monetary policy learning and the speed of convergence under the assumption of bounded rationality economic agents learn from their past mistaken predictions by combining new and old information to form new beliefs the purpose of this paper is to investigate how the policy maker by affecting private agents learning process determines the speed at which the economy converges to the rational expectation equilibrium i find that by reacting strongly to private agents expected inflation a central bank increases the speed of convergence and shortens the length of the transition to the rational expectation equilibrium i use speed of convergence as an additional criterion for evaluating alternative monetary policies i find that a fast convergence is not always desirable

performance of monetary policy with internal central bank forecasting abstract recent models of monetary policy have analyzed the desirability of different optimal and ad hoc interest rules under the restrictive assumption that forecasts of the private sector and the central bank are homogeneous this paper studies the implications of heterogeneity in forecasting by the central bank and private agents for the performance of interest rules in a framework of econometric learning

learning expectations formation and the pitfalls of optimal control monetary policy this paper examines the robustness characteristics of optimal control policies derived under the assumption of rational expectations to alternative models of expectations we assume that agents have imperfect knowledge about the precise structure of the economy and form expectations using a forecasting model that they continuously update based on incoming data we flnd that the optimal control policy derived under the assumption of rational expectations can perform poorly when expectations deviate modestly from rational expectations we then show that the optimal control policy can be made more robust by deemphasizing the stabilization of real economic activity and interest rates relative to in ation in the central bank loss function that is robustness to learning provides an incentive to employ a conservative central banker we then examine two types of simple monetary policy rules from the literature that have been found to be robust to model misspeciflcation in other contexts we flnd that these policies are robust to empirically plausible parameterizations of the learning models and perform about as well or better than optimal control policies

on analyzing the world distribution of income consideration of world inequality should cause reexamination of the key concepts underlying the welfare approach to measuring income inequality and its relation to measuring poverty this reexamination leads to exploration of a new measure that allows poverty and inequality to be considered in the same framework incorporates different approaches to measuring inequality and allows varied expressions of the cost of inequality applied to the world distribution of income for 1820 1992 the new measure provides different perspectives on the evolution of global inequality

learning and optimal monetary policy to conduct policy efficiently central banks must use available data to infer or learn the relevant structural relationships in the economy however because a central bank s policy affects economic outcomes the chosen policy may help or hinder its efforts to learn this paper examines whether real time learning allows a central bank to learn the economy s underlying structure and studies the impact that learning has on the performance of optimal policies under a variety of learning environments our main results are as follows first when monetary policy is formulated as an optimal discretionary targeting rule we find that the rational expectations equilibrium and the optimal policy are real time learnable this result is robust to a range of assumptions concerning private sector learning behavior second when policy is set with discretion learning can lead to outcomes that are better than if the model parameters are known finally if the private sector is learning then unannounced changes to the policy regime particularly changes to the inflation target can raise policy loss considerably

expectations and the stability problem for optimal monetary policies eine auf den fundamentaldaten beruhende regelbindung der geldpolitik ohne selbstverpflichtung die bei vollkommen rationalen erwartungen der privaten akteure optimal ware ist instabil wenn diese akteure de facto den ublichen regeln des adaptiven lernens folgen dieses problem lasst sich dadurch beheben dass die erwartungen privater akteure berucksichtigt und in geeigneter weise in die optimale geldpolitik einbezogen werden diese eindeutige schlusfolgerung gilt auch dann wenn sich der geldpolitische entscheidungstrager und die privaten akteure in einem simultanen lernprozess befinden unsere ergebnisse zeigen wie wichtig es ist die geldpolitik angemessen zu gestalten und dabei nicht nur die fundamentaldaten sondern auch direkt die beobachteten erwartungen privater haushalte und unternehmen zu berucksichtigen

the digital provide information technology market performance and welfare in the south indian fisheries sector when information is limited or costly agents are unable to engage in optimal arbitrage excess price dispersion across markets can arise and goods may not be allocated efficiently in this setting information technologies may improve market performance and increase welfare between 1997 and 2001 mobile phone service was introduced throughout kerala a state in india with a large fishing industry using microlevel survey data we show that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion the complete elimination of waste and near perfect adherence to the law of one price both consumer and producer welfare increased

