frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

bread and butter issues in ecuadorian food policy a comparative advantage approach abstract the effects of policy interventions on price incentives and resource use in wheat and dairying are analyzed for the ecuadorian sierra from 1970 to 1983 a period of rapid economic growth induced by a boom in petroleum revenues exchange rate and trade policies combined with subsidized transport services and farm credit to substantially tax wheat producers while milk producers received significant subsidies consequently self sufficiency in wheat production fell from about 50 in 1970 to near zero in 1983 while imports of dairy products remained very low throughout this period of rapidly expanding demand for both bread and livestock products measures of comparative advantage are constructed to show that these price distortions have led to substantial inefficiency in resource use due to thewidening gap between private and social profitability for wheat and for dairying

on measuring the nearness of near moneys revisited abstract in this paper we re examine the theoretical foundations and empirical estimation of models which incorporate a ces utility function to study the nearness of money substitutes we show that previous studies using these models have been subject to a number of theoretical and empirical flaws the result of these flaws has been to overestimate the degree of substitutability between money and near money assets we show that when these errors are corrected estimates of substitution elasticities are several times smaller than even those of the most recent studies and therefore are more in line with estimates from more traditional demand for money studies

linking agricultural policies with obesity and noncommunicable diseases a new perspective for a globalising world abstract in light of the shift in policy paradigm in agriculture from state intervention to market liberalisation and globalisation this paper develops a series of hypotheses on the relationship between agricultural policies and consumer diets the first hypothesis is that the paradigm shift has led to greater specialisation of production so changing the ability and incentive for producers to supply certain foods relative to others second the shift has affected farmgate prices both up and down so creating opportunities for the industries which purchase farm commodities the food consuming industries fcis to substitute lower priced ingredients thereby influencing the nutritional quality and content of foods available in the marketplace third it has increased the ability of the fcis to add value through product innovation and marketing creating a market characterised by highly differentiated products targeted to individualised preferences thus increasing the acceptability of a wider variety and quantity of food products the changing agricultural policy paradigm has therefore altered the environment in which consumers make their food choices in the form of food availability affordability and acceptability nevertheless the paper finds no clear pattern when it comes to health the changes have affected both unhealthy and healthy foods and ingredients the key process of importance for health then is not whether the ingredients produced by agriculture are healthy or not but how they are substituted transformed distributed and marketed through the supply chain e g vegetable oils into transfats this leads to an important implication that policies to intervene directly in agricultural production to promote healthy eating are unlikely to be effective or efficient if they do not take into account how foods are processed distributed and marketed through the supply chain in practice this means that the potential for policy interventions in agriculture to improve diets is limited but nevertheless potentially important where it exists given the upstream nature of the change incentives could be created for the fcis to substitute healthier ingredients in their products and or to sell more of them in instances where these changes can be passed all the way to the consumer greater investment could also be made in fruit and vegetable production for local markets along with testing the hypotheses established in this paper the research priority should to identify the incentives that influence the products produced by the fcis with the objective of finding those most amenable to leveraging the supply chain towards healthier eating

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

endogenous monetary policy with unobserved potential output this paper characterizes monetary policy when policymakers are uncertain about the extent to which fluctuations in output and inflation are due to changes in potential output or to cyclical demand and cost shocks our results suggest an explanation for the inflation of the 1970s and the price stability of the 1990s it is shown that 1 policy is likely to be excessively loose for some time when there is a large decrease in potential output in comparison to a full information benchmark 2 retrospective policy errors and errors in forecasting potential output and the output gap are generally serially correlated 3 the increase in the fed s conservativeness between the 1970s and the 1990s implies that the information problem had greater consequences in the former period

robust monetary policy optimal delegation and misspecified potential output abstract central banks face uncertainty about potential output we model optimal monetary policy under discretion in a situation in which the central bank adopts a min max approach to policy the case for appointing a conservative central banker who puts a larger weight on inflation stabilization becomes stronger as the central bank s concern about misspecifications increases

