learning and wage dynamics we develop a dynamic model of learning about worker ability in a competitive labor market the model produces three testable implications regarding wage dynamics 1 although the role of schooling in the labor market s inference process declines as performance observations accumulate the estimated effect of schooling on the level of wages is independent of labor market experience 2 timeinvariant variables correlated with ability but unobserved by employers such as certain test scores are increasingly correlated with wages as experience increases and 3 wage residuals are a martingale we present evidence from the nlsy that is broadly consistent with the model s predictions

the impact of immigration comparing two global eras summary this paper asks whether history can inform modern debate about immigration s impact on high wage economies it examines the relationship between migration s labor market impact and capital flows before 1914 the first global era it then assesses the effects of immigration on wages and employment with and without international capital mobility today in the second global era it then explores the links between these economic relationships welfare burdens and immigration policy it concludes with an explanation for the apparent difference in immigration s impact in the two global eras and thus on policy

inflation announcements and social dynamics this paper investigates the eectiveness of central bank communication when rms have heterogeneous ination expectations that are updated through social dynamics the bank s credibility evolves with these dynamics and determines how well its announcements anchor expectations we show that trying to eliminate high ination by abruptly introducing a low ination target can lead to short term overshooting

signalling commitment with monetary and inflation targets abstract this article studies a two period game between the public and a central bank about whose ability to commit to an announced target the public is uncertain the central bank chooses between announcing a target for an intermediate variable money growth and its goal variable inflation prior to setting its instrument the central bank receives private noisy information about the link between money growth and inflation monetary targeting facilitates communication of the central bank s type in that the probability of separation is always higher than under inflation targeting this advantage of monetary targets from a dependable central bank s perspective is outweighed for most parameter values by the advantage of inflation targeting in terms of inflation control if the regime choice is treated as a strategic decision over a large range of parameter values both central banks choose the regime that a dependable central bank would prefer

the effect of immigration along the distribution of wages this paper analyses the effect immigration has on wages of native workers unlike most previous work we estimate wage effects along the distribution of wages we derive a flexible empirical strategy that does not rely on pre allocating immigrants to particular skill groups in our empirical analysis we demonstrate that immigrants downgrade considerably upon arrival as for the effects on native wages we find that immigration depresses wages below the 20th percentile of the wage distribution but leads to slight wage increases in the upper part of the wage distribution the overall wage effect of immigration is slightly positive the positive wage effects we find are although modest too large to be explained by an immigration surplus we suggest alternative explanations based on the idea that immigrants are paid less than the value of what they contribute to production generating therefore a surplus and we assess the magnitude of these effects

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

better monetary control may increase the inflationary bias of policy textabstractexplores the implications of imperfect monetary control and uncertainty about the trade off between output and inflation to discretionary policy impact of imperfect control of money growth on policymakers incentive to create surprises consequences of imperfect control of money growth for optimal monetary policy welfare effects of uncertainty about the extent to which inflation affect output

assimilation to a welfare state labor market performance and use of social benefits by immigrants to finland this paper documents the economic performance of immigrants in a country characterized by an extensive welfare state and a short immigration history upon arrival immigrants to finland have substantially lower employment rates than comparable natives while they experience rapid employment growth only men from oecd countries catch up with natives despite the persisting employment and earnings differences between non oecd immigrants and natives the differences in income transfers disappear in roughly 20 years the immigrant native employment gaps are larger in finland than in australia canada or the us

asymmetric information and rational expectations when is it right to be wrong abstract in this paper we examine the effects of private agents being less than fully rational in their expectations we examine this in the context of monetary policy where the central bank may have uncertain preferences either by choice or by necessity the new feature is that we allow the public to react in two different ways they either form rational expectations and internalize the uncertainty about the central bank s preferences in full or alternatively and if this process of internalization is costly it forms a best guess regarding those preferences this implies a certainty equivalence strategy applied to the preference parameters as those parameters enter the decisions non linearly a systematic error emerges we examine the magnitude of the resulting error in inflation and output following the assumption of certainty equivalence under all reasonable levels of uncertainty this error turns out to be small but involves trading a deflation bias against the cost of gathering the information needed for the full information rational expectations solution

monetary uncertainty strategic wage setting and equilibrium employment abstract an important recent strand of literature has shown that if wages are set strategically by inflation averse non atomistic unions then equilibrium employment is sensitive to the monetary regime this note demonstrates that such sensitivity need not reflect a direct aversion to inflation by unions but instead may result from union concerns for employment objectives in circumstances in which the variance and mean value of inflation are positively related

