sticky prices and monetary policy evidence from disaggregated us data this paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor augmented vector autoregression estimated on a large data set on the basis of this estimation we establish eight facts 1 macroeconomic shocks explain only about 15 of sectoral inflation fluctuations 2 the persistence of sectoral inflation is driven by macroeconomic factors 3 while disaggregated prices respond quickly to sector specific shocks their responses to aggregate shocks are small on impact and larger thereafter 4 most prices respond with a significant delay to identified monetary policy shocks and show little evidence of a price puzzle contrary to existing studies based on traditional vars 5 categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least 6 the observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power 7 prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks 8 the sector specific components of prices and quantities move in opposite directions

the transactions cost approach to vertical integration an empirical examination the transactions cost approach developed by coase and williamson provides a coherent framework for investigating the determinants of vertical integration in different industries empirical implications are developed and then tested using a cross section of firm level data pooled over different time periods the results tend to confirm hypotheses regarding the internal costs of management small numbers bargaining problems and the notion of the firm as suited to adaptive sequential decision making under conditions of uncertainty it rhile there exists an extensive literature on vy theoretical rationales for vertical integration surprisingly little is known about the importance of the different theories the empirical literature includes two types of studies case studies test the applicability of a particular theory to a single firm or industry e g armour and teece 1980 perry 1980 or monteverde and teece 1982a they are susceptible to bias in their choice of industry and the generality of their results cannot be established another category of studies examines a broad base of industries to determine the relationship between vertical integration and such variables as industry concentration average firm size and sales growth e g adelman 1955 gort 1962 and tucker and wilder 1977 the link between these studies and theories of vertical integration is generally left unclear 2 this study will adopt the strategy of investigating a broad base of industries but unlike earlier studies of this type will test empirical implications following from the transactions cost approach 3 this approach as developed by coase 1937 and williamson 1975 1979 provides a coherent framework for investigating determinants of vertical integration over different industries furthermore williamson has persuasively argued that transactions cost considerations underlie such prominent reasons for vertical integration as the elimination of monopoly distortions technical complementarities supply reliability and economies in the acquisition of information the transactions cost approach is summarized and implications are developed in the first section of this paper the implications are tested using firm level data pooled over time the empirical model is presented in the second section and the results are presented in the third section the model incorporates variables not included in previous studies of vertical integration such as measures of market risk and organizational structure the results tend to confirm hypotheses regarding internal costs of management small numbers bargaining problems and the notion of the firm as an institution suited to adaptive sequential decision making a summary of the results and conclusions are contained in the final section i the transactions cost approach arrow 1969 has defined transactions costs as the cost of organizing the economic system in attempting to translate this idea into a framework for explaining the organization of economic activity williamson and others have focused on the role of opportunism and the limited capability of individuals in processing information the choice of institutional alternative depends on minimizing the costs which arise in the presence of transaction specific investments and uncertainty while a wide variety of institutional alternatives exist a simple dichotomy is adopted here for the sake of tractability following coase transactions are classified according to whether they take place in the firm or across markets market alternatives become hazardous in recurring exchanges involving transaction specific capital and efficient information processing the firm then provides a received for publication november 21 1983 revision accepted for publication december 3 1984 rutgers university this paper is based on my dissertation i would like to thank my committee armen alchian harold demsetz david mayers fred weston and my chairman benjamin klein for their helpful comments recent versions of the paper also benefited from comments made by k chung d carlton d kaserman and anonymous referees i would also like to thank participants of the transactions cost workshop at the university of pennsylvania the usual disclaimer applies 1 recent summaries of the theoretical literature on vertical integration are in warren boulton 1978 and kaserman 1978 see levy 1981 1984 for discussion of this problem 3earlier studies by armour and teece 1980 and monteverde and teece 1982 a b have successfully employed the transactions cost approach to examine vertical integration in particular industries this study differs in that it adopts the transactions cost approach to test implications across industries

involuntary unemployment in economies with efficient risk sharing abstract we study economies where employment lotteries determine random layoffs and incomes for employed and unemployed agents allocate risk efficiently we ask for which specifications are unemployed agents worse off a situation we call involuntary unemployment we show unemployed agents are worse off iff an exogenous increase in wealth decreases aggregate unemployment in a monetary economy we show that in equilibrium the unemployed are worse off iff high inflation implies high unemployment our model also generates nominal wage stickiness as an equilibrium phenomenon but neither involuntary unemployment nor nominal stickiness implies these economies are operating inefficiently or are out of equilibrium

