physical appearance and wages do blondes have more fun abstract this study contributes to the economics literature that links physical characteristics to labour market outcomes by investigating the influence of hair colour on women s own wages and also their spouse s wages using u s panel data we find that blonde women receive large wage premiums

endogenous objectives and the evaluation of targeting rules for monetary policy recent research in monetary economics has followed the advice of mccallum 1988 robustness properties of a rule for monetary policy carnegie rochester conference series on public policy 29 173 203 and investigated the robustness properties of monetary policy rules by evaluating them in a variety of models evaluation across models is typically based on an exogenously specified loss function however the theory on which many recent monetary policy models are based implies that changes in the structure of the model also have consequences for the policy objectives the central bank should pursue objectives are endogenous not exogenous to the model in this paper i investigate the impact of endogenous objectives on the evaluation of targeting rules for monetary policy r 2005 elsevier b v all rights reserved

pioneering price level targeting the swedish experience 1931 1937 in september 1931 sweden became the first country to make the stabilization of the domestic price level the official goal of its monetary policy actually the only country that so far has adopted such an explicit price level target starting from the issues and concepts familiar from research and policy experience of inflation targeting as contrasted to price level targeting this paper examines the evolution of the swedish price level targeting in the 1930s we bring out a number of similarities and differences between price stabilization in the 1930s and in the 1990s

sustainable monetary policies abstract this paper uses a model with utility maximizing households monopolistically competitive firms and sticky goods prices to derive a version of barro and gordon s time consistency problem for monetary policy where the government s objectives are consistent with a representative household s preferences the paper applies the methods of chari and kehoe to characterize the entire set of time consistent or sustainable outcomes it goes on to find conditions under which the friedman rule the optimal policy under commitment can be supported when the government lacks a commitment technology

vacancies unemployment and the phillips curve abstract the canonical new keynesian phillips curve has become a standard component of models designed for monetary policy analysis however in the basic new keynesian model there is no unemployment all variation in labor input occurs along the intensive hours margin and the driving variable for inflation depends on workers marginal rates of substitution between leisure and consumption in this paper we incorporate a theory of unemployment into the new keynesian theory of inflation and empirically test its implications for inflation dynamics we show how a traditional phillips curve linking inflation and unemployment can be derived and how the elasticity of inflation with respect to unemployment depends on structural characteristics of the labor market such as the matching technology that pairs vacancies with unemployed workers we estimate on us data the phillips curve generated by the model while we can reject the baseline new keynesian phillips curve in favor of the search frictions specification we show it is still too stylized to fully describe the dynamics of firms marginal costs

group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

beauty and the labor market the authors examine the impact of looks on earnings using interviewers ratings of respondents physical appearance plain people earn less than average looking people who earn less than the good looking the plainness penalty is 5 to 10 percent slightly larger than the beauty premium effects for men are at least as great as for women unattractive women have lower labor force participation rates and marry men with less human capital better looking people sort into occupations where beauty may be more productive but the impact of individuals looks is mostly independent of occupation suggesting the existence of pure employer discrimination copyright 1994 by american economic association

a quantitative analysis of optimal sustainable monetary policies abstract this study examines the quantitative properties of optimal sustainable monetary policies using a monetary model with a stabilization bias as in kurozumi 2008 the optimal sustainable policy is a strategy considered in the absence of commitment technologies however it is implemented following an optimal quasi sustainable policy derived by assuming that the commitment technologies are present this study finds that solving for the policy function of the optimal quasi sustainable policy yields a result basically identical to the ramsey optimal commitment policy under a set of parameters commonly used in the literature the simulation shows two further results policymakers have incentive to deviate from the ramsey optimal commitment policy when the lagged output gap is large and the optimal quasi sustainable policy endogenously diminishes the steadfastness of policymakers commitment

optimal price level drift under commitment in the canonical new keynesian model in both the canonical and many extended versions of the new keynesian model optimal monetary policy under commitment implies price level stationarity as long as expectations are rational we show that this is no longer the case if the central bank and private agents make decisions before observing current shocks the optimal amount of price level drift in response to unexpected innovations to inflation is quantitatively important this result has important implications for monetary policy including the design of the optimal loss function for the central bank if it cannot commit to its future policies a la fois dans la version canonique du nouveau modele keynesien et de ses versions etendues la politique monetaire optimale quand il y a engagement implique qu il y aura stationnarite du niveau des prix aussi longtemps que les anticipations sont rationnelles on montre que ce n est plus le cas si la banque centrale et les agents prives prennent des decisions avant d observer les chocs courants le montant optimal de la derive du niveau des prix en reponse aux innovations non anticipees dans l inflation est quantitativement important ce resultat a des implications importantes pour la politique monetaire y compris le design d une fonction de perte optimale pour la banque centrale si elle ne peut pas s engager a poursuivre ses politiques dans l avenir