monetary policy and inflation in the 70s an influential paper by clarida gal i and gertler 2000 has attributed the great inflation of the 1970 to the violation of the taylor principle in the conduct of us monetary policy weak indeterminacy inducing response to expected inflation we evaluate this thesis in the context of a standard nk model against a version of the model that incorporates incomplete information learning about the true state of the economy the likelihood based estimation of the model overwhelmingly favors the specification with indeterminacy over the alternatives with determinacy independent of the presence and size of mis perceptions jel class e32 e52

relative food prices under structural adjustment preliminary findings from latin america abstract this article examines the effects of changes in policies concerning exchange rates and consumer subsidies on relative prices of staple foods in selected latin american countries in countries where previously high subsidies on imported foods were reduced sharply or eliminated during the 1980s prices of imported tradables have risen relative to prices of domestically produced foods elsewhere the impact of structural adjustment programmes has not been very clear and more in depth research is needed

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

oil exports agrarian change and the rural labor process the ecuadorian sierra in the 1970s abstract the rapid expansion of the ecuadorian economy in the 1970s was contingent on the growth of oil exports although the benefits were largely distributed in the urban sector the impact on the rural sierra was significant urban consumer demand led to an expansion in food production while the high growth rates in the urban services and construction sectors provided employment opportunities for temporary migrants from the rural sector as a consequence the small farm economy of the sierra was able to reproduce itself despite continuing asset scarcity there was no marked increase in the number of landless households this has now been reversed by the severe recession that has occurred since 1980 real incomes have now fallen below their 1970 level in the small farm sector

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

simulating currency substitution bias the sign and size of estimates of the elasticity of currency substitution critically depend on the definition of the oppurtunity costs of holding money we investigate possible biases by means of monte carlo experiments as sufficient real data are not available

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

portfolio redistribution impacts within the narrow monetary aggregate a number of important monetary and financial changes occurred in the 1980s a rising question among monetary economists is whether the character of m1 has changed substantially as a result in particular a frequent contention is that interest bearing checkable deposits behave as a savings type asset thus subjecting m1 to portfolio redistribution effects in the modern era this research examines the elasticities of substitution for a variety of financial assets pre and post 1980 results indicate that m1 subcomponents do show significant substitution with savings type assets however the portfolio redistribution impacts are not confined to the interest bearing checkable deposits further results indicate that this behavior is not unique to the 1980s copyright 1992 by ohio state university press

the quest for prosperity without inflation abstract in recent years activist monetary policy rules responding to inflation and the level of economic activity have been advanced as a means of achieving effective output stabilization without inflation advocates of such policies suggest that their flexibility may yield substantial stabilization benefits while avoiding the excesses of overzealous discretionary fine tuning such as is thought to characterize the experience of the 1960s and 1970s in this study i present evidence suggesting that these conclusions are misguided using an estimated model i show that when informational limitations are properly accounted for activist policies would not have averted the great inflation but instead would have resulted in worse macroeconomic performance than the actual historical experience the problem can be attributed in large part to the counterproductive reliance of these policies on the output gap the analysis suggests that the dismal economic outcomes of the great inflation may have resulted from an unfortunate pursuit of activist policies in the face of bad measurement specifically overoptimistic assessments of the output gap associated with the productivity slowdown of the late 1960s and early 1970s

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

indicator variables for optimal policy the optimal weights on indicators in models with partial information about the state of the economy and forward looking variables are derived and interpreted both for equilibria under discretion and under commitment an example of optimal monetary policy with a partially observable potential output and a forward looking indicator is examined the optimal response to the optimal estimate of potential output displays certainty equivalence whereas the optimal response to the imperfect observation of output depends on the noise in this observation

indeterminacy and learning an analysis of monetary policy in the great inflation abstract the great inflation of the 1970s can be understood as the result of equilibrium indeterminacy in which loose monetary policy engendered excess volatility in macroeconomic aggregates and prices the federal reserve inadvertently pursued policies that were not anti inflationary enough because it did not fully understand the economic environment it was operating in specifically it had imperfect knowledge about the structure of the economy and was subject to data misperceptions the combination of learning about the economy and the use of mis measured data resulted in policies which the federal reserve believed to be optimal but when implemented led to equilibrium indeterminacy

