adverse selection in asset markets theory and evidence from the indian market for cows dairy cows cycle through periods where their quality is more observable the milking phase and where their quality is less observable the dry phase this variation in quality observability creates the potential for an adverse selection problem i develop a theoretical model of trade in dry and milking cows and find empirical evidence consistent with the adverse selection theory in particular dry animal prices fall less in response to negative shocks relative to milking animal prices which is consistent with the model s prediction that negative shocks actually help the dry animal market by pushing more high quality owners to sell

a model of the used car market with lemons and leasing this article extends kim s 1985 model of the used car market with asymmetric information to examine the possible impacts of leasing and certified pre owned cpo programs on the average quality of traded used cars in the market the author assumed that a consumer can buy or lease a new car or he she can buy a used or a cpo car while like kim 1985 the author assumed that the quality of a car depends on the maintenance level the maintenance level in this model is chosen when a car is still a new car i e after the warranty ends the model implied that the average quality of traded used cars can be either higher or lower than the average quality of nontraded used cars the study also found that leasing and cpo have substantially improved the information mechanism between buyers and sellers of used cars which in turn has helped reduce adverse selection and improved the average quality of traded used cars in the market

designing monetary policy when unemployment persists this paper investigates how unemployment persistence affects the optimal delegation of monetary policy to an independent central banker cb two opposing forces are shown to be at work with more persistence the government s incentive to stabilize the economy is greater but if the cb is forward looking its incentive to create inflation surprises is also greater we show that owing to the second effect the government may wish not to delegate at all unlike the case where there is no persistence in the event that the government does delegate the paper identifies conditions under which either effect dominates in the government s choice of conservatism of the cb we compare delegation to discretion and precommitment using a diagrammatic approach that may be of independent interest we also present some preliminary empirical evidence on the cross country relationship between unemployment persistence and inflation that appears consistent with the model s predictions

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

empirical evidence on inflation expectations in the new keynesian phillips curve abstract we review the main identification strategies and empirical evidence on the role of expectations in the new keynesian phillips curve paying particular attention to the issue of weak identi

is global social welfare increasing a critical level enquiry abstract we assess whether global social welfare has improved in the last decades despite or because of the substantial increase in global population we use for this purpose a relatively unknown but simple and attractive social evaluation approach called critical level generalized utilitarianism clgu clgu posits that social welfare increases with population size if and only if the new lives come with a level of living standards higher than that of a critical level despite its attractiveness clgu poses a number of practical difficulties that may explain why the literature has left it largely unexplored we address these difficulties by developing new procedures for making partial clgu orderings the headline result is that we can robustly conclude that world welfare has increased between 1990 and 2005 if we judge that lives with per capita yearly consumption of more than 1 248 necessarily increase social welfare the same conclusion applies to sub saharan africa if and only if we are willing to make that same judgment for lives with any level of per capita yearly consumption above 147 otherwise some of the admissible clgu functions will judge the last two decades increase in global population size to have lowered global social welfare

optimal inflation targets conservative central banks and linear inflation contracts comment inflation targeting regimes like those of new zealand canada the united kingdom and sweden are interpreted as having explicit inflation targets and implicit employment targets without employment persistence an inflation target conservative central bank eliminates the inflation bias mimics an optimal inflation contract and dominates a rogoff weight conservative central bank with employment persistence a state contingent inflation bias and a stabilization bias also arise a constant inflation target and a constant inflation contract are still equivalent a state contingent inflation target combined with a weight conservative central bank can achieve the equilibrium corresponding to an optimal rule under commitment copyright 1997 by american economic association

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

the non optimality of proposed monetary policy rules under timeless perspective commitment abstract in a near canonical forward looking model the timeless perspective form of commitment typically provides outcomes that are on average superior to those resulting from discretion the specific condition that appears in the literature is however not optimal from the relevant perspective

optimal anti inflation programs in semi industrialized economies orthodox versus heterodox policies abstract the paper characterizes the optimal time consistent anti inflation program in a small open semi industrialized economy when policy makers choose the rate of exchange rate crawl the rate of change of fiscal spending and a wage and price control parameter to minimize deviations of output and inflation the optimal program involves a rapidly decelerating rate of crawl a sharp reduction in spending and a short initial period of wage and price controls the paper also assesses the importance of controls in helping to reduce the output loss associated with fighting inflation

