclical fluctuations we expect that the adjustment in the employment of skilled workers will be slower than that of lower skill groups and if one identifies non manual labour with relatively higher skill than manual labour the same employment behaviour will be expected for non manual labour the examination of the relative employment variation of skilled labour is useful in the discussion of the aggregate employment function for which research has led to the empirical finding of short run increasing returns to labour the explanation usually given to this is that there are short run adjustment costs which prevent the firm from adjusting the employment of skilled and non manual labour instantaneously with respect to cyclical demand shifts however excluding the work of rosen 1968 there has not been any direct empirical testing of such a hypothesis another implication of the fixed labour hypothesis concerns the short run behaviour of the hours of work of skilled labour as the most substantial

bounded interest rate feedback rules in continuous time this paper analyzes the dynamic consequences of interest rate feedback rules in a flexible price model where money enters the utility function two alternative rules are considered based on past or predicted inflation rates the main feature is to consider inflation rates that are selected over a bounded time horizon we prove that if the central bank s forecast horizon is not too long an active and forward looking monetary policy is not destabilizing the equilibrium trajectory is unique and monotonic this is an advantage with respect to active and backward looking policies that are shown to lead to a unique but fluctuating dynamic

failure vs displacement why an innovative anti poverty program showed no net impact in south india abstract we analyze a randomized trial of an innovative anti poverty program in south india part of a series of pilot programs that provide ultra poor households with inputs to create new sustainable livelihoods often tending livestock in contrast with results from other pilots we find no lasting net impact on income or asset accumulation in south india we explore concerns with program implementation data errors and the existence of compelling employment alternatives the baseline consumption data contain systematic errors and income and consumption contain large outliers steps to address the problems leave the central findings largely intact wages for unskilled labor rose sharply in the area while the study was implemented blunting the net impact of the intervention and highlighting one way that treatment effects depend on factors external to the intervention itself such as broader employment opportunities

what weight should be given to asset prices in the measurement of inflation besides the theoretical alchian klein 1973 case for including asset prices in measures of inflation there is also a practical case that some asset prices notably housing are closely associated with the main trends in inflation and via bubbles and busts with output disturbances attempts to use the pure alchian klein methodology in practice give excessive weight to unstable asset prices but there are more appropriate weighting schemes derived either from econometrically measured relationships or from final expenditures either way the statistical treatment of housing is crucial and is being discussed in eurostat

no longer trapped promoting entrepreneurship through cash transfers to ultra poor women in northern kenya we examine the short to medium run impacts of the rural entrepreneur access program a poverty graduation program that promotes entrepreneurship among ultra poor women in arid and semi arid northern kenya a context prone to poverty traps the program relies on cash transfers rather than asset transfers in addition to business skills training business mentoring and savings participation in each of the program s three rounds was randomly determined through a public lottery in the short to medium run we find that the program has a positive and significant impact on income savings and asset accumulation similar to more traditional poverty graduation programs that rely on asset transfers

targeting inflation by forecast feedback rules in small open economies abstract we argue that in practice the inflation targeting strategy can be approximated by the interest rate responding to the unchanged interest rate forecast of inflation a method is developed to derive unchanged interest rate forecasts in forward looking models and evaluate the performance of the policy rule in an optimizing new keynesian model due to monacelli european central bank working paper series 227 estimated on uk data we find that the policy rule is less prone to generate a determinate rational expectations equilibrium if based on an unchanged interest rate compared to the rule consistent forecast both rules approximate the optimal commitment policy if the central bank attaches sufficient weight to inflation as opposed to output gap stabilization the optimal forecast feedback horizon is close to a year and a half and is largely independent of how much the central bank prefers inflation to output gap stability

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

the marginal rate of corruption in public programs evidence from india abstract optimal fiscal policy depends on the marginal benefits of public spending in developing countries corrupt officials often embezzle funds so optimal policy should reflect marginal corruption we analyze marginal corruption in the context of a statutory wage increase in india s employment guarantee scheme strikingly workers received none of the increase even though initially they were on average overpaid the data are inconsistent with theories of voice in which the threat of complaints limits corruption but consistent with theories of exit in which outside options in the private sector limit how much rent officials can extract

how does contract design affect the uptake of microcredit among the ultra poor experimental evidence from the river islands of northern bangladesh abstractthis study examines the demand of microcredit among ultra poor households in northern bangladesh we implemented a field experiment to identify what type of credit is best suited to their demand we found that the uptake rate by the ultra poor is the lowest for regular small cash credit followed by in kind credit we also found that the ultra poor are significantly more likely to join a microcredit programme than the moderately poor if a grace period with longer maturity is attached to a large amount of credit irrespective of whether the credit is provided in cash or in kind

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

costly adjustment under rational expectations a generalization this note provides a generalization of the standard adjustment cost rational expectations model due to sargent 1978 which in addition to the cost of changing the level of the decision variable also allows for the cost of altering the speed with which decisions are changed it establishes the existence of a unique stable solution for this more general model derives an explicit solution for the underlying decision problem and provides a necessary order condition for identification of the structural parameters the note also contains an application of the model to the determination of employment in the u k coal industry over the 1956 83 period copyright 1991 by mit press

substitution and dropout bias in social experiments a study of an influential social experiment this paper considers the interpretation of evidence from social experiments when persons randomized out of a program being evaluated have good substitutes for it and when persons randomized into a program drop out to pursue better alternatives using data from an experimental evaluation of a classroom training program we document the empirical importance of control group substitution and treatment group dropping out evidence that one program is ineffective relative to close substitutes is not evidence that the type of service provided by all of the programs is ineffective although that is the way experimental evidence is often interpreted

dynamic inconsistencies counterfactual implications of a class of rational expectations models a number of recent papers have developed dynamic macroeconomic models that incorporate rational expectations and optimizing foundations while the theoretical motivation behind these models is sound the dynamic implications of many of the specifications that assume rational expectations and optimizing behavior can be seriously at odds with the data for both inflation and real side variables exhibit gradual and hump shaped responses to real and monetary shocks for models that are intended for monetary policy analysis these dynamic shortcomings should be considered quite serious when monetary policy has only short run effects on real variables the inability to approximately capture the short run responses of inflation or real variables to policy shocks makes a model unsuitable for policy analysis this paper identifies a simple feature common to many dynamic specifications for prices and real variables that causes the problem the paper also discusses several potential solutions to the problem including alterations to the expectations assumption to the order of differencing implicit in the model and to the underlying behavioral assumptions this abstract was borrowed from another version of this item

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