interest rate policy taxation and risk abstract it is now an established orthodoxy that real interest rates should be positive raising the nominal interest rate above the rate of inflation however does not achieve a positive cost of borrowing if the interest cost of borrowing is tax deductible furthermore high rates of interest and inflation impose heavy risks on borrowers these points are illustrated with data from a sample of countries in eastern and southern africa they strengthen the case for preferring lower inflation to higher nominal interest rates as a way of making real interest rates positive

the effect of 107th opec ordinary meeting on oil prices and economic performances in japan abstract the aim of this paper is to show the influence of the 107th opec ordinary meeting meeting and investigates the relationships between oil prices and economic activities using an exponential generalized autoregressive conditional heteroskedasticity egarch and a vector autoregressive var model from 1991 to 2008 in japan we find that levels and volatilities of oil prices increase after the meeting we examine the effects of it on japanese economic activities employing a granger causality test and data before and after it the empirical result reveals that each price of regular gasoline and diesel has information to be useful to predict the economy after the meeting on the other hand volatilities of regular gasoline and diesel price have information to predict the inflation and economic growth before the meeting respectively after the meeting however these volatilities change to be useful to predictive both inflation and economic growth thus we conclude that the decision of meeting is related to not only the domestic oil prices but also the macroeconomy

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

the labour market impact of immigration in the first part of this paper we present a stylized model of the labour market impact of immigra tion we then discuss mechanisms through which an economy can adjust to immigration changes in factor prices output mix and production technology in the second part we explain the problems of empirically estimating how immigration affects labour market outcomes of the resident population and review some strategies to address these we then summarize some recent empirical studies for the uk and other countries we conclude with an outlook on what we believe are important avenues for future research

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

immigration search and loss of skill this article develops and estimates an on the job search model of the entry of highly skilled immigrants from the former soviet union into the israeli labor market the estimated parameters of the model together with information on the wages of immigrants from earlier waves imply that on average immigrants can expect lifetime earnings to fall short of the lifetime earnings of comparable natives by 57 of this figure 14 percentage points reflect frictions associated with nonemployment and job distribution mismatch and 43 percentage points reflect the gradual adaptation of imported schooling and experience to the local labor market

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

do immigrants affect firm specific wages we propose and test a novel effect of immigration on wages existing studies have focused on the wage effects that result from changes in the aggregate labour supply in a competitive labour market we argue that if labour markets are not fully competitive immigrants might also affect wage formation at the most disaggregate level the workplace using linked employer employee data we find that an increased use of low skilled immigrant workers has a significantly negative effect on the wages of native workers at the workplace also when controlling for potential endogeneity of the immigrant share using both fixed effects and instrumental variables

two sided learning and the ratchet principle i study a class of continuous time games of learning and imperfect monitoring a long run player and a market share a common prior about the initial value of a gaussian hidden state and learn about its subsequent values by observing a noisy public signal the long run player can nevertheless control the evolution of this signal and thus affect the market s belief the public signal has an additive structure and noise is brownian i derive conditions for an ordinary differential equation to characterize equilibrium behavior in which the long run player s actions depend on the history of the game only through the market s correct belief using these conditions i demonstrate the existence of pure strategy equilibria in markov strategies for settings in which the long run player s flow utility is nonlinear the central finding is a learning driven ratchet principle affecting incentives i illustrate the economic implications of this principle in applications to monetary policy earnings management and career concerns

immigration regional conditions and crime evidence from an allocation policy in germany after the collapse of the soviet union more than 3 million people with german ancestors immigrated to germany under a special law granting immediate citizenship exploiting the exogenous allocation of ethnic german immigrants by german authorities across regions upon arrival we find that immigration significantly increases crime the crime impact of immigration depends strongly on local labor market conditions with strong impacts in regions with high unemployment similarly we find substantially stronger effects in regions with high preexisting crime levels or large shares of foreigners

aggregate demand shocks private signals and employment variability can better information be harmful abstract the consequences of private information concerning the realization of aggregate demand shocks are investigated in the context of a standard macroeconomic model it is found that an improvement in information quality can be damaging in the sense of amplifying employment fluctuations the source of this result is an externality arising from individual firm wage decisions which leads to a collective over reaction to private information