the cyclical component of labor market polarization and jobless recoveries in the us abstract based on quarterly occupation level data from the us current population survey for 1976 2013 we exploit common cyclical employment dynamics to identify two clusters of occupations that roughly correspond to the widely discussed notion of routine and non routine jobs after decomposing the cyclical dynamics into a cluster specific structural and an occupation specific idiosyncratic component we detect significant structural breaks in the systematic dynamics of both clusters around 1990 we show that absent these breaks employment in the three jobless recoveries since 1990 would have recovered significantly more strongly than observed in the data even after controlling for observed idiosyncratic shocks

erratum to why has u s inflation become harder to forecast the article journal of money credit and banking supplement to vol 39 no 1 february 2007 contains errors in figures 2 4 and tables 4 5 associated with a coding error in our program for estimating the uc sv model we thank ling hu of platinum grove asset management for finding this error and bringing it to our attention the corrected uc sv rows for tables 4 and 5 are given below corrected versions of figures 2 4 and corrected replication files can be found at http www princeton edu mwatson

can multinational enterprises light up developing countries evidences from the access to electricity in sub saharan africa summary this paper examines the role that multinational enterprises mnes and foreign direct investments fdi can have in enhancing the access to electricity for local communities in developing countries based on the quality of home and host institutions access to electricity is a marker for development but it is far from being universal in developing countries the shortage of electricity is mainly the consequence of inability of governments in planning financing and developing necessary electricity infrastructure in this context investments from other actors can be essential particularly we focus on the role of fdi and mnes we claim that when mnes invest in developing countries they are incentivized to solve the lack of electricity infrastructure mainly for two reasons to guarantee their business activities and to gain legitimacy with their local stakeholders in addition we argue that mnes and fdi from institutionally underdeveloped countries will be more prone to develop infrastructure for the provision of electricity to local population as generally they suffer from a negative stereotype for this study we rely on 1 547 observations composed of pairs of 83 home countries and 15 host countries in sub saharan africa observed from 2005 to 2011 due to the nature of the database we adopt panel data techniques i e system gmm and corrected least square dummy variable estimators we find that fdi promotes access to electricity in developing countries with weak institutions and this is more likely true when fdi come from institutionally underdeveloped countries these results are far from obvious as they controvert common idea among institutional scholars that a regulatory authority is essential in the provision of infrastructure in conclusion with this paper we partially rehabilitate the image of mnes investing in developing countries by demonstrating that under certain conditions they could contribute to energy poverty alleviation of local population

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

bayesian learning in repeated games abstract this paper studies repeated games with a finite number of players a finite number of actions discounted payoffs and perfect recall the players initial expectations are given by a common prior distribution over player types a type being a discount rate and payoff matrix the main result is that bayesian nash equilibria have the property that with probability one players expectations asymptotically approach the set of nash equilibria for the repeated game specified by the true types journal of economic literature classification number c72

interest rates inflation and federal reserve policy since 1980 this paper characterizes federal reserve policy since 1980 as one that actively manages short term nominal interest rates in order to control inflation and evaluates this policy using a dynamic stochastic sticky price model of the united states economy the results show that the fed s policy insulates aggregate output from the effects of exogenous demand side disturbances and by calling for a modest but persistent reduction in short term interest rates following a positive technology shock helps the economy to respond to supply side disturbances as it would in the absence of nominal rigidities

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

what do unions maximise evidence from survey data highly formalised models of union behaviour have been developed and are widely used within neoclassical economics this approach is justified by the argument that most goals pursued by unions can be reduced to a wage or wage equivalent employment trade off however the strong assumptions made about union goals and preferences how these are determined and the range of issues over which a union will seek to bargain with a firm are not supported by extensive empirical evidence this paper explores these issues through a survey of union leaders to ascertain the range of union goals and their preferences and the types of issues over which unions bargain with employers the results of the survey present convincing evidence that standard neoclassical models do not adequately capture union bargaining behaviour or union goals and preferences the findings presented here also throw open but do not resolve the question of whether unions are rational maximisers the most inter esting result not widely found within the economics or industrial relations literature concerns the nature of union bargaining preferences union bargaining over employment appears to be asymmetric around current levels of employment in that unions appear to care more about the employment implications of their bargain ing strategies when they are likely to result in employment decreases