testing steady state implications for the nairu estimates of the nairu are usually derived either from a phillips curve or from a wage curve this paper investigates the correspondence between the operational nairu concepts and the steady state of a dynamic wage price model we derive the parameter restrictions that secure that correspondence the full set of restrictions can be tested by econometric analysis of the wage price system and this method is demonstrated for norwegian data a set of necessary conditions can be tested from estimated wage curves alone existing international evidence from empirical wage equations are reinterpreted in light of these conditions

central bank reform liberalization and inflation in transition economies an international perspective this paper develops extensive new data on the legal independence of new central banks in 26 former socialist economies fse this data is constructed using the codification system for measuring legal independence developed in cukierman webb and neyapti 1992 and in chapter 19 of cukierman 1992 this makes it comparable with earlier data on central bank independence cbi in the industrial democracies and in non fse developing countries and permits experimentation with alternative indices of cbi like those reviewed in eijffinger and van keulen 1995 the new indices of independence indicate that central bank cb reform in the fse during the nineties has been quite ambitious in spite of the large price shocks induced by the transformation from plan to market reformers in those countries chose to create central banks with levels of legal independence that are substantially higher on average than those of developed economies during the eighties based on data from 1989 through 1998 the evidence in the paper suggests that cbi is unrelated to inflation during the early stages of liberalization but for sufficiently high and sustained levels of liberalization and controlling for variables like price decontrols and wars legal cbi and inflation are significantly and negatively related these findings are consistent with the view that legal cbi no matter how high cannot contain the powerful inflationary impact of wide scale liberalization of formerly controlled prices but once the process of liberalization has gathered sufficient momentum legal independence becomes effective in slowing inflation down and the cumulative liberalization index developed by de melo et al 1996 becomes relatively less important the paper also presents evidence on factors that affect the level of cbi and examines the relation between inflation and cbi within a broader sample composed of the transition and of the developed economies

technological change and elasticities of substitution in korean agriculture abstract in this paper by using the translog cost function two issues are investigated concerning the korean agricultural sector during the prewar 1918 to 1938 and postwar 1949 to 1971 periods first characteristics of the technology used and the process of technical innovation are analyzed second an attempt is made to determine the partial elasticities of substitution for various pairwise combinations of land labor fixed capital and working capital we find that the technological innovations in korean agriculture were land and labor saving fixed capital neutral and working capital using further we find that working capital was a strong substitute for land and labor in the prewar period and a weak substitute in the postwar period fixed capital was a weak substitute for land and labor in the prewar period and a weak complement to land and labor in the postwar period finally working capital and fixed capital were weak substitutes in the prewar period and strong complements in the postwar period

measuring substitution in monetary asset demand systems the allen elasticity of substitution aes is widely used to study monetary asset substitution and structural demand stability blackorby and russell showed that the aes is uninformative and that the morishima elasticity of substitution mes is the appropriate measure a point overlooked in the monetary literature use of improper measures can lead to incorrect inferences this article considers five alternative measures of substitution the aes the mes the hicksian and marshallian elasticities of demand and mundlak s unencountered but appealing constant cost elasticity of substitution selection of the substitution measure appropriate to respective research questions is addressed

estimating potential output as a latent variable this article proposes a new method for estimating potential output in which potential real gross domestic product gdp is modeled as an unobserved stochastic trend and deviations of gdp from potential affect inflation through an aggregate supply relationship the output and inflation equations together form a bivariate unobserved components model which is estimated via maximum likelihood through the use of the kalman filter algorithm the procedure yields a measure of potential output and its standard error and an estimate of the quantitative response of inflation to real growth and the output gap

inferring monetary policy objectives with a partially observed state accounting for the uncertainty inherent in real time perceptions of the state of the economy is believed to be critical for the analysis of historical monetary policy we investigate this claim through the lens of a small scale new keynesian model with optimal discretionary policy and partial information about the state the model is estimated using maximum likelihood on us data over the volcker greenspan bernanke regime a comparison of our estimates to those from a version of the model with complete information reveals that under partial information i the federal reserve demonstrates a significant concern for stabilizing fluctuations in the output gap and ii the discrepancy between optimal and observed policy behavior is smaller