should germany have built a new wall macroeconomic lessons from the 2015 18 refugee wave abstract in 2015 2016 germany experienced a wave of predominantly low skilled refugee immigration we evaluate its macroeconomic and distributional effects using a quantitative overlapping generations model calibrated using german micro data to replicate education and productivity differentials between foreign born and native workers workers are modelled as imperfect substitutes in aggregate production leading to endogenous wage differentials we simulate the dynamic effects of this refugee wave with specific focus on the welfare impact on low skilled natives our results indicate that the small losses this group suffers can be compensated by welfare gains of other parts of the native population

overeducation job mobility and earnings mobility among holders of first degrees abstractovereducation has been researched extensively for nearly three decades but some major issues in regard to it are still topics of ongoing debate by using a panel data that combines a survey of two cohorts of israeli first degree holders and data from administrative sources on jobs and wages we examine the contribution of job turnover cognitive abilities and continuing graduate studies to the likelihood of overeducation and wage dynamics the study produces four main findings first rapid job switching makes a negative contribution to the increase in employee s wage and there is a negative correlation between two variables an employee s tenure and the number of past employers in the years after the completion of degree studies and the probability of being overeducated second the contribution of the individual s cognitive abilities and quantitative reasoning skills to the likelihood of becoming overeducated is negative third the wages of overeducated employees are some 11 lower and ris

gains from anchoring inflation expectations evidence from the taper tantrum shock abstract have improvements in monetary policy frameworks increased emerging market resilience to external shocks this paper exploits the may 2013 taper tantrum episode in the united states to study the reaction of 18 large emerging markets to an external shock conditioning on their degree of inflation expectations anchoring we find that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring countries with weakly anchored inflation expectations experienced larger exchange rate pass through to consumer prices and higher inflation these findings suggest that gains in inflation expectations anchoring can improve central bank s policy trade offs when facing external shocks

better monetary control may decrease the distortion of stabilisation policy a comment higher uncertainty about the effects of policy instruments reduces a policymaker s inclination to actively engage in shaping economic policy if a credibility problem exists then this is beneficial however in the case where the policymaker has private information about an economic shock higher uncertainty is costly hence the policymaker faces a trade off when he decides on the degree of control of monetary instruments it is shown that the optimal degree of uncertainty about the effects of policy depends on the economic preferences of the policymaker and the magnitude of the variance of the shock which is private information

the benefits of central bank s political independence abstract we consider a two tier model of monetary policy where the central banker is both subject to the explicit influence of elected political principals through contracts and the implicit influence of interest groups willing to capture monetary policy we analyze the impact of granting independence to the central banker on the scope for capture and the agency costs of delegating the monetary policy to a central banker political independence increases those agency costs but significantly stabilizes the politically induced fluctuations of inflation and improves ex ante social welfare

preliminary evidence on the determinants of federal reserve open market operations in the absence of a fixed policy rule the federal reserve bank fed has significant discretion in setting monetary policy the existence of professional fedwatchers attests to the fact that fed policy actions are difficult to interpret recent literature has focused on the motivations behind fed policy making and the need for secrecy and ambiguity we investigate one aspect of fed behavior the propensity of the fed to buy and sell government securities beyond that required to implement stated policies milton friedman 1982 26 called attention to this issue when he wrote

the advantage to hiding one s hand speculation and central bank intervention in the foreign exchange market abstract we analyze an asymmetric information model of sterilized intervention in the foreign exchange market we characterize an equilibrium in which a central bank with inside information about its exchange rate target trades with risk averse speculators who have private information about future spot rates the model identifies circumstances in which perverse responses to intervention will be observed i e the domestic currency depreciates when the central bank purchases it and it provides conditions under which the exchange rate will be highly sensitive to intervention the model also provides an explanation for two forms of policy secrecy i secrecy about the scale of an intervention operation is always desirable ii secrecy about the target is sometimes desirable

the asymmetric effects of uncertainty on inflation and output growth we study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post war us data our results suggest that increased growth uncertainty is associated with significantly lower average growth while higher inflation uncertainty is significantly negatively correlated with lower output growth and lower average inflation both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude copyright 2004 john wiley sons ltd

return migration human capital accumulation and the brain drain in this paper we present a model that explains migrations as decisions that respond to where human capital can be acquired more efficiently and where the return to human capital is highest the basic framework is a dynamic roy model in which a worker possesses two distinct skills that can be augmented by learning by doing there are different implicit price in different countries and different rates of skill accumulation our analysis contributes to the literature on the selection of immigrants and return migrants by offering a richer framework that may help to accommodate selections of emigrants and return migrants that are not immediately compatible with the one dimensional skill model our analysis has also implications for the debate on brain drain and brain gain in the two skills model presented here return migration can lead to a mitigation of the brain drain or even the creation of a brain gain where those who return bring the home country augmented local skills