on the limits to rational learning abstract this paper summarizes recent work of foster and young 2001 which shows that some games are unlearnable in principle by perfectly rational players that is under any learning rule including bayesian updating of common priors the players strategies fail to come close to nash equilibrium with probability one furthermore at least one of them is unable to predict the behavior of the other in an asymptotic sense this result can be interpreted as an uncertainty principle that applies to some kinds of interactive learning problems

the labor supply response to mismeasured but predictable wage changes most panel data studies of intertemporal labor supply assume classical measurement error recent validation studies refute this assumption in this study i address nonclassical measurement error explicitly i use data on males from the panel study of income dynamics validation study to purge measurement error from the panel study of income dynamics i find a large amount of predictable wage variation in the data even after allowing for measurement error however there is almost no labor supply response to these predictable wage changes therefore failure to control for nonclassical measurement error cannot explain the low estimated labor supply elasticities in other papers

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

the economics of large scale infrastructure fdi the case of project finance in this paper a theoretical framework is developed to explain why multinational enterprises invest in infrastructure through the mode of project finance pf instead of using corporate finance infrastructure assets are susceptible to creeping expropriation from host governments and to hold up from concentrated suppliers buyers corporate finance based foreign direct investment fdi cannot fully mitigate these threats however pf based fdi through strategic use of capital structure chiefly high leverage and syndicate structure of debt improves the bargaining position of firms in ex post recontracting negotiations high leverage precommits cash flows serves as a monitoring and early warning mechanism that reveals creeping expropriation induces lenders to join renegotiations and reduces reported net profits the syndicate structure of debt creates a reputation effect for host countries high debt shields wealth from concentrated suppliers buyers while separate incorporation in pf allows suppliers buyers to hold equity stakes this theoretical framework is tested by assembling a database of 200 investments worth 159 97 billion by 167 firms in 128 countries over 17 years sample selection bias is controlled for through heckman probit specification the hypothesis that pf based fdi helps mitigate hold up from concentrated suppliers buyers finds strong support while the hypothesis that pf mitigates country risk finds limited support

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

unions power collective bargaining and optimal monetary policy we study ramsey policies and optimal monetary policy rules in a model with sticky prices and unionized labour markets collective wage bargaining and unions monopoly power dampen wage uctuations and amplify employment uctuations relatively to a dnk model the optimal

fictitious play property for games with identical interests abstract ann person game has identical interests if it is best response equivalent in mixed strategies to a game with identical payoff functions it is proved that every such game has the fictitious play property journal of economic literatureclassification numbers c72 c73

lending relationships and labor market dynamics abstract motivated by a negative link between credit spreads and labor force participation lfp and a positive link between these spreads and unemployment over the business cycle we study the role of lfp as an amplification mechanism of financial shocks in a labor search model with endogenous lfp lending relationships and credit market disruptions amid aggregate productivity and financial shocks that replicate the empirical volatility of lfp and credit spreads the model produces highly volatile unemployment and vacancies countercyclical credit spreads and unemployment and procyclical lfp when we quantitatively match the cyclical behavior of credit spreads the interaction between endogenous lfp and financial shocks gives rise to much sharper vacancy fluctuations and plays a key role in generating quantitatively factual cyclical labor market dynamics

job polarization and jobless recoveries job polarization refers to the shrinking share of employment in middle skill routine occupations experienced over the past 35 years jobless recoveries refers to the slow rebound in aggregate empl

three problems in learning mixed strategy nash equilibria this paper discusses three problems that can prevent the convergence of learning mechanisms to mixed strategy nash equilibria first while players expectations may converge to a mixed equilibrium the strategies played typically fail to converge second even in 2 2 games fictitious play can produce a sequence of frequency distributions in which the marginal frequencies converge to equilibrium mixed strategies but the joint frequencies violate independence third in a three player matching pennies game with a unique equilibrium it is shown that if players learn as bayesian statisticians then the equilibrium is locally unstable journal of economic literature classification numbers c72 c73 d83