immigration ethnic diversity and political outcomes evidence from denmark i study the impact of immigration and increasing ethnic diversity on political outcomes in immigrant receiving countries focusing on immigration and election outcomes in danish municipalities 1981 2001 a rich set of control variables isolates ethnic diversity eects from those of other immigrant characteristics and a novel iv strategy based on historical housing stock data addresses issues of endogenous location choices of immigrants increases in local ethnic diversity lead to right ward shifts in election outcomes by shifting electoral support away from traditional big government left wing parties and towards anti immigrant nationalist parties in particular these eects appear in both local and national elections

the political economy of xenophobia and distribution the case of denmark for the first time in many years a conservative government came to power in denmark in 2001 due primarily to the citizenry s dissatisfaction with social democratic policies on immigartion we represent political competition in denmark as taking place on two issues the size of the public sector and immigration and model political equilibrium using the party unanimity nash equilibrium concept pune which generates equilibria on multi dimensional policy spaces where parties form endogenously by fitting the model to danish data we argue that citizen xenophobia may be expected to decrease the size of the danish public sector by an amount equal to one half of a standard deviation of the probability distribution of citizens views as to what the optimal size of public sector is

the impact of immigration on the size of government empirical evidence from danish municipalities several studies have reported a negative relationship between ethnic heterogeneity and the size of the public sector one problem with this literature is that ethnic composition is hardly exogenous

an investigation of the gains from commitment in monetary policy this paper proposes a simple framework for analyzing a continuum of monetary policy rules characterized by differing degrees of credibility in which commitment and discretion become special cases of what we call quasi commitment the monetary policy authority is assumed to formulate optimal commitment plans to be tempted to renege on them and to succumb to this temptation with a constant exogenous probability known to the private sector by interpreting this probability as a continuous measure of the lack of credibility of the monetary policy authority we investigate the welfare effect of a marginal increase in credibility our main finding is that in a simple model of the monetary transmission mechanism most of the gains from commitment accrue at relatively low levels of credibility in our benchmark calibration a commitment expected to last for only 6 quarters is enough to bridge 75 of the welfare gap between discretion and commitment this seems to justify the well known concern of monetary policy makers about their credibility even in a world with limited access to commitment technologies

discretionary monetary policy and the zero lower bound on nominal interest rates abstract ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in new keynesian models a stochastic forward looking model with an occasionally binding lower bound calibrated to the u s economy suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy the fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound the welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the phillips curve these results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment

discretionary policy and multiple equilibria in lq re models we study discretionary equilibria in dynamic linear quadratic rational expectations models in contrast to the assumptions that pervade this literature we show that these models do have multiple equilibria in some situations we demonstrate the existence of multiple discretionary equilibria by example we investigate general properties of discretionary equilibria and discuss implications for numerical algorithms

immigration and electoral support for the far left and the far right immigration has become one of the most divisive political issues in the united states the united kingdom france and several other western countries we estimate the impact of immigration on voting for far left and far right parties in france using panel data on presidential elections from 1988 to 2017 to derive causal estimates we instrument more recent immigration flows by past settlement patterns in 1968 we find that immigration increases support for far right candidates and has no robust effect on far left voting the increased support for far right candidates is driven by low educated immigrants from non western countries

average inflation targeting the analysis of this paper demonstrates that when the phillips curve has forward looking components a goal for average inflation i e targeting a j period average of one period inflation rates will cause inflation expectations to change in a way that improves the short run trade off faced by the monetary policymaker average inflation targeting is thus an example of a modified loss function which when implemented in a discretionary fashion results in more efficient outcomes from the standpoint of the true social objective inflation targeting under commitment than the discretionary pursuit of the true objective itself in purely forward looking models average inflation targeting is dominated by price level targeting but we also demonstrate in a micro founded model where the phillips curve has both forward and backward looking components that there are cases when the average inflation target provides more efficient outcomes than both ordinary one period inflation targeting and price level targeting

negotiation of profit sharing contracts in industry we examine the properties of profit sharing in a game theoretic oligopoly model of industry profit sharing contracts are viewed as a means of strategic commitment not as an internal incentive system in our model firms choose a contract subject to the employees participation constraint in a first stage and compete on the output market in a second stage we show that the choice of a profit sharing contract by each firm is a non cooperative equilibrium in the case of cournot competition the game under study has the structure of the prisoners dilemma the case of price competition on the output market leads to somewhat different conclusions

