bond liquidity premia recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries in the us the repo market is the key funding market then the premium of on the run u s treasury bonds should share a common component with risk premia in other markets

tips from tips the informational content of treasury inflation protected security prices treasury inflation protected securities tips are frequently thought of as risk free real bonds using no arbitrage term structure models we show that tips yields exceeded risk free real yields by as much as 100 basis points when tips were first issued and up to 300 basis points during the 2007 2008 financial crisis this spread predominantly reflects the poorer liquidity of tips relative to nominal treasury securities other factors including the indexation lag and the embedded deflation protection in tips play a much smaller role ignoring this spread also significantly distorts the informational content of tips break even inflation a widely used proxy for expected inflation

monetary policy uncertainty and the response of the yield curve to policy shocks this paper studies the non linear response of the term structure of interest rates to monetary policy shocks and presents a new stylized fact we show that uncertainty about monetary policy changes the way the term structure responds to monetary policy a policy tightening leads to a significantly smaller increase in long term bond yields if policy uncertainty is high at the time of the shock we also look at the decomposition of bond yields into expectations about future policy and the term premium the weaker response of yields is driven by the fall in term premia which fall even more if uncertainty about policy is high these findings are robust to the measurement of monetary policy uncertainty the definition of the monetary policy shock and to changing the model specification conditional on a monetary policy shock higher uncertainty about monetary policy tends to make yields of longer maturities relatively more attractive as a consequence investors demand even lower term premia this intuition is supported by long term monetary pol icy disagreement which leads to opposite effects with term premia increasing even more after a policy shock

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

quantitative restrictions in the presence of cost based informational asymmetries this study introduces a cost based informational asymmetry into a two period model where a domestic incumbent firm s behavior in the first period affects the entry decision of a foreign firm in the second period the effects of import quota policy within this environment are examined and compared to the standard full information effects when quota quantities are set exogenously the standard effects of quota policy may be significantly altered depending on whether or not policy induces the domestic firm to signal cost structure for example higher quotas may discourage foreign entry because of the induced signaling effects of quota policy recognition that incomplete information is the rule rather than the exception when decisionmakers interact in an international setting has stimulated an emerging literature on the effects of trade policy in the presence of informational failures particularly germane to the present study are those papers that introduce an informational asymmetry into an international model of imperfect competition the majority of this literature examines the sensitivity of optimal strategic trade policy to information failures within a brander spencer 1985 model where the domestic and foreign firms compete for export sales to a third market and either the domestic or foreign government employs export subsidies collie and hviid 1993 qiu 1994 maggi 1995 brainard and martimort 1997 wright 1998 collie and hviid 1994 on the other hand allow for domestic consumption and consider optimal import policy in the presence of a foreign monopolist analysis that focuses on the positive effects of trade policy in the presence of informational failures is more limited one such example is a study by hartigan 1994 which considers the effects of antidumping duties to date however there has been no analysis of how and whether the introduction of an informational failure alters the effects of quantitative restrictions to trade the aim of the present study is to extend the existing literature by examining the effects of a quantitative restriction to trade in the presence of a cost based informational asymmetry within a standard two period entry model 2 during the initial time period a domestic firm supplies the home market and

term structures of inflation expectations and real interest rates i use a statistical model to combine various surveys to produce a term structure of inflation expectations inflation expectations at any horizon and an associated term structure of real interest ra

uk term structure decompositions at the zero lower bound this paper employs a zero lower bound zlb consistent shadow rate model to decompose uk nominal yields into expectation and term premium components compared to a standard affine term structure model it performs relatively better in a zlb setting by capturing the stylized facts of the yield curve the zlb model is then exploited to estimate inflation expectations and risk premiums this entails jointly pricing and decomposing nominal and real uk yields we find evidence that medium and long term inflation expectations are contained within narrower bounds since the early 1990s suggesting monetary policy credibility improved after the introduction of inflation targeting

industrial relations performance economic performance and qwl programs an interplant analysis this study analyzes the relationship among plant level measures of industrial relations performance economic performance and quality of working life programs the analysis employs pooled time series and cross section data from 18 plants within a division of general motors for the years 1970 79 the empirical results show strong associations between industrial relations and economic performance measures and limited support for the hypothesis that quality of working life efforts improve both kinds of performance