searching for a will o the wisp an empirical study of the nairu in canada abstract this paper demonstrates the uncertainty surrounding estimates of the non accelerating inflation rate of unemployment nairu a reduced form phillips curve is used to develop a generic model of the nairu which nests competing hypotheses about the specific form of the inflation unemployment relationship empirical results for the canadian economy show that the range of prime age male nairu s generated by statistically satisfactory and economically reasonable estimating equations covers almost the entire range of canadian post war prime age male unemployment experience estimates of the nairu depend heavily on the form of the estimating equation the operational definition of key variables and the data sample period

money and its substitutes abstract measurement of the elasticity of substitution between financial assets is an important element in evaluating the role that those assets play in the economy this paper generalizes the model developed by chetty by relaxing the separability conditions while restoring homotheticity to the utility function the general model is found to produce empirical estimates that are statistically superior to the original while substantially reducing the estimated elasticities of substitution consequently the various types of savings accounts no longer appear to be very close substitutes for money balances

the robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the european central bank abstract this paper examines the implications of recent research on monetary policy rules for practical monetary policy making with special emphasis on strategies for setting interest rates by the european central bank ecb the paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules further it stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose much more evidence is becoming available on the robustness of simple monetary policy rules for the interest rate than ever before

estimating the liquidity of m2 components in the post didmca era i introduction the depository institutions deregulation and monetary control act of 1980 didmca together with the garn st germain act and related federal reserve actions resulted in a thorough redefinition of the money stock measures as discussed in anderson and kavajecz 1994 and related writings the current components of m1 and m2 recognize the significant changes among existing assets that occurred throughout the 1970s examples include the rapid growth of money market mutual funds mmmfs and the breakdown of distinctions between deposits of commercial banks and thrift institutions the measures of money include assets introduced by legislation such as now accounts and money market deposit accounts mmdas the didmca also deregulated interest rates on bank deposits with january 1986 completing the phase out of regulation q this paper examines the liquidity of the assets within the restructured definitions of m1 and m2 we offer empirical evidence regarding the cost of decreasing these asset holdings as well as for other bank deposits such as individual retirement accounts iras the results can be used to assess how easily they can be converted into a medium of exchange section ii features the model formulation based upon a representative household s intertemporal optimization problem with liquidity costs our study provides estimates of both relative and absolute liquidity as lippman and mccall 1986 discuss liquidity represents a fundamental characteristic of assets yet remains elusive in its measurement to this extent research seeking to measure or estimate liquidity is sparse lippman and mccall s 1986 criterion consists of the optimal expected amount of time to transform an asset into money hooker and kohn 1994 define liquidity as the difference between the asset price at its optimal sale relative to its immediate sale adjustment cost serves as our measure for liquidity this criterion conforms to commonly used definitions found in economics textbooks particularly those that emphasize asset withdrawal for transactions mishkin 1995 55 for example defines liquidity as the relative ease and speed with which an asset can be converted into a medium of exchange the adjustment cost approach measures withdrawal costs in dollar units it regards liquidity as an inherent characteristic of the asset and captures the total cost involved with changing asset holdings the implicit inclusion of time costs within the formulation is consistent with lippman and mccall 1986 asymmetry in adjustment cost arises because liquidity explicitly involves the cost of reducing asset holdings while economic units incur costs due to increasing financial assets larger costs result from withdrawal we use a minor modification of pfann and verspagen s 1989 asymmetric adjustment cost function proposed by dutkowsky 1995 the function offers several attractive properties for estimating liquidity cost it allows for asymmetry in the direction of either increases or decreases within portfolio reallocation further the commonly used linear quadratic function is nested within this equation enabling straightforward testing for greater withdrawal cost the asymmetric adjustment cost specification has been utilized previously by pfann and palm 1993 within labor demand section iii reports empirical findings we estimate the structural parameters using generalized method of moments gmm and monthly data for the december 1983 march 1993 period the results reveal significant evidence of asymmetry in the direction of decreasing asset holdings for all components except demand deposits this finding supports the existence of greater cost for withdrawing as opposed to increasing holdings among interest bearing accounts further the evidence points to a definite ordering of liquidity among several assets within this group savings deposits rank as the most liquid followed by small time deposits mmmfs and individual retirement accounts