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

wto negotiations on agriculture and the distributional impacts for us rice farm households abstract the policies of wealthy countries have proven the most difficult to reform in the wto doha round negotiations considerable emphasis has been placed on developing country impacts but a gap in the literature remains on the stakes for rich country farmers despite the large role these countries play in global agricultural protection the research here considers the particular case of us rice households and their sensitivity to japanese market access reform using an applied general equilibrium model with multiple farm households we highlight the distributional impacts among these producers we argue that concessions to japan on market access make domestic reforms in rice a difficult political sale in the us since the wealthiest producers bear the largest losses improving our understanding of the distributional impacts and political realities of the richest countries is critical to informing the negotiating process because the gains to the world s poor can only be realized with creative policy redress in these rich nations

implications of the uruguay round on the world rice economy abstract this paper examines the implications of the agreement on agriculture for the rice economy and reviews its impact on world rice production trade consumption and international prices the agreement is potentially beneficial for the international rice market and especially for developing countries considerable uncertainties however exist as to whether the full benefits will be realized as they hinge mainly on the implementation of market access provisions in a limited number of countries tariffication as it finally evolved under the agreement would not result in any significant expansion in trade and international trade in rice would remain distorted up to the year 2000 as the level of export subsidies in some countries could well remain above that in 1986 1990 in assessing the impact of the agreement the paper assumes that there will be full compliance with the commitments made some alternative scenarios are also examined

the dynamic impact of immigration on natives labor market outcomes evidence from israel abstract this paper studies the short and medium run impact of highly skilled immigrants from the former soviet union to israel on natives wages and employment if immigrants are relatively good substitutes for native workers the impact of immigration will be largest immediately upon the immigrants arrival and may become smaller as the labor market adjusts to the supply shock conversely if immigrants upon arrival are poor substitutes for natives the initial effect of immigration is small and increases over time as immigrants acquire local labor market skills and compete with native workers we empirically examine these alternative hypotheses using data from israel between 1989 and 1999 we find that wages of both men and women are negatively correlated with the fraction of immigrants with little local experience in a labor market segment a 10 percent increase in the share of immigrants lowers natives wages in the short run by 1 3 percent but this effect dissolves after 4 7 years this result is robust to a variety of different segmentations of the labor market to the inclusion of cohort effects and to different dynamic structures in the residual term of the wage equation on the other hand we do not find any effect of immigration on employment neither in the short nor in the medium run

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

establishing credibility a rational expectations viewpoint ongoing attempts to reduce the rate of inflation through restrictive monetary policy in the united states and a number of other countries have brought practical focus to the problem of establishing the credibility of macroeconomic policy while credibility is usually an unquestioned criterion of good public policy in the case of disinflation it takes on special importance credibility about a future change in the course of policy may be able to directly reduce the costs of disinflation by changing inflationary expectations since inflationary expectations have a significant influence on current wage and price decisions a reduction in actual inflation may result to the extent that it is quantitatively significant this expectations effect of credibility the expectations bonus puts a premium on establishing the credibility of a monetary disinflation program the purpose of this paper is to consider the problem of establishing the credibility of such a program from the perspective of a rational expectations approach to macroeconomic policy evaluation that credibility would have significant disinflation effects once established is closely associated with the rational expectations hypothesis and has been demonstrated both in the context of market clearing and contract based rational expectations models a summary of the results from the different models is contained in my 1980 review paper from macroeconomic research completed during the last ten years it now seems clear that a rational expectations approach to policy evaluation should not be confined to market clearing situations where all prices and wages adjust instantaneously nullifying the real effects of anticipated policy and leaving only unanticipated policy to matter in fact much rational expectations research in macroeconomics has given explicit attention to contracts and other rigidities which lead to infrequent adjustment of most wages and prices in this paper however i will only touch on this technical research and instead attempt to apply some of the more general principles of rational expectations to the problem of establishing credibility of macroeconomic policy at this time in the united

market distortions and government transparency in this paper we investigate how government transparency depends on economic distortions we first consider an abstract class of economies in which a benevolent policy maker is privately informed about the exogenous state of the economy and contemplates whether to release this information our key result is that distortions limit communication even if transparency is ex ante pareto superior to opaqueness it cannot constitute an equilibrium when distortions are sufficiently high we next confirm this broad insight in two applied contexts in which monopoly power and income taxes are the specific sources of distortions jel d82 e61

assimilation changes in cohort quality and the earnings of immigrants this paper reexamines the empirical basis for two facts that seem to be found in most cross section studies of immigrant earnings 1 the earnings of immigrants grow rapidly as they assimilate into the united states and 2 this rapid growth leads to many immigrants overtaking the earnings of the natives within 10 15 years after immigration using the 1970 and 1980 u s censuses this paper studies the earnings growth experienced by specific immigrant cohorts during the period 1970 80 it is found that within cohort growth is significantly smaller than the growth predicted by cross section regressions for most immigrant groups this differential is consistent with the hypothesis that there has been a secular decline in the quality of immigrants admitted to the united states

the relationship between inflation and inflation uncertainty in the uk 1885 1998 abstract using a long series of uk inflation data i have provided strong evidence in favour of the hypothesis that inflationary periods are associated with high inflation uncertainty this result supports the friedman ball hypothesis and has important implications for the inflation output relationship provided that more inflation uncertainty leads to lower output

mass migration to israel and natives employment transitions this study examines how mass migration from the former soviet union to israel affected natives probability of moving from employment to non employment and vice versa using 1989 99 data from the israeli labor force survey the authors find that the share of immigrants in labor market cells defined by occupation industry district of residence schooling and experience was generally positively associated with natives probability of moving from employment to non employment however when the analysis controls for the endogenous sorting of immigrants across cells this effect is substantially reduced for men and disappears or is even reversed for women the authors conclude that immigrants tended to cluster in labor market cells with high turnover rates and that immigration did not increase natives likelihood of exiting employment they also find no discernible effects of immigration on natives transitions between labor market cells or on the probability of their moving from non employment to employment

market perceptions of federal reserve policy and the weekly monetary announcements abstract in october 1979 the federal reserve altered its operating procedures emphasizing control of the growth rate of the money stock was the fed able to gain credibility in the market the paper investigates this question by examining the reactions of spot and expected future exchange rates foreign interest rates and long run domestic forward interest rates to the weekly federal reserve announcements of m l both before and after october 1979 the empirical evidence points out that the fed did gain credibility but was unable to establish full credibility the market reactions are consistent with the hypothesis that market participants attached a positive probability to the event that the fed may at some point in the future abandon its money stock targets

a century of us central banking goals frameworks accountability several key episodes in the 100 year history of the federal reserve have everal key episodes in the 100 year history of the federal reserve have been referred to in various contexts with the adjective great attached to been referred to in various contexts with the adjective great attached to them the great experiment of the federal reserve s founding the great them the great experiment of the federal reserve s founding the great depression the great infl ation and subsequent disinfl ation the great moderation depression the great infl ation and subsequent disinfl ation the great moderation and the recent great recession here i ll use this sequence of great episodes and the recent great recession here i ll use this sequence of great episodes to discuss the evolution over the past 100 years of three key aspects of federal to discuss the evolution over the past 100 years of three key aspects of federal reserve policymaking the goals of policy the policy framework and accountability reserve policymaking the goals of policy the policy framework and accountability and communication the changes over time in these three areas provide a useful and communication the changes over time in these three areas provide a useful perspective i believe on how the role and functioning of the federal reserve have perspective i believe on how the role and functioning of the federal reserve have changed since its founding in 1913 as well as some lessons for the present and for changed since its founding in 1913 as well as some lessons for the present and for the future the future

optimal reputation building in the new keynesian model abstract we study the optimal committed monetary policy when the private sector has imperfect information and has to infer the central banker s ability to commit the optimal policy is designed to influence learning and improve the central banker s reputation of being committed the reputation building implies that when a committed central banker first takes office he should resist the temptation to stimulate output with initially high but declining inflation he should reverse a missed inflation target rather than accommodate it and he should adopt a less accommodative inflation response to a cost push shock than a full commitment solution suggests

immigrants in the american labor market quality assimilation and distributional effects this paper provides evidence on immigrants performance and impact in the u s labor market we document that new immigrants do bring fewer marketable skills to the united states than did earlier cohorts and that changes in the source countries of recent immigrants account for all of this decline in immigrant quality we find no important evidence that quality has declined within immigrant ethnic groups we also show that immigrants assimilate rapidly in the u s market 10 years of u s experience offsets most of the earnings disadvantage of new immigrants and that assimilation is more rapid for groups who start with lower initial wages excerpt

you can t take it with you immigrant assimilation and the portability of human capital the national origin of an individual s human capital is a crucial determinant of its value education and labor market experience acquired abroad are significantly less valued than human capital obtained domestically this difference can fully explain the earnings disadvantage of immigrants relative to comparable natives in israel variation in the return to foreign schooling across origin countries may reflect differences in its quality and compatibility with the host labor market the return to foreign experience is generally insignificant acquiring additional education following immigration appears to confer a compound benefit by raising the return to education acquired abroad

central bank secrecy interest rates and monetary control we construct a dynamic rational expectations model of the federal funds and deposit market that provides a rationale for central bank secrecy about current monetary aggregate objectives in this analysis the trading desk values secrecy because it reduces the influence of monetary control policy on interest rates we then examine actual u s experience with monetary control and determine that the reserve bias predicted by the model is present in the data from 1978 to 1985 finally we demonstrate that central bank secrecy may not lower the value of commercial banks

caution and conservatism in the making of monetary policy does society benefit from the delegation of monetary policy to cautious and conservative central bankers we offer a critical view on the delegation literature and relax seemingly innocuous assumptions about uncertainty and preferences first caution improves credibility but does not obviate the need for central bank conservatism second previous models of delegation have focused on suboptimal forms of conservatism we derive optimal concepts of conservatism that mitigate or eliminate any residual problem of credibility third we rationalize why credible monetary policy may be conducive to stable inflation and output

multiplicative uncertainty in a model without inflationary bias abstract this paper shows that an increase in the degree of multiplicative uncertainty regarding the effectiveness of monetary policy will reduce social loss when policymaker s preferences are highly uncertain this result is still valid even when there is no distortion in the market

on the asymmetric u shaped relationship between inflation inflation uncertainty and relative price skewness in the uk we investigate the asymmetric relationships between aggregate inflation and the second and third moments of the cross sectional distribution of relative prices using a modified calvo pricing model with regime dependent price rigidities calibration experiments reveal that the inflation standard deviation and inflation skewness relationships exhibit u shaped asymmetries around the historical mean inflation rate uk sectoral data support our results we conclude that monetary policy should target an inflation rate proximate to the common minima of these nonlinear relationships and that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments

rules commitment and the search for stable money a review essay political economists have always criticized existing monetary institutions and struggled to articulate a vision of an ideal monetary system the volume under review the search for stable money essays on monetary reform edited by james a dorn and anna j schwartz university of chicago press 1987 stands firmly in this tradition it addresses the shortcomings of modern monetary institutions and debates the merits of various alternative arrangements the volume consists of nineteen essays and a number of short comments among the contributors are three nobel prize winners buchanan friedman and hayekthough buchanan simply comments on bernholz generally speaking the essayists disapprove of the virtually unlimited discretion invested in the federal reserve they argue that discretion leads to unnecessarily high and variable rates of inflation the essayists also agree that the solution ought to take the form of a change in the political rules which would have the effect of limiting government control over the monetary system beyond this there is no consensus the contributors consider money growth rules the gold standard a proposal for a compensated dollar and competitive currency systems but often find one another s proposals as objectionable as the status quo the essays in this volume are about five years old with the exception of the introductory piece by james dorn each was originally published elsewhere most originally appeared in the cato journal in 1983 sometimes the age of the essays shows careful analysis of federal reserve policy in 1981 82 was no doubt of topical interest when the essays were written but is less so now

immigrant wage growth in the united states the role of occupational upgrading immigrants to the united states routinely take jobs below their skill qualifications because of barriers to entering occupations we use a structural model of immigrant job choice to quantify the benefits of potential policies to promote entry into suitable occupations we estimate the model using longitudinal labor market data on immigrants to the united states our counterfactual results show that eliminating barriers to occupational entry would lead to only a small earnings increase for the average immigrant in our sample but a substantial earnings increase for the most highly skilled immigrants