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

explaining variation in the success of extreme right parties in western europe methodological problems associated with selection bias and interaction effects have hindered the accumulation of systematic knowledge about the factors that explain cross national variation in the success of extreme right parties the author uses a statistical analysis that takes account of these problems to examine the effect of electoral institutions unemployment and immigration on the support for these parties the data set used in this analysis is new and spans 19 countries and 165 national elections there are four substantive conclusions the first is that it is important to distinguish between neofascist and populist parties on the extreme right because their fortunes depend on different factors the second is that populist parties do better in countries where the district magnitude is larger and more seats are allocated in upper tiers the third is that although immigration has a positive effect on populist parties irrespective of the unemployment level unemployment only matters when immigratio

how important is precommitment for monetary policy we quantify the welfare differential between precommitment and discretionary monetary policy in three estimated models of the u s economy by calculating the permanent deviation of inflation from target that in welfare terms is equivalent to moving from discretion to precommitment using a range of reasonable central bank preference parameters this inflation equivalent ranges from 0 05 to 3 6 percentage points with a mid point of either 0 15 or 1 1 5 percentage points depending on the model in addition to the degree of forward looking behavior we show that the existence of transmission lags and or information lags is crucial for determining the welfare gain from precommitment

on two notions of imperfect credibility in optimal monetary policies abstract we explore how outcomes of optimal monetary policy with loose commitment schaumburg and tambalotti 2007 debortoli and nunes 2010 with the non reoptimization probability of can be interpretable as outcomes of deeper optimal policy under sustainable plans chari and kehoe 1990 with n period punishment in a standard monetary policy framework we show that for any sufficiently high value of there exists an integer n such that impulse responses to the cost push shock under each policy are similar to each other

does the welfare state affect individual attitudes toward immigrants evidence across countries abstract this paper analyzes welfare state determinants of individual attitudes toward immigrants within and across countries and their interaction with labor market drivers of preferences we consider two mechanisms through which a redistributive welfare system might adjust as a result of immigration under the first model immigration has a larger impact on high income individuals while under the second one low income individuals are those most affected individual attitudes are consistent with the first welfare state model and with labor market determinants in countries where immigration is unskilled income is negatively correlated with pro immigration preferences while skill is positively correlated with them these relationships are reversed in economies characterized by skilled migration

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

an introduction to the economics of immigration in oecd countries the share of the foreign born in oecd countries is increasing and this article summarizes economics research on the effects of immigration in those nations four broad topics are addressed labor market issues fiscal questions the political economy of immigration and productivity international trade extreme concerns about deleterious labour market and fiscal impacts following from new immigrants are not found to be warranted however it is also clear that government policies and practices regarding the selection and integration of new migrants affect labour market fiscal and social cultural outcomes policies that are well informed well crafted and well executed beneficially improve population welfare

optimal sustainable monetary policy in recent monetary policy literature optimal commitment policy or its variant from a timeless perspective has been studied with emphasis on welfare gains from policy commitment regardless of its time consistency problem called a stabilization bias with an optimizing model used in the literature we examine sustainable equilibrium of chari and kehoe 1990 and study optimal sustainable policy the policymaker s strategy in the best sustainable equilibrium in the absence of commitment technologies calibrated versions of the model show that the ramsey equilibrium generated by optimal commitment policy is not achievable suggesting that optimal sustainable policy is the desirable policy benchmark from the viewpoint of policy operationality the latter policy involves some issues due to its dependence on the entire history of lagrange multipliers on a sustainability constraint as a guidepost for actual policy conduct that contains no such issues and attains higher social welfare than discretionary policy does we propose a sustainable policy conducted by following a policy rule that achieves the best markov equilibrium