a dual approach to measuring the nearness of near monies increasing returns to scale rts is frequently po stulated as affecting productivity in surface coal mining however it is not cl ear whether increased capital intensity or increased output is the relevant phen omenon a ray homothetic production function that incorporates the capital labor mix and fixed site geology into the scale elasticity is presented and estimated with a micro mine level dataset the results indicate that higher capital int ensity contributes to higher rts for some types of capital equipment but not al l on the average increasing rts was found with few mines approaching optimal scale copyright 1987 by mit press

work force fragmentation in latin america and its empirical manifestations in ecuador abstract the social impacts of economic transformation are of central concern to this study of the nature of work and process of work force fragmentation in ecuador workers are classified according to their social relations of production and the technical content of their work thus directly evaluating relations of power and autonomy among various labor groups the distribution of workers across labor groups in 1974 and 1982 indicates ongoing work force fragmentation with expansion in ownership managerial and highly skilled positions parallel analyses for agriculture services and manufacturing indicate the complexity of work force structure among and within these sectors

information variables for monetary policy in an estimated structural model of the euro area a small scale new keynesian model for the euro area is estimated with maximum likelihood under the assumptions of imperfect information and discretionary monetary policy the estimated parametrization of this widely used dynamic stochastic model unveils the monetary authorities objectives and the information content of two indicator variables monetary aggregates and real unit labour costs the results highlight a significant policy concern about interest rate smoothing and inflation almost no concern for output gap stabilization emerges regarding indicator variables unit labour costs provide information on potential output that is helpful for stabilization policy no useful information role emerges for monetary aggregates

monetary policy when potential output is uncertain understanding the growth gamble of the 1990s abstract t he fed kept interest rates low and essentially unchanged during the late 1990s despite a booming economy and record low unemployment these interest rates were accommodative by historical standards nonetheless inflation remained low how did the fed succeed in sustaining rapid economic growth without fueling inflation and inflationary expectations in retrospect it is evident that the productive capacity of the economy increased yet as events unfolded there was uncertainty about the expansion of the capacity of the economy and therefore about the sustainability of the fed s policy this paper provides an explanation for the success of the fed in accommodating growth with stable inflation in the late 1990s it shows that if the central bank is committed to reverse policy errors it makes because of unwarranted optimism inflation can remain in check even if the central bank keeps interest rates low because of this optimism in particular a price level target which is a simple way to model a commitment to offset errors can serve to anchor inflation even if the public does not share the central bank s optimism about shifts in potential output the paper shows that price level targeting is superior to inflation targeting in a wide range of situations the paper also provides econometric evidence that in contrast to earlier periods the fed has recently put substantial weight on the price level in setting interest rates moreover it shows that cpi announcement surprises lead to reversion in the price level finally it provides textual evidence that alan greenspan puts relatively more weight on the price level than inflation

welfare costs of inflation when interest bearing deposits are disregarded a calculation of the bias abstract most estimates of the welfare costs of inflation are devised considering only noninterest bearing assets ignoring that since the 1980s technological innovations and new regulations have increased the liquidity of interest bearing deposits we investigate the resulting bias sufficient and necessary conditions on its sign are presented along with closed form expressions for its magnitude two examples dealing with bidimensional bilogarithmic money demands show that disregarding interest bearing monies may lead to a non negligible overestimation of the welfare costs of inflation an intuitive explanation is that such assets may partially make up for the decreased demand of noninterest bearing assets due to higher inflation

global projections for root and tuber crops to the year 2020 abstract many of the developing world s poorest farmers and food insecure people are highly dependent on root and tuber crops as a contributing if not the principal source of food nutrition and cash income hence an improved understanding of the production utilization trade and estimated future economic importance of these crops has potentially far reaching implications for investments in agricultural research at both the international and perhaps even more importantly national levels previous projections for the evolution of global supply demand and trade into the 21st century however have focused on grains oilseeds and livestock this paper presents global projections of supply demand and trade for root and tuber crops to the year 2020 according to the baseline scenario roots and tubers will decline in relative economic importance only marginally vis a vis the other major food and feed crops over the next three decades according to an alternative high demand and production growth scenario the economic importance of roots and tubers versus the same commodities will increase slightly the results of this scenario contrast with earlier projections that predicted a decline in importance for roots and tubers policymakers should take cognizance of and act on the growth prospects for these crops in the past root and tuber crops have often been overlooked in policy deliberations precisely because their potential was considered more limited than actual growth rates clearly indicate or that current projections foresee