examining asymmetries in the transmission of monetary policy in the euro area evidence from a mixed cross section global var model abstract i estimate the transmission of a common euro area monetary policy shock across individual euro area economies to do so i develop a global var model in which all euro area economies are included individually while at the same time their common monetary policy is modelled as a function of euro area aggregate output growth and inflation the results suggest that the transmission of monetary policy across euro area economies displays asymmetries and that in line with economic theory these are driven by differences in economies structural characteristics in particular euro area economies in which a higher share of aggregate output is accounted for by sectors servicing interest rate sensitive demand exhibit a stronger transmission of monetary policy to real activity similarly even though the evidence is less conclusive euro area economies which feature more real wage and or fewer unemployment rigidities also appear to display a stronger transmission of monetary policy to real activity

holdups standard breach remedies and optimal investment in bilateral trading problems the parties may be hesitant to make relationship specific investments without adequate contractual protection we postulate that the parties can sign noncontingent contracts prior to investing and can freely renegotiate them after information about the desirability of trade is revealed we find that such contracts can induce one party to invest efficiently when courts impose either a breach remedy of specific performance or expectation damages moreover specific performance can induce both parties to invest efficiently if a separability condition holds expectation damages on the other hand is poorly suited to solve bilateral investment problems forthcoming the american economic review please contact the program in law and economics at boalt hall school of law uc berkeley berkeley ca 94720 for a copy of this paper

optimal monetary policy in economies with dual labor markets abstract we present a dynamic stochastic general equilibrium dsge new keynesian model with indivisible labor and a dual labor market a walrasian one where wages are fully flexible and a unionized one characterized by real wage rigidity we show that the negative effect of a productivity shock on inflation and the positive effect of a cost push shock are crucially determined by the proportion of firms that belong to the unionized sector the larger this number the larger are these effects consequently the larger the union coverage the larger should be the optimal response of the nominal interest rate to exogenous productivity and cost push shocks the optimal inflation and output gap volatility increases as the number of the unionized firms in the economy increases

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

the impact of employment tax cuts on unemployment and wages the role of unemployment benefits and tax structure abstract i model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models competitive union bargaining search and efficiency wages i find that if the ratio of unemployment compensation to wages is fixed the effect of the tax cut is mainly on wages but if income out of work is fixed in real terms there are substantial employment effects when wages are determined by bargaining revenueneutral reforms that make the tax more progressive also reduce unemployment thus policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment

pricing production and persistence though built with increasingly precise microfoundations modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks as recently stressed by chari kehoe and mcgrattan 2000 this is an ironic finding since taylor 1980 and other researchers were motivated to study sticky price models in part by the objective of generating large and persistent business fluctuations we trace this lack of persistence to a standard view of the cyclical behavior of real marginal cost built into current sticky price macro models using a fully articulated general equilibrium model we show how an alternative view of real marginal cost can lead to substantial persistence this alternative view is based on three features of the supply side of the economy that we believe are realistic an important role for produced inputs variable capacity utilization and labor supply variability through changes in employment importantly these real flexibilities work together to dramatically reduce the elasticity of marginal cost with respect to output from levels much larger than unity in ckm to values much smaller than unity in our analysis these real flexibilities consequently reduce the extent of price adjustments by firms in time dependent pricing economies and the incentives for paying fixed costs of adjustment in state dependent pricing economies the structural features also lead the sticky price model to display volatility and comovement of factor inputs and factor prices that are more closely in line with conventional wisdom about business cycles and various empirical studies of the dynamic effects of monetary shocks federal reserve bank of philadelphia boston university nber and frb richmond this paper builds on earlier joint work with alexander l wolman on this topic we wish to thank brian boike for providing excellent research assistance and also to thank the referees and the editor for making numerous useful suggestions the views expressed in this article are those of the authors and do not necessarily represent those of the federal reserve bank of philadelphia the federal reserve bank of richmond or the federal reserve system

unemployment vacancies and the long term unemployed this paper is concerned with two related features of the labor market the ratio of long term to total unemployment r and the relat ionship between unemployment and vacancies the u v curve a model is developed to explain r in terms of the average probability that an unemployed person will find a job within a particular time period when the authors add the empirically confirmed hypothesis that this exit probability is lower for the long term than it is for the short term unemployed the n the model is consistent with the observed pattern of unemployment copyright 1988 by royal economic society

transactions cost economics and the multinational enterprise an assessment abstract this paper applies transactions cost principles to the multinational enterprise in order to ascertain its distinctive properties as a mode of economic organization the analysis helps identify just when and where contractual alternatives to the multinational firm are likely to be viable this turns out to depend upon the nature of the technology the regime of appropriability within which the firm operates and the characteristics of the markets in question transactions cost analysis is also extended to the multinational enterprise host country relationship implications for management and public policy are derived

unemployment and the business cycle abstract this paper presents a dynamic general equilibrium model where labor effort is imperfectly observable and there is unemployment in equilibrium in contrast to shirking models in the efficiency wage literature detected shirkers are not dismissed instead they face a monetary punishment because they forgo an increase in their compensation estimated versions of the model can generate the high variation in employment and low variation of real wages observed over the business cycle and are consistent with existing qualitative evidence about the responses of the economy to fiscal policy shocks

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

what drives the global land rush the authors review evidence regarding the size and evolution of the land rush in the wake of the 2007 8 boom in agricultural commodity prices and authors study the determinants of foreign land acquisition for large scale agricultural investment the use of data on bilateral investment relationships to estimate gravity models of transnational land intensive investments confirms the central role of agro ecological potential as a pull factor however this finding contrasts the standard literature insofar as the quality of the destination country s business climate is insignificant and weak tenure security is associated with increased interest for investors to acquire land in the country policy implications are discussed

non atomistic wage setters and monetary policy in a new keynesian framework this paper extends an otherwise standard new keynesian nk model to allow for the presence of large wage setters building on monetary models from an earlier generation i contribute to the nk literature by adding some new insight it is shown that once the presence of large wage setters is taken into account the degree of wage setting centralization and the aggressiveness of the central bank in stabilizing inflation jointly affect steady state employment because of this interaction the benefits associated with inflation stabilization increase in the centralization of the wage bargaining process

unemployment and business cycles we develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates including labor market variables in sharp contrast to leading new keynesian models we do not impose wage inertia instead we derive wage inertia from our specification of how firms and workers negotiate wages our model outperforms a variant of the standard new keynesian calvo sticky wage model according to our estimated model there is a critical interaction between the degree of price stickiness monetary policy and the duration of an increase in unemployment benefits

the role of labor markets for euro area monetary policy in this paper we explore the role of labor markets for monetary policy in the euro area in a new keynesian model in which labor markets are characterized by search and matching frictions we first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy we find that while a lower degree of wage rigidity makes monetary policy more effective i e a monetary policy shock transmits faster onto inflation the importance of other labor market rigidities for the transmission of shocks is rather limited second having estimated the model by bayesian techniques we analyze to which extent labor market shocks such as disturbances in the vacancy posting process shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations in sum the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy

a non walrasian labor market in a monetary model of the business cycle abstract this paper investigates to what extent a new keynesian monetary model with the addition of a microfounded non walrasian labor market solely based on union bargaining is able to replicate key aspects of the business cycle the presence of a representative union offers an explanation for two features of the cycle first it generates an endogenous mechanism which produces persistent responses to both supply and demand shocks second labor unionization reduces the elasticity of marginal costs to output this leads to lower inflation volatility model simulations show that the unionized framework can better reproduce european business cycle data than can a model with a competitive labor market

the phillips and beveridge curves revisited abstract this paper extends the labor market search model to account for monopolist intermediate good firms who face price adjustment costs we show quantitatively that embedding monetary shocks in this framework allows to mimic the phillips and beveridge curves

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

innocent bystanders monetary policy and inequality abstract we study the effects of monetary policy shocks on and their historical contribution to consumption and income inequality in the united states since 1980 as measured by the consumer expenditure survey contractionary monetary policy systematically increases inequality in labor earnings total income consumption and total expenditures furthermore monetary policy shocks account for a non trivial component of the historical cyclical variation in income and consumption inequality using detailed micro level data on income and consumption we document some of the different channels via which monetary policy shocks affect inequality as well as how these channels depend on the nature of the change in monetary policy

financial contracting and leverage induced over and under investment incentives this paper investigates the effects of seniority rules and restrictive dividend convenants on the over and under investment incentives associated with risky debt we show that increasing seniority of new debt decreases the incidence of under investment but increases over investment and vice versa under symmetric information the optimal seniority rule is to give new debtholders first claim on a new project without recourse to existing assets i e project financing under asymmetric information the optimal debt contract requires equating the expected return to new debtholders in the default state to the new project s cash flow in the same rate if this is not possible the optimal seniority rule calls for strict subordination of new debt if the expected cash flow in default is small and full seniority if it is large with regard to dividend convenants we show that their effect depends on whether or not dividend payments are conditioned on future investments when they are unconditioned allowing more dividends increases the under investment incentive in contrast conditional dividends decrease the underinvestment incentive and increase the over investment incentive

does collective wage bargaining restore efficiency in a search model with large firms existing search and bargaining models show that firms hire an inefficiently large number of workers we ask whether decentralised collective wage bargaining may result in a second best allocation collective bargaining restores efficiency when the bargained wage is independent of employment conditions that we characterise firms then behave as if collective bargaining was over both wages and employment thus linking the large firm search and bargaining environment to the efficient bargaining model mcdonald and solow 1981 under more realistic conditions workers can bargain for a share of output so that the wage is then a function of employment in equilibrium firms are too large and firm entry is inefficient

the heterogeneous impact of monetary policy on the us labor market abstract we empirically investigate the role of central banks in the context of heterogeneous labor markets jobless recoveries and job polarization specifically we estimate the effect of monetary policy on the us labor market using disaggregated time series based on large scale survey data the impact of interest rate changes on unemployment in 32 occupation groups is explored in a bayesian factor augmented vector autoregression framework the results suggest largely heterogeneous impacts across various occupation groups this heterogeneity can be explained by differential task profiles of the workers in their respective occupations workers with tasks that are easily automated or offshored as well as workers at the bottom of the skill distribution are disproportionately affected following a monetary policy shock this implies that labor market participants that are highly vulnerable to structural developments such as skill biased technological change and the globalization of labor markets are also most sensitive to conventional monetary policy measures from a policy perspective we conclude that central banks are unlikely to be able to take on a stabilizing role in the context of labor market polarization

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

unionization incomplete contracting and capital investment this article examines empirically the hypothesis that incomplete contracts and resulting opportunistic behavior over the return to sunk assets reduces investment union firm contracts are incomplete because they 1 do not prevent all actions aimed at changing the existing contract 2 cover a relatively short time period and 3 do not extend to union members yet to be hired the primary response of firms is to reduce investment in specific durable assets and also to reduce employment growth and increase debt the authors find fairly strong evidence of these effects in a sample of large publicly traded firms using firm specific measures of unionization copyright 1993 by university of chicago press

spillover effects from euro area monetary policy across europe a factor augmented var approach i analyze spillover effects from a euro area monetary policy shock to fourteen european countries outside the euro area the analysis is based on a factor augmented var model with two blocks which exploits a large cross country data set after a euro area monetary policy expansion production increases in most non euro area countries whereas short term interest rates and financial uncertainty decline these effects are on average comparable to the responses in the aggregate euro area however the size of spillover effects varies with country characteristics spillovers on production are larger in non euro area economies with higher trade openness whereas financial variables react to a higher extent in countries with higher financial integration regarding the exchange rate regime countries with fixed exchange rates show stronger spillovers both in terms of production and interest rates finally prices increase in western european economies outside the euro area but decline or do not respond in central and eastern europe

learning mixed equilibria we study learning processes for finite strategic form games in which players use the history of past play to forecast play in the current period in a generalization of fictitious play we assume only that players asymptotically choose best responses to the historical frequencies of opponents past play this implies that if the stage game strategies converge the limit is a nash equilibrium in the basic model plays seems unlikely to converge to a mixed strategy equilibrium but such convergence is natural when the stage game is perturbed in the manner of harsanyi s purification theorem journal of economic literature classification number c72

determinants of vertical integration an empirical test this paper tests models of vertical integration with emphasis on incentives that arise from transactions costs and demand variability the tests are based on a logit analysis of firms backward integration choices in a sample of thirty four chemical products the results are consistent with recent transactions cost theories and the demand variability model proposed by carlton 1979 copyright 1991 by blackwell publishing ltd

term structure views of monetary policy under alternative models of agent expectations abstract term structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis small differences in the perceived policy reaction function in var models of agent expectations strongly influence the relevance in the transmission mechanism of the expected short rate component of bond yields mean reverting or difference stationary characterizations of interest rates require large and volatile term premiums to match the observable term structure however short rate descriptions that capture shifting perceptions of long horizon inflation evident in survey data support a more substantial term structure role for short rate expectations