tariffs with private information and reputation abstract several tariff games are examined in which the home country has private information about whether its government is a low or high tariff type if the foreign government is uncertain about this type in a one shot game its nash equilibrium tariff will be lower higher than if it knew the home government were a low high tariff type in two multistage games misleading behavior by the home government is an equilibrium strategy for sufficiently high discount factors whether or not uncertainty is persistent is important for welfare results tariff rules do not necessarily dominate discretionary policy in these models

incentive compatible trade policies a two country trade model with production uncertainty is considered if complete contingent markets do not exist it is desirable for governments to adopt some trade policies to share the production risk a full information policy involves incomes transfers across countries which can be achieved by equal import tariffs and export subsidies with incomplete information we consider incentive compatible trade policies which are designed to be truth revealing while partially sharing the production risk in this case the tariff in one country may differ from the export subsidy abroad

term premia and inflation uncertainty empirical evidence from an international panel dataset this paper provides cross country empirical evidence on bond risk premia i construct a panel of zero coupon nominal government bond yields spanning ten industrialized countries and nearly two decades i hence compute forward rates and then use two different methods to decompose these forward rates into expected future short term interest rates and term premiums the first method uses an affine term structure model with macroeconomic variables as unspanned risk factors the second method uses surveys i find that term premium estimates declined across countries over the sample period especially in countries that appear to have reduced inflation uncertainty by making substantial changes in the monetary policy frameworks of their central banks during the recent financial crisis term premiums have remained flat and even declined further in some countries perhaps reflecting the effects of quantitative easing actions by many central banks

unions wages and productivity some evidence from uk engineering firms estimates of union wage and productivity effects are derived using primary micro level panel data for a sample of firms in the uk engineering industry union wage differentials of the order of 10 are suggested from the results whereas union productivity impacts appear to be non linear with respect to union density

the great moderation of the term structure of uk interest rates abstract the conduct of monetary policy the term structure of interest rates and the structure of the economy in the uk have changed over the post wwii period we model the interaction between the macroeconomy and financial markets using a time varying var augmented with the factors from the yield curve there is evidence of a great moderation in the dynamics of the yield curve with the factors being persistent and volatile before the introduction of inflation targeting in 1992 but becoming stable afterwards the introduction of time variation in the factor augmented var improves the fit of the model and results in expectation hypothesis consistent yields that are close to actual yields even at long maturities monetary policy shocks had a significant impact on the volatility of inflation output and the policy rate over the pre inflation targeting era but their contribution has been negligible under the current regime shocks to the level of the yield curve accounted for a large fraction of inflation variability only before 1992

inflation expectations real rates and risk premia evidence from inflation swaps this paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short term real interest rate expected inflation inflation s central tendency and four volatility factors that follow garch processes we derive analytical solutions for nominal bond yields yields on inflation indexed bonds that have an indexation lag and the term structure of expected inflation unlike prior studies the model s parameters are estimated using data on inflation swap rates as well as nominal yields and survey forecasts of inflation the volatility state variables fully determine bonds time varying risk premia and allow for stochastic volatility and correlation between bond yields yet they have small effects on the cross section of nominal yields allowing for time varying volatility is particularly important for real interest rate and expected inflation processes but long horizon real and inflation risk premia are relatively stable

the choice of techniques and the optimality of market equilibrium with rational expectations this paper shows that in the absence of a complete set of risk markets prices provide incorrect signals for guiding production decisions even if all individuals have rational expectations concerning the distribution of prices which will prevail on the market next period the market allocation is in general not a constrained pareto optimum essentially the only conditions under which for all technologies the market equilibrium is a constrained pareto optimum are those in which risk markets are redundant we derive the necessary and sufficient conditions for redundancy of risk markets which turn out to be extremely restrictive

does hidden information make trade liberalization more fragile this paper focuses on the impact of hidden information on strategic interaction in the context of trade agreements in the presence of informational asymmetry it is possible that a tradeoff between liberalization and sustainability of cooperation emerges it is shown that it may be optimal to agree on a degree of liberalization associated with a strictly positive ex ante probability of deviation occurring in that case cooperation will break down in finite time and the optimal degree of liberalization cannot be applied indefinitely ce memoire etudie l impact de l information cachee sur l interaction strategique dans le contexte des accords de commerce quand il y a asymetrie de l information il est possible qu emerge une relation d equivalence entre la liberalisation et la viabilite de la cooperation on montre qu il peut etre optimal de s entendre sur un degre de liberalisation associea une probabilite ex ante strictement positive qu une deviation va se produire dans ce cas la cooperation va s effriter dans une periode finie et le degre optimal de liberalisation ne tient pas indefiniment

how much does absenteeism cost this paper presents evidence on the output loss resulting from absenteeism hedonic wage equations are estimated over two different data sets the 1972 1973 quality of employment survey and the pooled may 1973 1975 current population survey to calculate the cost in terms of reduced output and increased labor costs per payroll hour also a manufacturing production function is estimated to directly compute the productivity loss the results indicate that the effect of absenteeism on output is quite small a 10 percentage point increase in the absence rate is associated with at most a 2 1 percent decrease in the wage

how unions affect productivity in manufacturing plants this study investigates several hypotheses as to how unions may affect productivity analysis of data from 46 manufacturing plants for 1982 indicates a negative union impact on productivity the author finds evidence suggesting that unions reduce the effectiveness of some managerial practices undertaken to increase productivity and that a poor labor management relations climate also reduces productivity these two factors account for almost 50 percent of the negative union impact

changes in uk monetary policy rules and discretion in practice abstract in october 1992 following sterling s departure from the exchange rate mechanism britain adopted a new framework for monetary policy that comprised two components first an explicit target for inflation and second institutional changes designed to give greater influence to the bank of england by increasing the transparency and openness of the process by which interest rates are set this paper analyses those changes from the perspective of the debate on rules versus discretion and argues that an appropriate design of institutional arrangements can provide incentives for central bankers to pursue the first best state contingent monetary policy

optimal food price stabilization in a small open developing country in poor countries most governments implement policies aiming to stabilize the prices of staple foods which often include storage and trade measures insulating their domestic market from the world market it is of crucial importance to understand the precise motivations and efficiency of those interventions because they can have consequences worldwide this paper addresses those issues by analyzing the case of a small open developing country confronted by shocks to both the crop yield and foreign price in this model government interventions may be justified by the lack of an insurance market for food prices considering this market imperfection the authors design optimal public interventions through trade and storage policies they show that an optimal trade policy largely consists of subsidizing imports and taxing exports which benefits consumers at the expense of producers import subsidies alleviate the non negativity of food storage in other words when stocks are exhausted subsidizing imports prevents domestic price spikes one striking result an optimal storage policy on its own is detrimental to consumers since its stabilizing benefits leak into the world market and it raises the average domestic price by contrast an optimal combination of storage and trade policies results in a powerful stabilizing effect for domestic food prices

the impact of union management cooperation on productivity and employment this study examines the effects of union management cooperative programs on productivity and employment the author collected productivity and employment data for each of nine manufacturing plants at monthly time intervals over a period of four to five years from two years before to at least two years after the introduction of the cooperative program regression analysis of these time series data is supplemented by qualitative data from personal interviews and relevant records the results show that after introduction of the cooperative programs productivity increased in six of the eight firms in which it could be measured and employment remained stable in eight of the nine firms

employment with asymmetric information in an economy without informational and other distortions entrepreneurs and workers can write labor contracts that support a pareto optimal allocation of resources this paper is an attempt to characterize contracts when enterpreneurs are better informed about the state of nature than are their workers asymmetric information generally results in a suboptimal allocation of both risk and worker effort in particular if consumption and leisure are perfect substitutes employment will be less than fully pareto optimal in all but the most favorable states of nature