the political economy of third world food imports the case of wheat oping countries it focuses on wheat imports in the context of the wider food policy institutional and external trade environment in which these imports occur it departs substantially from the traditional econometric approaches which emphasize regional aggregates to analyze evidence at the country level where national food policies are made an analysis across countries interpreted in the light of national and international policies provides fresh insights into the political economy of rapidly increasing wheat imports wheat has special significance in the analysis of food policy and food imports in the third world first cereals constitute the bulk of third world food imports and among cereals wheat is by far the dominant food grain import in 1980 wheat accounted for an estimated 86 of food grain imports by third world countries 2 since the postwar years when europe was the major wheat buyer in international markets wheat imports have been increasingly destined for the third world including china which now accounts for two thirds of total world wheat imports in particular in the last decade wheat imports by developing countries have expanded extremely rapidly doubling

the translog utility function and the demand for money in the united states in recent years considerable effort has been directed towards establishing the nature of the relationship between money and nearmonies but with mixed success the approaches vary from multi interest rate single equation studies to the careful simultaneous equations studies summarized and amended by feige and pearce 1977 and extended recently by donovan 1978 offenbacher 1979 and barnett 1980 the empirical results also vary with numerous studies favoring only one interest rate see the surveys in fisher 1978 1983 some claiming that a variety of entities are close substitutes for money e g chetty 1969 and others showing that weak substitution or even complementarity may be the result of the measurement of elasticities of substitution between money and a number of other assets e g feige and pearce 1977 offenbacher 1979 and barnett 1980 the debate seems to have overshadowed a second and equally intriguing issue which centers on the establishment of an acceptable definition of money the basic idea of this study is to take an approach that takes account of the different degrees of moneyness possessed by the various monetary assets this paper produces quantitative estimates of the degree of substitutability of other monetary assets for money in the context of a flexible functional form model with a

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

why inflation rose and fell policy makers beliefs and u s postwar stabilization policy this paper provides an explanation for the run up of u s inflation in the 1960s and 1970s and the sharp disinflation in the early 1980s which standard macroeconomic models have difficulties in addressing i present a model in which rational policymakers learn about the behavior of the economy in real time and set stabilization policy optimally conditional on their current beliefs the steady state associated with the self confirming equilibrium of the model is characterized by low inflation however prolonged episodes of high inflation ending with rapid disinflations can occur when policymakers underestimate both the natural rate of unemployment and the persistence of inflation in the phillips curve i estimate the model using likelihood methods the estimation results show that the model accounts remarkably well for the evolution of policymakers beliefs stabilization policy and the postwar behavior of inflation and unemployment in the united states

robust monetary policy with imperfect knowledge we examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change and where private agents and the central bank possess imperfect knowledge about the true structure of the economy private agents rely on an adaptive learning technology to form expectations and update their beliefs based on incoming data policymakers follow an interest rate rule aiming to maintain price stability and to minimize uctuations of unemployment around its natural rate but are uncertain about the economy s natural rates of interest and unemployment we show that in this environment the scope for economic stabilization is signiflcantly reduced relative to an economy under rational expectations with perfect knowledge furthermore policies that would be optimal under perfect knowledge can perform very poorly when knowledge is imperfect e cient policies that take account of private learning and misperceptions of natural rates call for more aggressive responses to in ation that would be optimal under perfect knowledge we show that such policies not only improve performance in our baseline model but are also quite robust to potential misspeciflcation of private sector learning and the magnitude of variation in natural rates

uncertain potential output implications for monetary policy abstract a small forward looking model of the euro area economy is used to investigate the implications of incomplete information about potential output for the conduct of monetary policy three results emerge first under optimal monetary policy output gap uncertainty leads to persistent deviations between the actual and the perceived output gap in response to supply and cost push shocks second in first difference form a simple policy rule such as the taylor rule continues to perform relatively well as long as the output gap is optimally estimated third incomplete information implies that it is optimal to appoint a more hawkish central bank

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation