commodity price responses to monetary policy surprises commodity prices are important both as a source of shocks and for the propagation of shocks originating elsewhere in the economy many vector autoregression var studies estimate a gradual response of commodity prices to monetary policy shocks exploiting information in high frequency financial market data and using the methods of rigobon and sack 2004 i find that a 10 basis point surprise change in interest rates causes commodity prices to fall immediately by about 0 5 this is about two thirds of the estimated response of the s p500 and about five times larger than the response in a var 12 months after the shock metals prices tend to respond more than agricultural commodities the point estimate for oil prices is similar to other commodities but is estimated imprecisely

us monetary policy and sectoral commodity prices abstract using a structural var svar model we examine the effects of the monetary policy of the united states on sectoral commodity prices including the non fuel commodity prices food prices beverage prices prices of agricultural raw materials prices of metals and prices of fuel energy commodities and macroeconomic activity the empirical evidence suggests that a u s monetary contraction leads to an immediate rise in the broad commodity price index which possibly reflects an aggregation bias greater expected inflation and speculation high production costs or some overshooting due to overreactions then the response erodes after six quarters as the positive interest rate shock vanishes and higher interest rates and liquidity drainage take traction despite this the aggregate price response masks the existence of significant heterogeneity in the price responses of the different types of commodity sectors more specifically a positive interest rate shock leads to i an initial pop in the price returns of the non fuel commodities which later reverses path and becomes negative as in the case of the prices of agricultural raw materials ii a positive and persistent rise in the volatile food prices iii a fall in the beverage prices and iv a persistent reduction in the prices of metals and the prices of energy prices our results also remain globally intact with respect to alternative specifications and identification schemes as well as to unconventional monetary policy effects similar results are also found when commodity futures prices are used we conclude that policymakers should recognize the source of sector inflation before embarking on contractionary monetary policy the design of core inflation targeting is also preferable to headline 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

what measure of inflation should a developing country central bank target in closed or open economy models with complete markets targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium we analyze this result in the context of developing economies where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high we develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes we also compute the optimal price index which includes a positive weight on food prices but unlike headline inflation assigns zero weight to import prices

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

constructing density forecasts from quantile regressions the departure from the traditional concern with the central tendency is in line with the increasing recognition that an assessment of the degree of uncertainty surrounding a point forecast is indispensable clements 2004 we propose an econometric model to estimate the conditional density without relying on assumptions about the parametric form of the conditional distribution of the target variable the methodology is applied to the u s unemployment rate and the survey of professional forecasts specification tests based on koenker and xiao 2002 and gaglianone et al 2011 indicate that our approach correctly approximates the true conditional density

monetary policy and food inflation in south africa a quantile regression analysis abstract although optimal monetary policy stabilizes food inflation theoretically empirical studies remain limited not only in the context of volumes and the estimation approaches but are focused on selected advanced and emerging countries to the neglect of africa where poverty and dominance of food in the consumption basket are more pronounced we provide empirical evidence in the context of south africa using quantile regressions rising food prices are destabilized even further by restrictive monetary policy a finding that has ramifications for inflation targeting especially given that a quarter of the country s population is food poor

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

what the seller won t tell you persuasion and disclosure in markets imagine that you are considering an investment in a new public offering of a firm s shares the firm s officers make a presentation that includes an audited financial statement an earnings forecast reviewed by its prestigious investment bankers and an impressive demonstration of its new technology or suppose that you are buying a new furnace to replace an old one that is not working well the salesman displays a chart showing that the projected total life cycle cost of one particular model including capital costs and fuel usage over the projected lifetime of the furnace is lower than that of some competing models you have considered this paper reviews the theoretical arguments about how sellers disclose information in an attempt to encourage buyers and the potential role for regulation in encouraging efficient disclosure of information how well does a system of private reporting work when should we expect all the relevant information to be reported if testing and reporting by the seller are costly will too little testing and reporting be done or too much when some information is withheld what sort of information is withheld how do rational buyers respond to such withholding how are prices and welfare affected what role is there for laws and regulations to improve the functioning of markets we address these questions by studying the theory of persuasion games games in which one or more sellers provide verifiable information to buyers to influence the actions they take

the value of public information in monopoly the logic of the linkage principle of milgrom and weber 1982 extends to price discrimination a non linear pricing monopolist who sells to a single buyer always prefers to commit to publicly reveal information a liated to the valuation of the buyer

inflation dynamics and the cost channel of monetary transmission evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so called cost channel of monetary transmission in this paper we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in g7 countries we augment the so called hybrid new keynesian philips curve by letting firms costs for external funds rise with the short run nominal interest rate our estimates reveal that the magnitude of this cost channel strongly varies between countries including member countries of the emu in accordance with differences in their financial systems simulations of a new keynesian model further show that the presence of the cost channel substantially affects the transmission of monetary policy shocks in particular the inflation response

social contracts markets and efficiency groundwater irrigation in north india this paper uses primary data to analyze the institutions and informal markets that govern groundwater allocation in the principal sugarcane belt of north india in contrast to earlier literature we find that the observed water trades result in efficient water allocation across farms we interpret this and other stylized facts in terms of a simple bargaining model with limited inter player transfers poor functioning of the power sector leads to reduced pumping and a water supply constraint simulations show that power supply reform can significantly increase farm yields be financed out of the increased farm profits and provide an instrument to use for attaining intertemporal efficiency in water allocation

monopoly power and distribution in fragmented markets the case of groundwater using data from pakistan s punjab the authors examine monopoly power in the market for groundwater irrigation water extracted using private tubewells a market characterized by barriers to entry and spatial fragmentation simple theory predicts that tubewell owners should price discriminate in favor of their own share tenants and this analysis of individual groundwater transactions over an 18 month period confirms such price discrimination and among those studied tubewell owners and their tenants use considerably more groundwater on their plots than do other farmers the authors also provide evidence that monopoly pricing of groundwater leads to compensating albeit small reallocations of canal water which farmers exchange in a separate informal market despite the substantial misallocation of groundwater a welfare analysis show that monopoly pricing has limited effects on equity and efficiency in the long run a policy aimed at eliminating monopoly pricing would do little to help the poorest farmers

world food prices and monetary policy abstract how should monetary policy respond to large fluctuations in world food prices we study this question in an open economy model in which imported food has a larger weight in domestic consumption than abroad and international risk sharing can be imperfect a key novelty is that the real exchange rate and the terms of trade can move in opposite directions in response to world food price shocks this exacerbates the policy trade off between stabilizing output prices vis a vis the real exchange rate to an extent that depends on risk sharing and the price elasticity of exports we characterize implications for dynamics optimal monetary policy and the relative performance of practical monetary rules while cpi targeting and expected cpi targeting can dominate ppi targeting if international risk sharing is perfect even seemingly mild departures from the latter make ppi targeting a winner

supplying information to facilitate price discrimination the authors examine the incentive of a seller to allow potential buyers to acquire private information about their tastes for the seller s product improved private information for buyers enables the seller to segment the market and charge higher prices to high value buyers however improved information can also provide rents to buyers in a variety of settings this tradeoff is optimally resolved at one of two extremes either buyers are supplied with the best available knowledge of their tastes or no information is supplied by the seller copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

role of risk sharing and transaction costs in contract choice theory and evidence from groundwater contracts empirical modeling of contract choice has been problematic because routine large scale surveys do not contain sufficient information on matched partners and on contractual terms this paper is based on a primary level survey of groundwater contracts in india we discuss several different measures for riskiness and transaction costs and use them to test for alternative theories of contract choice although the risk sharing explanation has been most popular in the theoretical literature it is not found to be significant the data are more consistent with a double sided incentive model where the need for giving proper incentives to the buyer and the seller determines contract choice

is there a cost channel of monetary policy transmission an investigation into the pricing behavior of 2 000 firms the paper exploits a unique panel covering some 2 000 italian manufacturing firms and 14 years of data on individual prices and individual interest rates paid on several types of debt to address the question of the existence of a channel of transmission of monetary policy operating through the effect of interest expenses on the marginal cost of production it has been argued that this mechanism may explain the dimension of the real effects of monetary policy give a rationale for the positive short run response of prices to interest rate increases the price puzzle and call for a more gradual monetary policy response to shocks we find robust evidence in favor of the presence of a cost channel of monetary policy transmission proportional to the amount of working capital held by each firm the channel is large enough to have non trivial monetary policy implications

when does a firm disclose product information a firm chooses a price and the product information it discloses to a consumer whose tastes are privately known we provide a necessary and sufficient condition on the match function for full disclosure to be the unique equilibrium outcome whatever the costs and prior beliefs about product and consumer types it allows for products with different qualities as well as some horizontal match heterogeneity with independently distributed product and consumer types full disclosure is always an equilibrium and a necessary and sufficient equilibrium condition is that all firm types earn at least the full disclosure profit

commodity prices interest rates and the dollar this paper sheds light on recent fluctuations in commodity prices we investigate whether a decline in real interest rates and the us dollar contributes to higher commodity prices and whether commodity prices display overshooting behavior in response to changes in real interest rates we analyze the behavior of real prices of crude oil food metals and industrial raw materials the analysis is based on structural var models estimated on quarterly data over the period 1990q1 2007q4 our results suggest that commodity prices increase significantly in response to reductions in real interest rates moreover oil prices and prices of industrial raw materials tend to display overshooting behavior in response to such interest rate changes the evidence also suggests that a weaker dollar leads to higher commodity prices shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in commodity prices