reconciling the wage curve and the phillips curve the wage curve is the negative relationship that links wage levels to the unemployment rate it fits accurately with modern non competitive labour market models but goes against a phillips curve modelling because the latter ties wage growth to the unemployment rate in this article we present a comprehensive review of these non competitive models highlighting recent contributions that try to eliminate the possible gap that exists between the concepts of the wage curve on the one hand and the phillips curve on the other copyright blackwell publishers ltd 2005

revenue management for durable goods using trade ins with certified pre owned options abstract the economics research suggests that firms can use trade ins as a revenue management device for price discrimination between new and replacement buyers of durabprle goods offering different prices to different groups of customers creates a market segmentation effect this study examines such an effect by considering trade ins and certified pre owned options for a durable goods firm where certified pre owned cpo represents the used goods market generated from the return flow of trade in transactions the optimal pricing and or trade in rebate is determined and the strategic choice between the two options is examined an analytical model is developed that incorporates the key durable goods features into model formulation specifically the deterioration rate or durability in a reverse measure and the variation in quality of the used goods our research findings indicate that i the magnitude of trade in rebates increases with the deterioration rate and quality variation ii the segmentation effect outweighs the cannibalization effect when the deterioration rate is moderately high iii the strategic choice of trade ins and cpo options is critically dependent on these two features and iv the majority of profit improvement is generated from trade in provisions although the cpo option can serve as a second profit boosting device

monetary policy trend inflation and the great moderation an alternative interpretation with positive trend inflation the taylor principle does not guarantee a determinate equilibrium we provide new theoretical results on determinacy in new keynesian models with positive trend inflation and new empirical findings on the federal reserve s reaction function before and after the volcker disinflation to find that i while the fed likely satisfied the taylor principle before volcker the us economy was still subject to self fulfilling fluctuations in the 1970s ii the us economy switched to determinacy during the volcker disinflation and iii the switch reflected changes in the fed s response to macroeconomic variables and the decline in trend inflation jel e12 e23 e31 e32 e52

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

the new keynesian phillips curve revisited abstract several authors have questioned the evidence claimed by gali and gertler 1999 and gali et al 2001 that a hybrid version of the new keynesian phillips curve approximates european and us inflation dynamics quite well we re examine the evidence using the vector autoregressive framework and likelihood based methods paying particular attention to the stationary and nonstationary and possibly cointegrated nature of variables involved our results show that the exact as well as the inexact form of the hybrid nkpc are clearly at odds with the european data on the other hand gali and gertler 1999 finding that the inexact hybrid nkpc is a good first approximation to the us inflation dynamics seems less at odds with the data however the assumption of the model that the stochastic term forms a sequence of innovations may be problematic as we find indication of autocorrelation in the estimated residuals the exact form of the hybrid nkpc is firmly rejected by the us data

a direct test of the lemons model the market for used pickup trucks of the implications of models of markets with asymmetric information in the seminal paper on markets with asymmetric information george akerlof 1970 pointed out two possible outcomes that may occur where sellers have better information about the quality of products than do buyers one possibility is that bad products will drive out good products if buyers cannot distinguish quality until after the purchase has been made there will be no incentive for sellers to provide good quality products and the average quality in the market will decline in the case of cars an often cited example of this phenomenon owners who discover that they have a lemon will attempt to sell it in the used car market to an unsuspecting buyer the owner of a creampuff will not sell his car since it is indistinguishable from a lemon to buyers and must therefore sell for the price of a car of average quality the effect of quality uncertainty is to reduce the volume of transactions in the used car market below the socially optimal level a second possibility suggested by akerlof is that institutions may develop to counteract the effects of quality uncertainty warranties and brand names can be used to give the buyer some assurance of quality these institutions may prevent good products from being driven from the market but they will

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

selection and monetary non neutrality in time dependent pricing models for a given frequency of price adjustment monetary non neutrality is smaller if older prices are disproportionately more likely to change selection for the age of prices provides a complete characterization of price setting frictions in time dependent models selection for older prices is weaker and non neutralities are larger if the hazard function of price adjustment is less strongly increasing selection is weaker if there is heterogeneity in price stickiness finally selection is weaker if durations of price spells are more variable in particular the taylor 1979 model exhibits maximal selection for older prices whereas the calvo 1983 model exhibits no selection

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

solution and estimation of re macromodels with optimal policy macro models of monetary policy typically involve forward looking behavior except in rare circumstances we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium this paper summarizes a few useful methods and shows how they can be combined with a kalman filter to estimate the deep model parameters with maximum likelihood simulations of a macro model with staggered price setting interest rate elastic output and optimal monetary policy illustrate the properties of this estimation approach

looking at the population problem through the prism of heterogeneity welfare and policy analyses upon introducing heterogeneity and dynamics into a model of the demand for children a problem of optimal population is defined and analyzed it is shown that from the perspective of social welfare better educated individuals produce too few children while less educated individuals produce too many children and all individuals invest too little in the education of their children the impact of several policy tools geared at addressing the population problem is investigated in particular how child allowances and other tax subsidy policies can be harnessed to enhance welfare and how and why early childhood education programs can mitigate the population problem

quantitative goals for monetary policy a quantile regression approach a recent paper by fatas et al 2006 indicates that formal monetary policy targets exchange rate money supply or inflation targets palpably decrease inflation in a sample of 40 countries the authors employ various least squares estimations which pick up the conditional average effect however there is wide inflation variability in the authors sample thus formal targets could have very different effects in high and low inflation countries accordingly we utilize the technique of quantile regression a method frequently used in labour economics we find in a sample of low and moderate inflation countries that formal targets exert no significant impact on low inflation nations this result is important for debates over formal targets such as whether the united states should adopt an inflation target there are costs and benefits in having formal targets and finding that targets do not decrease inflation when it is already moderate is an important piece of information to consider

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

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

population consumption and resources ethical issues abstract this article is about the concept of optimum population and consumption even though it is primarily concerned with foundational issues the various ideas that have been discussed in the literature are tested in the context of economic models with limited resources it is argued that broadly speaking existing theories of optimum population and consumption are variants of average and what is often termed classical utilitarianism respectively both classes of theories are shown to have deficiencies in great measure because of their reliance on a defective concept of personhood it is also argued that contractual theories are of little use because potential people as opposed to future people cannot be parties to any contract a generation relative ethics is developed and is put to work in an overlapping generations model it is shown that generation relative ethics even when it is a variant of classical utilitarianism can prescribe a considerably lower population than classical utilitarianism

institutional arrangements for monetary policy when output is persistent a discretionary monetary policy gives rise to a constant average inflation bias a state contingent inflation bias and a stabilization bias when output is persistent the paper considers institutional arrangements contracts for central banks that remove these policy imperfections the average and state contingent inflation biases can be removed by directing the central bank to target the growth of nominal income and appoint a central banker with a specific relative weight attached to output stabilization an alternative to this institutional solution is to direct central banks to aim for a feasible output target although this would remove the inflationary biases the government must appoint a liberal as opposed to conservative central banker in order to implement optimal stabilization

speed limit policies the output gap and optimal monetary policy in a standard new keynesian model a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal timeless perspective precommitment policy by stabilizing output gap changes the central bank imparts inertia into output and inflation that is absent under pure discretion even a fully optimizing i e non myopic central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting this abstract was borrowed from another version of this item

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

output effects of a tariff under flexible exchange rates abstract a tariff s impact on output is shown to depend on the asset market structure if foreigners do not hold the domestic asset as is generally assumed in the previous literature the tariff induced current account surplus creates a large enough currency appreciation that demand for domestic output falls when foreigners hold the domestic asset the current account surplus results in an international transfer of assets which allows a smaller currency appreciation the more similar are asset preferences across countries the smaller is the appreciation and therefore the greater is the likelihood that domestic output will increase

counterinflationary policy in a unionised economy with nonsynchronised wage setting a model of the determination of wages and employment in a unionised economy with nonsynchronised wage setting is presented in this paper it is shown that a monetary deflation can lead to prolonged unemployment even though the unions act rationally and with full information about the change in policy the model generates a statistical phillips curve in which the rate of change of money wages depends on the anticipated growth rate of the money supply and on disequilibrium unemployment conventional incomes policies are shown to have desirable social effects but run counter to the perceived self interest of the trade unions and are therefore likely to be resisted taxes on wage increases have desirable long run effects but do not appear able to reduce the transitional unemployment costs of monetary deflation

optimal monetary policy and the role of hybrid inflation price level targets this study investigates the role of hybrid inflation price level targets as a solution to the well known stabilization bias problem that arises under discretionary policies the analysis shows that social welfare will be improved by employing a weighted average of inflation and price level as one of the central bank s target variables in addition to the output gap growth target the reason is that imposing the optimal hybrid target will reduce inflation variability in a highly efficient way in particular the optimal hybrid regime outperforms other previously suggested regimes when the degree of inflation persistence is moderate