do markets care who chairs the central bank this paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy to measure these effects we assemble a new dataset of appointment announcements from 15 countries and conduct an event study analysis on exchange rates bond yields and stock prices our main findings are threefold first exchange rates and bond yields display a statistically significant response to the announcement of a new governor especially when the appointee s identity was not anticipated in advance second the reactions are especially pronounced for central banks lacking either independence or a clear nominal anchor third new governors are not generally perceived to lack credibility there is no tendency for announcements to be associated with jumps in inflation expectations

high frequency identification of monetary non neutrality the information effect we present estimates of monetary non neutrality based on evidence from high frequency responses of real interest rates expected inflation and expected output growth our identifying assumption is that unexpected changes in interest rates in a 30 minute window surrounding scheduled federal reserve announcements arise from news about monetary policy in response to an interest rate hike nominal and real interest rates increase roughly one for one several years out into the term structure while the response of expected inflation is small at the same time forecasts about output growth also increase the opposite of what standard models imply about a monetary tightening to explain these facts we build a model in which fed announcements affect beliefs not only about monetary policy but also about other economic fundamentals our model implies that these information effects play an important role in the overall causal effect of monetary policy shocks on output

optimal strategic trade policy under asymmetric information abstract when cost is private information in the brander spencer model the home government is confronted by a decision of choosing between two policy options a menu of policies and a uniform policy the former induces separation and so reveals the cost information to the foreign competitors the latter helps the weak firm by concealing the cost information the main result from this study is that policy menu is preferred to uniform policy under cournot competition while the opposite occurs under bertrand competition

core and crust consumer prices and the term structure of interest rates we propose a model for nominal and real term structures of interest rates that includes dynamics for the three main components of total inflation core food and energy these dynamics combine together to produce a measure of expected total inflation that investors use to price nominal treasuries this framework captures different frequencies in inflation fluctuations shocks to core are more persistent and less volatile than shocks to food and especially energy the crust we find that a common structure of latent factors determines and predicts the term structure of yields and inflation our model outperforms popular benchmarks e g arma var and random walk specifications and it is at par with the survey of professional forecasters in forecasting inflation moreover we estimate real rates that agree with inflationindexed bond yields after adjusting for the liquidity premium in these bonds finally inflation and real rate risk premia show a declining pattern consistent with the changing nature of inflation and real rate risks

dissecting long term bund yields in the run up to the ecb s public sector purchase programme abstract in the run up to the ecb s public sector purchase programme in march 2015 german government bond yields declined significantly using an affine term structure model we provide evidence that the yield declines are almost fully attributable to a decline in the term premium as opposed to the expectations component this speaks in favour of a portfolio re balancing channel being at work rather than a policy rate signalling channel the result proves robust against changing the number of factors in the model the estimation sample and the estimation approach

real interest rates leverage and bank risk taking do low interest rate environments lead to greater bank risk taking we show that when banks can adjust their capital structures reductions in real interest rates lead to greater leverage and higher risk for any downward sloping loan demand function however if the capital structure is fixed the effect depends on the degree of leverage following a decrease in interest rates well capitalized banks increase risk while highly levered banks may decrease it if loan demand is linear or concave further the capitalization cutoff depends on the degree of bank competition this effect therefore should vary across countries and over time

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

unionism and productivity in west virginia coal mining this study presents econometric estimates of the effects of unionism on productivity in 83 west virginia coal mines in the early 1920s the size detail and panel structure of the data set permit investigation of many possible links between unionism and productivity in contrast to the summary measures reported by most studies the results show that the union effect was not uniform across mines and cannot be represented by a simple shift parameter rather unionism significantly reduced productivity at small mines but not at large mines drawing on historical evidence the author ascribes this differential effect to systematic differences between small and large operations in the quality of management and union leadership

is financial openness bad for education a political economy perspective on development abstract this paper presents a simple model of the links between education democratization and economic development in a context of imperfect capital markets we investigate the incentives for a capitalist oligarchy to subsidize the education of poor workers and to initiate a political transition it is shown that international financial liberalization while stimulating physical capital accumulation reduces the capitalist elite willingness to subsidize domestic human capital accumulation in the medium run it thus delays without necessarily impeding the process of democratization