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

price level versus inflation targeting abstract this paper shows that price level targeting outperforms inflation targeting in the standard new keynesian model under the assumption that the central bank is forced to operate in an environment characterized by discretion in the benchmark case with no persistence in the shocks the commitment solution can be fully replicated intuitively price level targeting introduces history dependence and a stationary level of prices both of which are prominent features of the commitment solution

ethnic diversity social sanctions and public goods in kenya abstract this paper examines ethnic diversity and local public goods in rural western kenya the identification strategy relies on the stable historically determined patterns of ethnic land settlement ethnic diversity is associated with lower primary school funding and worse school facilities and there is suggestive evidence that it leads to poor water well maintenance the theoretical model illustrates how inability to impose social sanctions in diverse communities leads to collective action failures and we find that school committees in diverse areas do impose fewer sanctions on defaulting parents we relate these results to the literature on social capital and economic development and discuss implications for decentralization in less developed countries

community composition and collective action analyzing initial mail response to the 2000 census this paper analyzes how community heterogeneity influences resident decisions to undertake actions generating public benefits the decision in question is completing and returning the 2000 census questionnaire an action which secures a significant amount of federal grants for the community the model developed to explain this action allows members of societal groups to differentially value public benefits that accrue to other group members racial generational and socioeconomic class heterogeneity all predict significantly lower response rates at the county level the potential for endogenous sorting into heterogeneous counties implies that the magnitude of true behavioral effects exceeds these estimates

speed limit policies the output gap and optimal monetary policy in a standard new keynesian model a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal timeless perspective precommitment policy by stabilizing output gap changes the central bank imparts inertia into output and inflation that is absent under pure discretion even a fully optimizing i e non myopic central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting this abstract was borrowed from another version of this item

aggregate and welfare effects of redistribution of wealth under inflation and price level targeting abstract an unanticipated rise in the price level redistributes wealth from lenders to borrowers its size depends on the monetary policy regime as inflation targeting it and price level targeting pt have different implications for the price level path following price level movements the effects of an unexpected 1 price level increase are measured and assessed under both regimes overall the redistribution of wealth and the implied aggregate and welfare effects are larger under it than they are under pt the youngest the poorest and the government gain at the expense of the rest of the population and when the government gain is given to households as lump sum transfers the effects on gdp are negative and long lasting

history social divisions and public goods in rural india we examine the influence of three historically important sources of social divisions on the availability of public goods in rural india colonial power landowner peasant relations as determined by the land tenure system and social fragmentation based on the hindu caste system and the presence of sizable religious minorities using data on public goods from 1991 we find that regions that were under british colonial power in the pre independence period and those where agrarian power was concentrated in the hands of landlords have lower access to these goods as do areas with high levels of social fragmentation jel h41 p16

beauty productivity and discrimination lawyers looks and lucre we propose models with an ascriptive characteristic generating earnings differentials and causing sectoral sorting allowing us to distinguish among sources producing such differentials we use longitudinal data on a large sample of graduates from one law school and measure beauty by rating matriculation photographs 1 betterlooking attorneys who graduated in the 1970s earned more than others after 5 years of practice an effect that grew with experience 2 attorneys in the private sector are better looking than those in the public sector differences that rise with age these results support theories of dynamic sorting and customer behavior

optimal monetary policy under commitment with a zero bound on nominal interest rates we determine optimal monetary policy under commitment in a forwardlooking new keynesian model when nominal interest rates are bounded below by zero the lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear a calibration to the u s economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached while the empirical magnitude of u s mark up shocks seems too small to entail zero nominal interest rates shocks affecting the natural real interest rate plausibly lead to a binding lower bound under optimal policy however this occurs quite infrequently and does not imply positive average inflation rates in equilibrium interestingly the presence of binding real rate shocks alters the policy response to non binding markup shocks

fund raising success and a solicitor s beauty capital do blondes raise more funds abstract this study uses a door to door fund raising field experiment to explore the returns to physical appearance on fund raising success interestingly blonde females earn more on average than brunette counterparts however the returns to physical appearance depend critically on the race of a potential donor

educated preferences explaining attitudes toward immigration in europe recent studies of individual attitudes toward immigration emphasize concerns about labor market competition as a potent source of anti immigrant senti ment in particular among less educated or less skilled citizens who fear being forced to compete for jobs with low skilled immigrants willing to work for much lower wages we examine new data on attitudes toward immigration available from the 2003 european social survey in contrast to predictions based on conventional argu ments about labor market competition which anticipate that individuals will oppose immigration of workers with similar skills to their own but support immigration of workers with different skill levels we find that people with higher levels of educa tion and occupational skills are more likely to favor immigration regardless of the skill attributes of the immigrants in question across europe higher education and higher skills mean more support for all types of immigrants these relationships are almost identical among individuals in the labor force that is those competing for jobs and those not in the labor force contrary to the conventional wisdom then the connection between the education or skill levels of individuals and views about immigration appears to have very little if anything to do with fears about labor market competition this finding is consistent with extensive economic research show ing that the income and employment effects of immigration in european economies are actually very small we find that a large component of the link between educa tion and attitudes toward immigrants is driven by differences among individuals in cultural values and beliefs more educated respondents are significantly less racist and place greater value on cultural diversity than do their counterparts they are also more likely to believe that immigration generates benefits for the host economy as a whole

targeting inflation with a role for money this paper demonstrates how a target for money growth can be beneficial for an inflation targeting central bank acting under discretion because the growth rate of money is closely related to the change in the interest rate and the growth of real output delegating a money growth target to the central bank makes discretionary policy more inertial leading to better social outcomes this delegation scheme is also compared with other schemes suggested in the literature the results indicate that stabilizing money growth around a target can be a sensible strategy for monetary policy although other delegation schemes are often more efficient

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

adaptive learning persistence and optimal monetary policy we show that when private sector expectations are determined in line with adaptive learning optimal policy responds persistently to cost push shocks the optimal response is stronger and more persistent the higher is the initial level of perceived inflation persistence by the private sector such a sophisticated policy reduces inflation persistence and inflation volatility at little cost in terms of output gap volatility persistent responses to cost push shocks and stability of inflation expectations resemble optimal policy under commitment and rational expectations nevertheless it is clear that the mechanism at play is very different in the case of commitment it relies on expectations of future policy actions affecting inflation expectations in the case of sophisticated central banking it relies on the reduction in the estimated inflation persistence parameter based on inflation data generated by shocks and policy responses jel e52

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

why beauty matters we decompose the beauty premium in an experimental labor market where employers determine wages of workers who perform a maze solving task this task requires a true skill which we show to be unaffected by physical attractiveness we find a sizable beauty premium and can identify three transmission channels a physically attractive workers are more confident and higher confidence increases wages b for a given level of confidence physically attractive workers are wrongly considered more able by employers c controlling for worker confidence physically attractive workers have oral skills such as communication and social skills that raise their wages when they interact with employers our methodology can be adopted to study the sources of discriminatory pay differentials in other settings

to be or not to be in monetary union a synthesis article i nfo monetary union can benefit countries suffering from policy credibility problems if it eliminates the inflation bias and also allows for more efficient management of certain shocks but it also carries costs as some stabilization may be feasible even in the absence of credibility and this may be more than what an individual country can hope for in a monetary union in this paper we combine the stabilization and credibility branches of the currency union literature and construct a simple welfare criterion that can be used to evaluate alternative monetary arrangements we produce examples where monetary union may be welfare improving even for low modest levels of inflation bias 2 3 as long as business cycles are not too a synchronized across countries

revisiting the relationship between ethnic diversity and preferences for redistribution comment in this paper we return to the question raised in dahlberg et al 2012 concerning a causal relationship between ethnic diversity and preferences for redistribution a re analysis of their study indicates that results are based on an endogenous instrument and severe sample attrition bias correcting for either of these two problems reveals that there is no relationship between ethnic diversity and preferences for redistribution more generally we provide results that put into question the conventional description of the swedish refugee placement policy

inflation expectations consumption and the lower bound micro evidence from a large multi country survey abstract using a large multi country survey and new pseudo panel dataset we investigate the spending response of consumers to their beliefs about future inflation the analysis exploits the deviation of expected inflation from the currently perceived inflation rate a choice motivated by local approximation of the traditional euler equation this helps control for unobserved heterogeneity and highlights a positive and economically relevant spending response that is generalised in the population and across countries also a stronger positive response is observed when the lower bound is binding thus lending credence to the stabilisation properties of higher inflation expectations during such episodes