lessons about markets from the internet many of us have grown used to tired of and finally downright skeptical of claims of the transformative powers of the internet it was to usher in the new economy but we seem mostly to have the old it would transform retail but toys r us has outlasted etoys frictionless commerce would be the norm but plenty of friction still exists the internet was also claimed to require a whole new economics with all new laws while this too was very far from the truth existing theories have mostly done quite well the internet has had a substantial effect on economic thought in this paper we discuss some ways in which the internet has affected how economists think about markets

the developing world is poorer than we thought but no less successful in the fight against poverty a new data set on national poverty lines is combined with new price data and almost 700 household surveys to estimate absolute poverty measures for the developing world we find that 25 of the population lived in poverty in 2005 as judged by what poverty typically means in the world s poorest countries this is higher than past estimates substantial overall progress is still indicated the corresponding poverty rate was 52 in 1981 but progress was very uneven across regions the trends over time and regional profile are robust to various changes in methodology though precise counts are more sensitive

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

integrated optimization of procurement processing and trade of commodities we consider the integrated optimization problem of procurement processing and trade of commodities in a multiperiod setting motivated by the operations of a prominent commodity processing firm we model a firm that procures an input commodity and has processing capacity to convert the input into a processed commodity the processed commodity is sold using forward contracts while the input itself can be traded at the end of the horizon we solve this problem optimally and derive closed form expressions for the marginal value of input and output inventory we find that the optimal procurement and processing decisions are governed by price dependent inventory thresholds we use commodity markets data for the soybean complex to conduct numerical studies and find that approximating the joint price processes of multiple output commodities using a single composite output product and using the approximate price process to determine procurement and processing decisions is near optimal compared to a myopic spread option based heuristic the optimization based dynamic programming policy provides significant benefits under conditions of tight processing capacities and high price volatilities finally we propose an approximation procedure to compute heuristic policies and an upper bound to compare the heuristic against when commodity prices follow multifactor processes

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

productivity growth transparency and monetary policy abstract this study examines whether central bank transparency about views of future productivity growth contributes to stabilizing macroeconomic fluctuations in a standard new keynesian model the central bank and private agents make their subjective estimates on the persistence of productivity growth in this situation if private agents believe that the central bank s projections include forecast errors on future productivity growth these beliefs can destabilize private agents own expectations because the central bank s forecast errors may lead to policy mistakes in the future consequently central bank transparency does not necessarily stabilize the variations of the output gap and inflation rate the central bank should respond strongly to the inflation rate if the impact of transparency is uncertain

optimal monetary policy when agents are learning abstract we derive optimal monetary policy in a sticky price model when private agents follow adaptive learning we show that this slight departure from rationality has important implications for policy design the central bank faces a new intertemporal trade off not present under rational expectations it is optimal to forego stabilizing the economy in the present in order to facilitate private sector learning and thus ease the future intratemporal inflation output gap trade offs the policy recommendation is robust the welfare loss entailed by optimal policy under learning if the private sector actually has rational expectations is much smaller than if the central bank mistakenly assumes rational expectations when in fact agents are learning

temporal aggregation of univariate and multivariate time series models a survey abstract we present a unified and up to date overview of temporal aggregation techniques for univariate and multivariate time series models explaining in detail although intuitively the technical machinery behind the results some empirical applications illustrate the main issues

fundamentalists vs chartists learning and predictor choice dynamics abstract in a simple forward looking univariate model of price determination we investigate the evolution of expectations dynamics in the presence of two types of agents fundamentalists and chartists in particular we combine evolutionary selection among heterogeneous classes of models through predictor choice dynamics based on a logit model with adaptive learning in the form of parameters updating within each class of rules we find that for different parameterizations it can happen that fundamentalists drive chartists completely out of the market or vice versa and also that heterogeneous equilibria in which fundamentalists and chartists coexist are possible interestingly though only equilibria in which fundamentalists outperform chartists turn out to be adaptively learnable by agents

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

is it enough evidence from a natural experiment in india s agriculture markets access to information and communication technologies icts such as mobile phone networks is widely known to improve market efficiency in this paper we examine whether access to timely and accurate information provided through ict applications has any additional impact using a detailed data set from reuters market light rml a text message service in india that provides daily price information to market participants we find that this information reduces the geographic price dispersion of crops in rural communities by an average of 12 over and above access to mobile phone technology and other means of communication to identify the effect of information on price dispersion we exploit a natural experiment where bulk text messages were banned unexpectedly across india for 12 days in 2010 we find that besides reducing geographic price dispersion rml also increases the rate at which prices converge across india over time we discuss the implications of this for development organizations and informat

the labor market impact of immigration in western germany in the 1990 s in this article we estimate the wage and employment effects of recent immigration in western germany using administrative data for the period 1987 2001 and a labor market equilibrium model we find that the substantial immigration of the 1990s had very little adverse effects on native wages and on their employment levels instead it had a sizeable adverse employment effect on previous immigrants as well as a small adverse effect on their wages these asymmetric results are partly driven by a higher degree of substitution between old and new immigrants in the labor market and in part by the rigidity of wages in less than flexible labor markets in a simple counter factual experiment we show that in a world of perfect wage flexibility and no unemployment insurance the wage bill loss of old immigrants would be much smaller

transparency expectations anchoring and inflation target abstract in various speeches former fed chairman ben bernanke contrasted the proposal of setting a higher inflation target by claiming that it could unanchor inflation expectations a standard new keynesian framework with learning supports this claim both asymptotically because a higher inflation target shrinks the e stability region when a central bank follows a taylor rule and in the transition phase because a higher inflation target slows down the speed of convergence of expectations transparency helps anchoring expectations however the importance of being transparent diminishes with the level of the inflation target finally the higher the inflation target the more policy should respond to inflation and the less to output to guarantee e stability hence a policy that increases both the inflation target and the monetary policy response to output would be reckless

recurrent hyperinflations and learning we use a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the 1980 s in a standard monetary model we replace the assumption of full rational expectations by a formal definition of quasi rational learning the model under learning matches some crucial stylized facts observed during the recurrent hyperinflations experienced by several countries in the 1980 s remarkably well we argue that despite being a small departure from rational expectations quasi rational learning does not preclude falsifiability of the model it does not violate reasonable rationality requirements and it can be used for policy evaluation

monetary policy effects new evidence from the italian flow of funds new evidence on the transmission of monetary policy to the economy is provided through an analysis of the effects of a restrictive monetary policy shock on italian flow of funds over the period 1980 to 2002 firms reduce issuance of debt and decrease the acquisition of financial assets providing no support for the existence of strong financial frictions following the shock in the first quarter households increase short tem liabilities and diminish the acquisition of liquid assets and shares the public sector increases net borrowing during the first 2 years financial corporations decrease their borrowing for three quarters while in the same period the foreign sector increases borrowed funds we claim that our results shed new light on the role of the financial decisions of the economic sectors in the transmission mechanism of monetary policy

cluster sample methods in applied econometrics inference methods that recognize the clustering of individual observations have been available for more than 25 years brent moulton 1990 caught the attention of economists when he demonstrated the serious biases that can result in estimating the effects of aggregate explanatory variables on individual specific response variables the source of the downward bias in the usual ordinary least squares ols standard errors is the presence of an unobserved state level effect in the error term more recently john pepper 2002 showed how accounting for multi level clustering can have dramatic effects on t statistics while adjusting for clustering is much more common than it was 10 years ago inference methods robust to cluster correlation are not used routinely across all relevant settings in this paper i provide an overview of applications of cluster sample methods both to cluster samples and to panel data sets

does consumption respond to predicted increases in cash hand availability evidence from the italian severance pay abstract we examine whether italian household consumption exhibits excess sensitivity to severance pay a sizable lump sum that workers receive at job termination we find no evidence of excess sensitivity of non durable expenditure to this anticipated cash in hand change

getting prices right the impact of the market information service in uganda the market information service project in uganda collected data on prices for the main agricultural commodities in major market centers and disseminated the information through local fmradio stations in various districts exploiting the variation across space between households with and without access to a radio we find evidence suggesting that better informed farmers managed to bargain for higher farm gate prices on their surplus production

monetary policy expectations and commitment commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies a number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy we assess these rules in terms of whether they lead to a rational expectations equilibrium that is both locally determinate and stable under adaptive learning by private agents a reaction function that appropriately depends explicitly on private sector expectations performs particularly well on both counts