the effects of grievance activity on productivity this study develops and tests a production function that includes a plant s grievance filing rate as a determinant of productivity application of that function to data on nine unionized paper mill

channels of us monetary policy spillovers to international bond markets abstract we show significant us monetary policy mp spillovers to international bond markets our methodology identifies us mp shocks as the change in short term treasury yields around federal open market committee meetings and traces their effects on international bond yields using panel regressions we emphasize three main results first us mp spillovers to long term yields have increased substantially after the 2007 2009 global financial crisis second spillovers are large compared with the effects of other events and at least as large as the effects of domestic mp after 2008 third spillovers work through different channels concentrated in risk neutral rates expectations of future mp rates for developed countries but predominantly on term premia in emerging markets in interpreting these findings we provide evidence consistent with an exchange rate channel according to which foreign central banks face a trade off between narrowing mp rate differentials or experiencing currency movements against the us dollar developed countries adjust in a manner consistent with freely floating regimes responding partially with risk neutral rates and partially through currency adjustments instead emerging countries display patterns consistent with foreign exchange interventions which cushion the response of exchange rates but reinforce capital flows and their effects in bond yields through movements in term premia our results suggest that the endogenous effects of currency interventions on long term yields should be added into the standard cost benefit analysis of such policies

inflation expectations and risk premiums in an arbitrage free model of nominal and real bond yields differences between yields on comparable maturity u s treasury nominal and real debt the so called breakeven inflation bei rates are widely used indicators of inflation expectations however better measures of inflation expectations could be obtained by subtracting inflation risk premiums from the bei rates we provide such decompositions using an estimated affine arbitrage free model of the term structure that captures the pricing of both nominal and real treasury securities our empirical results suggest that long term inflation expectations have been well anchored over the past few years and inflation risk premiums although volatile have been close to zero on average

a new normal for interest rates evidence from inflation indexed debt the downtrend in u s interest rates over the past two decades may partly reflect a decline in the longer run equilibrium real rate of interest we examine this issue using dynamic term structure m

the term structure of inflation expectations we use information in the term structure of survey based forecasts of inflation to estimate a factor hidden in the nominal yield curve we construct a model that accommodates forecasts over multiple horizons from multiple surveys and treasury real and nominal yields by allowing for differences between risk neutral subjective and objective probability measures we establish that model based inflation expectations are driven by inflation output and one latent factor we find that this factor affects inflation expectations at all horizons but has almost no effect on the nominal yields that is the latent factor is hidden we show that this hidden factor is not related to either current and past inflation or the standard set of macro variables studied in the literature consistent with the theoretical property of a hidden factor our model outperforms a standard macro finance model in its forecasting of inflation and yields

the effect of unions on productivity in a multinational manufacturing firm this paper examines the effect of unions on productivity in 31 plants of a large multinational firm in the years 1975 82 the plants 60 percent of which are unionized all produce a similar line of products using material intensive labor intensive low technology methods results obtained by estimating a translog production function indicate that unionization s overall effect on productivity is positive specific findings are that unionization increases the capital labor ratio and improves management performance but it also raises the absenteeism rate a net positive effect on productivity remains even when these channels of union influence are controlled for a result that the author suggests may reflect an improved labor relations climate or improved labor quality associated with unionization

decomposing real and nominal yield curves abstract inflation indexed and nominal yield curves capture investors expectations of real short rates and inflation as well as their required compensation for bearing liquidity inflation and real interest rate risk we estimate an affine term structure model that allows us to decompose real and nominal bond yields into these components and use the model to study the transmission of monetary policy the model decompositions imply that the federal reserve s announcements of lsaps lowered yields primarily by reducing real term premia changes in real term premia also account for the strong response of long term real forward rates to federal funds rate surprises

the economics of options implied inflation probability density functions recently a market in options based on cpi in ation in ation caps and oors has emerged in the us this paper uses quotes on these derivatives to construct probability densities for in ation we study how these pdfs respond to news announcements and nd that the implied odds of de ation are sensitive to certain macroeconomic news releases we compare the option implied probability densities with those obtained by time series methods and use this information to construct empirical pricing kernels the options implied densities assign considerably more mass to extreme in ation outcomes either de ation or high in ation than do their time series counterparts this yields a u shaped empirical pricing kernel with investors having high marginal utility in states of the world characterized by either de ation or high in ation