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

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

inflationary rigidities and orthodox stabilization policies lessons from latin america orthodox stabilization programs in latin american countries have been notoriously unsuccessful in combating inflation despite the imposition of stringent cuts in government deficits in most cases inflation came down only slowly and temporarily with concomitant declines in growth and employment the bolivian program one of the only latin american successes is contrasted with those of argentina brazil chile and mexico the problems of dealing with chronic inflation are compared with those of hyperinflationary countries and the influence of price and wage rigidities expectations and credibility is explored the study shows that fiscal restraint is a necessary but not sufficient condition for success and that sound management of nominal variables the exchange rate and money supply are also necessary the critical role of credibility is linked with price and wage rigidities in the chronic inflation countries whereas the unsuitability of hyperinflation is seen to increase the credibility of and thus the potential for successful stabilization programs

total utility overlapping generations and optimal population the necessary and sufficient conditions for the solution to an optimal population growth model with overlapping generations using the sum of total utility per generation as the objective function are derived the solution for a specific steady state model and an example are presented and compared to that for a similar model without overlapping generations in both cases a positive but less than infinite optimal growth rate is found next since an additively separable individual utility function is used the differences between a total utility per generation model and a total utility per period model a la lerner are discussed finally the results of the total utility model are compared to those from a model in which the discounted sum of per capita utility is the objective function an extension to the samuelson lerner utility paradox concerning the optimal rate of population growth is discussed

does the law of one price hold in a high inflation environment a tale of two cities in turkey this study addresses the price convergence in two cities in turkey istanbul and ankara using annual data over the three quarters of the twentieth century 1922 1998 characterized by prevailing high inflation rates for most of the period in contrast to the rest of the literature addressing convergence in price levels with a typical result of extremely slow convergence rates at best we argue that convergence is much easier detected in growth rates rather than levels of prices we suggest using the bounds testing procedure of pesaran et al 2001 for this purpose we find a clear cut evidence on the existence of a common driving force behind inflation dynamics in istanbul and ankara a finding that is in contrast with the results typically reported in related literature

public investment criterion in an overlapping generations economy this paper extends the sandmo dreze model of public investment to the overlapping generations model where each person lives for two periods working in the first and retired in the second it is shown that in a non tax distorted economy with without the corporation income tax if government surplus can be redistributed between younger and older generations then the second best optimal discount rate for public investment in steady states should be not only the weighted average formula the market rate of interest derived by sandmo and dreze economica 1971 but also the population growth rate

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

monetary politics and unemployment persistence abstract this paper develops a positive model of monetary policy that allows for persistent unemployment and electoral uncertainty the common credibility problem associated with low inflation monetary policy results in both a more severe inflation bias and a stabilization bias however a simple state contingent performance contract eliminates both biases monetary policy is also subject to two different strategic political considerations it is used to influence future policy decisions as well as to increase the incumbent party s probability of re election this results in a political business cycle which however is fundamentally different for left wing and right wing governments

inertial inflation indexation and price stickiness evidence from brazil abstract this paper evaluates the inertial inflation hypothesis for brazil the hypothesis posits that indexation created a feedback mechanism such that one time supply shocks were fully transmitted into permanent changes in inflation a theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility however with price stickiness indexation does not produce inertial inflation the degree of inertia is then compared for two periods one without indexation 1945 1963 and one with indexation 1969 1985 finally vector autoregressive representations are estimated for the latter period allowing for price stickiness the empirical results do not support the hypothesis

price adjustments in a general model of state dependent pricing we study the distribution of retail price adjustments under the assumption that firms are more likely to adjust their prices when doing so is more valuable our setup nests calvo 1983 at one extreme and a fixed menu cost model at the other all parameterizations are ranked by a measure of state dependence high state dependence implies counterfactually that there are no small price changes and that the variance of price changes falls sharply with trend inflation the parameterization that best fits microdata has low state dependence implying a phillips curve coefficient 60 as large as that of the calvo model but is nonetheless well behaved at high inflation rates

monetary targets real exchange rates and macroeconomic stability abstract in this paper i develop a model to determine the optimal degree of flexibility in attaining monetary targets in an economy that is affected by shocks in the labor and financial markets i then simulate the model to assess the optimal degree of monetary policy flexibility in spain a country that has adopted monetary targets rigidly since 1978 i show that the model supports the policy choice of that country i also show that the monetary authorities should attribute more importance to real exchange rate movements in choosing their policies if the spanish economy becomes more open to international trade or if the labor market becomes more flexible

services inflation dynamics and persistence puzzle in brazil a time varying parameter approach this article analyses services inflation dynamics in brazil focusing on the services inflation persistence puzzle for monthly data from january 2004 to february 2016 we apply a time varying para