optimal information disclosure a sender randomly draws a prospect characterized by its profitability to the sender and its relevance to a receiver the receiver observes only a signal provided by the sender and accepts the prospect if his bayesian inference about the prospect s relevance exceeds his opportunity cost the sender s profits are typically maximized by partial information disclosure whereby the receiver is induced to accept less relevant but more profitable prospects switches by pooling them with more relevant but less profitable ones baits extensions include maximizing a weighted sum of sender profits and receiver surplus and allowing the sender to use monetary incentives

governance and contract choice theory and evidence from groundwater irrigation markets abstract this paper examines the role governance institutions play in the adoption of contracts we develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in bangladesh a distinguishing feature of this market is the variety of village level institutions which impose different degrees of punishment for contract violation consistent with the model we find households adopt contracts that rely on unverifiable outcomes which are not formally contractible when punishment for contract violation is weak conversely households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe this evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible

prominence and consumer search this article examines the implications of prominence in search markets we model prominence by supposing that the prominent firm will be sampled first by all consumers if there are no systematic quality differences among firms we find that the prominent firm will charge a lower price than its less prominent rivals making a firm prominent will typically lead to higher industry profit but lower consumer surplus and welfare the model is extended by introducing heterogeneous product qualities in which case the firm with the highest quality product has the greatest incentive to become prominent and making it prominent will boost industry profit consumer surplus and welfare

ignorance promotes competition an auction model with endogenous private valuations we study a situation in which an auctioneer wishes to sell an object toone of n risk neutral bidders with heterogeneous preferences theauctioneer does not know bidders preferences but has private informationabout the characteristics of the ob ject and must decide how muchinformation to reveal prior to the auction we show that the auctioneerhas incentives to release less information than would be efficient andthat the amount of information released increases with the level ofcompetition as measured by the number of bidders furthermore in aperfectly competitive market the auctioneer would provide the efficientlevel of information

multiproduct monopoly commodity bundling and correlation of values through what selling strategy can a multiproduct monopolist maximize his profits when his knowledge about individual consumers preferences is limited one possibility extensively studied in the context of a single good monopoly is to use quantity dependent pricing as a means of discriminating among customers with differing tastes see for example oi 1971 and maskin and riley 1984 an alternative technique for price discrimination first suggested by stigler 1968 and analyzed further by adams and yellen 1976 is for the monopolist to package two or more products in bundles rather than selling them separately through a series of examples adams and yellen illustrate that bundling can serve as a useful price discrimination device even when all consumers willingnesses to pay for each of the goods individually are unaffected by whether they are also consuming the other product a typical example is illustrated in figure i adapted from figure iv in adams and yellen where there are two goods three consumers ab c who consume at most one unit of each good with reservation values for each good that are independent of whether the other good is consumed and zero costs of production there a bundle offered at a price of 100 fully extracts all potential surplus which would be impossible pricing the goods independently unfortunately though these authors do not provide any general characterization of the circumstances in which bundling is actually a multiproduct monopolist s optimal strategy their examples however such as figure i create the impression that the profitable use of bundling

caviar conditional autoregressive value at risk by regression quantiles value at risk var has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes var is defined as the value that a portfolio will lose with a given probability over a certain time horizon usually one or ten days despite its conceptual simplicity its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions interpreting the var as the quantile of future portfolio values conditional on current information we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies such as normality or i i d returns the conditional autoregressive value at risk or caviar model moves the focus of attention from the distribution of returns directly to the behavior of the quantile we specify the evolution of the quantile over time using a special type of autoregressive process and use the regression quantile framework introduced by koenker and bassett to determine the unknown parameters since the objective function is not differentiable we use a differential evolutionary genetic algorithm for the numerical optimization utilizing the criterion that each period the probability of exceeding the var must be independent of all the past information we introduce a new test of model adequacy the dynamic quantile test applications to simulated and real data provide empirical support to this methodology and illustrate the ability of these algorithms to adapt to new risk environments

optimal information disclosure in auctions and the handicap auction we analyze a situation where a monopolist is selling an indivisible good to risk neutral buyers who only have an estimate of their private valuations the seller can release without observing certain additional signals that affect the buyers valuations our main result is that in the expected revenue maximizing mechanism the seller makes available all the information that she can and her expected revenue is the same as it would be if she could observe the part of the information that is new to the buyers we also show that this mechanism can be implemented by what we call a handicap auction in interesting applications in the first round of this auction each buyer picks a price premium from a menu offered by the seller a smaller premium costs more then the seller releases the additional signals in the second round the buyers bid in a second price auction where the winner pays the sum of his premium and the second highest non negative bid in the case of a single buyer this mechanism simplifies to a menu of european call options