union effects on productivity profits and growth has the long run arrived this article interprets literature examining union effects on economic performance production function studies indicate small overall union impacts on productivity positive effects where they exist appear to result from management response to decreased profit expectations and from a natural selection process lower profitability among unionized firms is well established more interesting is the possibility that unions appropriate quasi rents deriving from long lived tangible and intangible capital the connection between unions investment behavior and productivity growth emerges as a particularly fruitful line of empirical inquiry although it does not encourage a sanguine view of unionism s long run impact

tariff policy and entry with cost based informational asymmetries i introduction how does the presence of incomplete information alter the usual effects of trade policy recognition that incomplete information characterizes most decision making processes that take place within an international setting has stimulated an emerging body of literature which addresses this question particularly germane to the present study are those papers which introduce an informational asymmetry into an international model of imperfect competition the majority of this literature examines the sensitivity of optimal strategic trade policies to information failures within a brander spencer 1985 model where the domestic and foreign firm compete for export sales to a third market and either the domestic or foreign government employs export subsidies examples include works by brainard and martimort 1997 collie and hviid 1993 maggi 1995 and qiu 1994 another study collie and hviid 1994 allows for domestic consumption and considers optimal import tariff policy in the presence of a foreign monopolist in general optimal trade policy in the presence of informational failures is found to differ from that under complete information the emphasis of the present study is not on the conduct of optimal trade policy but rather on how the introduction of an informational asymmetry alters the realized impact of trade policy on quantities and welfare 1 specifically we examine the effects of import tariff policy within a standard two period model of entry where the costs of the domestic firm are proprietary information the incumbent domestic firm recognizes the threat of a potential foreign rival entering exporting to the domestic market where the latter is uninformed of the cost structure of the domestic firm as is well known from the industrial organization literature the incumbent domestic firm may have an incentive to change its time period one behavior so as to signal information on costs to the foreign firm in an effort to deter entry see milgrom and roberts 1982 in specifying the degree of knowledge possessed by domestic policymakers we adopt the premise that informational deficiencies on the part of policymakers are likely to be quite acute in trade policy formation indeed as brander 1995 notes it is reasonable to suppose that governments are less informed on market conditions and firm characteristics than firms themselves in contrast to previous studies however we also assume that policymakers either cannot acquire information or if they are able to cannot respond by altering policy here the formation of trade policy does not reflect or incorporate full information and thus cannot provide signals to the other uninformed party the foreign firm moreover because policymakers cannot alter policy the foreign firm perceives the tariff rate as credibly fixed the inability to incorporate information into trade policy is especially relevant for situations where policymakers are subject to previously negotiated trade agreements here even should uninformed policymakers subsequently acquire information on domestic cost structure they will be unable to respond our emphasis on the realized effects of tariff policy reflects this information structure to conduct optimal policy government must hold complete information on markets and firm characteristics at the time policy is set as in collie and hviid 1993 1994 or be able to acquire it through signaling or a screening mechanism as in qiu 1994 and brainard and martimort 1997 2 when policymakers lack the ability to acquire or respond to such information optimal policy is not a consideration what is of interest to policymakers in this situation is the response of domestic output and imports to a given tariff rate at the outset of the game then there is a tariff rate set previously by domestic policymakers who were uninformed of domestic costs since the foreign firm cannot infer domestic cost structure by merely observing the tariff rate set by uninformed policymakers any signaling that takes place is on the part of the domestic firm

estimating inflation risk premia using inflation linked bonds a review this paper provides an overview of studies that estimate the inflation risk premium using inflation linked bond ilb yields i categorize existing studies outline their research designs and compare their estimates for the inflation risk premium furthermore the importance of accounting for ilb illiquidity and an overview of existing ilb liquidity proxies are demonstrated a discussion of current literature developments such as the zero lower bound and an outline for future research directions conclude the paper