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

price wage dynamics and inflation in socialist economies empirical models for hungary and poland this article analyzes the determinants of open inflation in transitional socialist economies with reference to recent experience in hungary and poland a simple inflation model is centered on the transmission process and on the short run dynamics of inflation further incorporating a number of features specific to socialist economies and working with quarterly data dynamic price and wage equations are estimated the estimated equations allow satisfactory exploration of the role and weight of foreign prices and domestic factors in propagating inflation foreign prices matter but developments on the cost side are critical in relating exogenous policy driven adjustments to the price level to increases in the rate of inflation the absence of conventional market based equilibrating mechanisms requires that nominal anchors particularly wage restraints feature prominently in any stabilization program adopted by reforming socialist economies copyright 1992 by oxford university press

trend inflation wage and price rigidities and productivity growth abstract what are the steady state implications of inflation in a general equilibrium model with real per capita output growth and staggered nominal price and wage contracts surprisingly a benchmark calibration implies an optimal inflation rate of 1 9 percent the analysis also shows that trend inflation has important effects on the economy when combined with nominal contracts and real output growth steady state output and welfare losses are quantitatively important even for low values of trend inflation further nominal wage contracting is found to be quantitatively more important than nominal price contracting in generating the results this conclusion does not arise from price dispersion per se but from an effect of nominal output growth on the optimal markup of monopolistically competitive labour suppliers finally accounting for productivity growth is found to be important for calculating the welfare costs of inflation indeed the presence of 2 percent productivity growth increases the welfare costs of inflation in the benchmark specification by a factor of four relative to the no growth case

output persistence from monetary shocks with staggered prices or wages under a taylor rule we analytically examine output persistence from monetary shocks in a dsge model with staggered prices or wages under a taylor rule surprisingly while taylor style staggering never yields persistence calvo style staggering of wages does generate persistence under decreasing returns to labour c 2009 elsevier b v all rights reserved

unemployment as excess supply of labor implications for wage and price inflation abstract the introduction of both market clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the new keynesian model as a result wage inflation dynamics are forward looking and depend negatively on the rate of unemployment moreover both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in erceg et al 2000 though with different slope coefficients in an equal volatility comparison the model with unemployment conveys less price stickiness and more wage stickiness

staggering the optimal monetary rule and persistence abstract the purpose of this paper is to show that persistence is not an attribute that derives from the characteristics of wage and price setting alone the structure of demand the monetary rule and the welfare loss function are also crucial determinants of the time series characteristics of the model

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

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

endogenous fertility and optimal population size pareto optimality which is the standard criterion of efficiency in general equilibrium models takes population size as given and therefore cannot be directly applied to analyze the question of optimal population size the criterion then for optimal population size must be based on a more restrictive definition of optimality this paper extends peter diamonds 1965 golden golden rule growth model by assuming that individuals derive utility from their own consumptionand from their own children offspring are assumed to consume resources before reaching adulthood the authors show that the optimal steady state utility yields a higher population growth rate when it converges to the golden rule allocation they then demonstrate that a voluntary social security program in which the size of the transfer to a particular agent is directly tied to his own fertility leads the competitive allocation to be identical to the allocation corresponding to the maximum of the steady state utility of the representative individual

lemons hypothesis reconsidered an empirical analysis abstract this paper tests the hypothesis that there is no difference in the average maintenance expenditures required for cars acquired used and those acquired new the results showed no evidence that cars acquired used required more maintenance expenditures than those of a similar age acquired new

surprise party estimating the consequences of unexpected presidential election results alesina s quarterly journal of economics 102 651 678 1987 influential model of presidential elections with ideologically motivated parties attributes higher growth and lower unemployment under democratic presidents to the surprise inflation a democratic victory entails in contrast to the published literature we test this hypothesis using calcula tions of presidential election surprises consistent with the assumption of rational economic actors we confront the econometric complications attending a time series approach tak ing into account economic growth dynamics we ultimately fail to confirm the hypothesis that the level of uncertainty associated with presidential election results has an effect on economic outcomes

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

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

on the collapse of historical civilizations to explain the collapse of historical civilizations scholars typically point to suboptimal behaviors including misunderstanding the natural environment shortsightedness or a lack of institutions we examine the collapse of four historical societies with a model of endogenous population growth and renewable resources employing components of optimal resource management economic growth theory and the moral philosophy of social welfare function choice we find that these collapses may have been socially optimal further we show that the transient behavior of the system is more sensitive to assumptions than the equilibrium behavior and that focusing solely on equilibria may miss key insights copyright 2009 oxford university press