the heterogeneity of immigrants host countries income and productivity a channel accounting approach this article exploits changes in the distribution of immigrants across 20 organization for economic co operation and development countries from 1960 to 2005 in order to assess their contribution to income of destination countries the non random sorting of immigrants across countries is addressed by using an instrumental variable strategy the instrument is built by estimating a bilateral migration model incorporating exogenous origin country determinants of migration aggregate results reveal that immigrants have a positive effect on income that works primarily through total factor productivity tfp we further construct a novel dataset from censuses and labor force surveys to explore the information on the age of immigrants contrasting income effects are found across age groups a higher share of immigrants among the youth has a negative impact on aggregate income while a higher share of immigrants among prime aged workers has a positive effect we interpret this disparity as short term versus medium term effects adjustments over time involve changes in tfp but also in the human capital of the native born jel f22 j24 j31 o31

a theory of fed watching in a macroeconomic policy game this paper examines the phenomenon of fed watching within the context of a macroeconomic policy game following a cukierman and a h meltzer s 1986 article the policymaker s preferences are private information and noisy monetary control causes past observations of money growth to be a noisy signal of the monetary authority s future intentions individuals are allowed to acquire additional information about the monetary authority s preferences thus both past observations of money growth and costly information about the policymaker s preferences are used by agents in forming expectations about policy the public s acquisition of information alters the monetary authority s strategic calculus making noisy monetary control less desirable copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

inflation unemployment and public opinion polls it is well known that public opinion polls report that the public regards inflation as a more serious problem than unemployment in this paper we examine public opinion surveys with the aim of discovering what if anything the poll results mean we describe in some detail the questions about inflation and unemployment asked in the surveys and analyze the determinants in both cross section and time series of answers to those questions the typical opinion poll question about inflation and unemployment is which of the two problems inflation or unemployment do you think will cause the more serious economic hardship for people during the next year or so 1 section 1 discusses the possible issues to which opinion poll questions about inflation and unemployment might be relevant section 2 tabulates a variety of questions that have been asked along with the responses and examines the views expressed and their consistency both internal and across different polls section 3 presents a regression analysis of the cross sectional determinants of responses to the michigan poll question cited above while section 4 studies determinants of changes over time

the economics of immigration this literature review concerns the impact of immigration on the economy of the host country focusing on the experience of the united states the emphasis is on the period from the 1970s to the 1990s the author shows that research earlier in this period generally concluded that the economic effects of immigration were positive but that more recent research on later migrations have generally concluded that immigration may be having an adverse effect on the earnings of native unskilled workers and be placing an increased burden on welfare programs the importance of such economic analysis for the formulation of appropriate migration policies is stressed

strategic discipline in monetary policy with private information optimal targeting periods this paper analyzes a multiperiod monetary targeting procedure as a possible resolution to the credibility problem in pol icy when the monetary authority has some private information by limitin g the degree of flexibility permitted in policy this procedure mitiga tes the credibility problem as the length of the targeting horizon decreases the severity of the credibility problem falls but at the expense of weakening the monetary authority s ability to pursue its stabilization goals based on model simulations the analysis studi es the determinants of the optimal targeting horizon that balances the benefits of flexibility and discipline in policy copyright 1993 by american economic association

on endogenous growth with physical and human capital this paper presents a class of models in which agents may devote part of their nonleisure activities to going to school so as to increase the efficiency units of labor they supply to the firms and the wages they receive the interaction among the technology of human capital accumulation and agents preferences will determine endogenously the economy s rate of growth given a constant returns to scale technology for physical capital accumulation we characterize the set of steady states as a ray from the origin and show the global convergence of every off balanced path to some point on this ray further properties concerning the dynamic evolution of the state and control variables around the ray of steady states are also established our analysis is useful to understand the role played by the technologies of physical and human capital in the process of accumulation and to evaluate the impact of policies geared toward attaining higher levels of capital our results highlight the importance of human capital

labor mobility of immigrants training experience language and opportunities summary statistics observations percent mean sdschooling 419 14 58 2 74age on arrival 419 38 05 9 15white collar in fsu 284 67 78 blue collar in fsu 127 30 31 did not work in fsu 8 1 91 married 363 86 63 english 419 1 76 0 94hebrew before migration 50 11 93 ulpan attendance 386 92 12 ulpan completion 332 79 24 ulpan length months 387 5 61 1 34hebrew1 rst survey 419 2 71 0 82hebrew2 second survey 316 2 98 0 83t able a2 transitions between the labor market states quarters 8 9quarters 3 4 wc bc wt bt ue obs wc 79 57 10 75 3 23 2 15 4 30 93bc 2 58 80 80 1 72 2 87 12 03 349wt 51 28 28 21 0 00 0 00 20 51 39bt 23 81 52 38 0 00 0 00 23 81 21ue 18 93 47 93 6 51 1 78 24 85 169quarters 14 15quarters 8 9 wc bc wt bt ue obs wc 90 52 6 90 0 00 0 86 1 72 116bc 4 56 90 88 0 35 0 70 3 51 285wt 41 18 41 18 0 00 0 00 17 65 17bt 25 00 66 67 0 00 0 00 8 33 12ue 23 86 44 32 0 00 0 00 31 82 88quarters 18 19quarters 14 15 wc bc wt bt ue obs wc 96 72 3 28 0 00 0 00 61bc 2 47 90 12 2 47 4 94 81wt bt 0 00 100 00 0 00 0 00 1ue 30 00 20 00 0 00 50 00 10

residential location work location and labor market outcomes of immigrants in israel we develop and estimate a comprehensive dynamic programming dp model for the joint decisions of residential location employment location occupational choices and labor market outcomes we use data on immigrants from the former soviet union fsu we provide an extensive empirical evaluation of policies that have been designed to affect the residential and employment location decisions of the migrant population the results shed new and important light on several issues regarding this group of immigrants we find large regional differences in wages for the white collar workers but only little differences for the blue collar workers a careful examination of a number of policy measures indicate that a direct subsidy in the form of a lump sum transfer is most effective in achieving the government stated goal of inducing people to reside in the northern region of the galilee and southern region of the negev other policies such as rental and wage subsidies can also be quite effective but these are more difficult to administer

nominal uncertainty and inflation the role of european union membership abstract we provide evidence that higher inflation uncertainty leads to higher inflation in the new european union eu member states and candidate countries only prior to eu accession during eu accession and entry inflation uncertainty has no effect on mean inflation

the visible and the hidden behind migrants human capital abstractthe paper explores differences in human capital between the israel born and immigrants within the jorgenson and fraumeni model using a unique imputed education method the study answers

is there monopsonistic discrimination against immigrants the authors investigate immigrants and natives labor supply to the firm within an estimation approach based on a dynamic monopsony framework applying duration models that account for unobserved worker heterogeneity to a large administrative employer employee data set for germany they find that immigrants supply labor less elastically to firms than do natives under monopsonistic wage setting the estimated elasticity differential predicts a 7 7 log points wage penalty for immigrants thereby accounting for the entire unexplained native immigrant wage differential of 5 8 to 8 2 log points when further distinguishing immigrant groups differing in their time spent in the german labor market their immigration cohort and their age at entry the authors find that the observed unexplained wage differential is larger for those groups that show a larger elasticity differential relative to natives these findings not only suggest that search frictions are a likely cause of employers more pronounced monopsony

immigration wages and education a labour market equilibrium structural model recent literature analysing wage effects of immigration assumes labour supply is fixed across education experience cells this article departs from this assumption estimating a labour market equilibrium dynamic discrete choice model on u s micro data for 1967 2007 individuals adjust to immigration by changing education participation and or occupation adjustments are heterogeneous 4 2 26 2 of prime aged native males change their careers of them some switch to white collar careers and increase education by about three years others reduce labour market attachment and reduce education also by about three years these adjustments mitigate initial effects on wages and inequality natives that are more similar to immigrants are the most affected on impact but also have a larger margin to adjust and differentiate adjustments also produce a self selection bias in the estimation of wage effects at the lower tail of the distribution which the model corrects

on the wage growth of immigrants israel 1990 2000 this paper develops a descriptive methodology for the analysis of wage growth of immigrants that is based on human capital theory the sources of the wage growth are 1 the rise of the return to imported human capital 2 the impact of accumulated experience in the host country and 3 the mobility up the occupational ladder in the host country the model implies a nonlinear wage function that includes interactions between imported skills and local wage growth using data on native israelis and immigrants from the former soviet union of israel we estimate wage equations jointly for the two groups we find that upon arrival immigrants receive non return for imported skills in the ten years following arrival wages of highly skilled immigrants grow at 8 percent a year rising prices of skills occupational transitions accumulated experience in israel and an economy wide rise in wages account for 3 4 1 1 1 5 and 1 5 percent each in the long run the return for schooling converges to 0 027 substantially below the 0 069 return for natives we do not reject the hypothesis that the return for experience converges to that of natives and that immigrants receive a higher return for their unmeasured skills we find that there is some downgrading in the occupational distribution of immigrants relative to that of natives moreover the average wages of immigrants approach but do not converge to the wages of comparable natives the main reason for this is the low return to their imported skills jel j24 j31 j60