dynamic commitment and incomplete policy rules considering the dynamics of commitment highlights some neglected features of time inconsistency problems we modify the standard rules versus discretion question in three ways 1 a government that does not commit today retains the option to do so tomorrow 2 the government s commitment capability is restricted to a class of simple rules and 3 the government s ability to make irrevocable commitments is restricted three results stand out first the option to wait makes the incumbent regime rules or discretion relatively more attractive second the option to wait means that increased uncertainty makes the incumbent regime more attlwactive third because the commitment decision takes place in real time policy choice displays hysteresis when monetary policy is subject to dynamic inconsistencies optimal policy requires some precommitment by the central bank despite a proliferation of mechanisms designed to address this problem work in this area has continued to assume a once and for all choice between rules and discretion this paper asks two closely related questions first what happens if commitment decisions are made in real time so that failure to commit today does not rule out the possibility of commitment tomorrow second if governments can make only commitments that are difficult but not impossible to reverse what determines the dynamics of commitment and reversal the assumption of once and for all choice enforces simplistic dynamics on the policy process if the standard models are interpreted literally for example the commitment problem for u s monetary policy is moot having been resolved with the founding of the federal reserve system in 1914 if not at the constitutional convention of 1789 much of the interest in dynamic inconsistency however arises pre

tax burden and migration a political economy theory and evidence abstract the extent of taxation and redistribution policy is generally determined as a political economy equilibrium by a balance between those who gain from higher taxes transfers and those who lose the standard theory of the size of government in a representative democracy links the tax burden to measures of the pre tax income inequality we develop in this paper a theory which encompasses the existing literature and provides a complementary channel linking the tax burden in the presence of migration to the fiscal leakage from native born to the migrants in a stylized model of migration and human capital formation we show somewhat against the conventional wisdom that low skill immigration can lead to a lower tax burden and less redistribution than would be the case with no immigration even though migrants naturally join the pro tax transfer coalition data on 11 european countries over the period 1974 1992 are consistent with the implications of the theory a higher share of low education immigrants in the population leads to a lower tax rate on labor income and less generous social transfers

a happy half way house medium term inflation targeting in new zealand abstract the 2002 policy targets agreement pta between the government and central bank of new zealand asks the central bank to target inflation over the medium term rather than over an annual target delegating such a medium term objective to the central bank shifts inflation targeting towards a halfway house between inflation targeting and price level targeting we show empirically that this helps time consistent policy approximate the first best commitment policy even when the government asks the central bank to weight output stabilisation differently to society we estimate the new zealand economy with a small open economy dsge model and show that the happiest halfway house is located around a two year averaging horizon at most which leads to mild improvements in monetary policy efficiency

optimal degrees of transparency in monetary policymaking den meisten akademikern und politischen entscheidungstragern zufolge ist transparenz in der geldpolitik wunschenswert ich untersuche diese behauptung anhand eines kleinen theoretischen models das das vorausschauende verhalten des privaten sektors hervorhebt transparenz erleichtert es denjenigen die preise festsetzen auf die kunftigen geldpolitischen absichten der zentralbank zu schliesen wodurch die laufende inflation starker auf stabilitatspolitische masnahmen reagiert dies fuhrt dazu dass die zentralbank sich eher auf die inflation als auf die stabilisierung der produktionslucke konzentriert in diesem fall kann transparenz negative folgen haben sie kann sich sogar als eine die geldpolitik verzerrende zwangsjacke herausstellen wenn die zentralbank sich stabilitatspolitischer glaubwurdigkeit erfreut und eine aktive monetare stabilisierungspolitik benotigt wird

monetary policy in a forward looking input output economy this paper examines the implications for monetary policy of sticky prices in both final and intermediate goods in a new keynesian model both optimal policy under commitment and discretionary policy under simple loss functions are studied household utility losses under alternative loss functions are compared additionally the robustness of policy performance to model and shock misperceptions and parameter uncertainty is examined targeting inflation in both consumer and intermediate goods performs better than targeting inflation in one sector targeting price levels of both final and intermediate goods performs significantly better moreover targeting price levels in both sectors yields superior robustness properties

ethnic diversity and preferences for redistribution in recent decades the immigration of workers and refugees to europe has increased substantially and the composition of the population in many countries has consequently become much more heterogeneous in terms of ethnic background if people exhibit in group bias in the sense of being more altruistic to one s own kind such increased heterogeneity will lead to reduced support for redistribution among natives this paper exploits a nationwide program placing refugees in municipalities throughout sweden during the period 1985 94 to isolate exogenous variation in immigrant shares we match data on refugee placement to panel survey data on inhabitants of the receiving municipalities to estimate the causal eects of increased immigrant shares on preferences for redistribution the results show that a larger immigrant population leads to less support for redistribution in the form of preferred social benet levels this reduction in support is especially pronounced for respondents with high income and wealth we also establish that ols estimators that do not properly deal with endogeneity problems as in earlier studies are likely to yield positively biased i e less negative eects of ethnic heterogeneity on preferences for redistribution

racism and redistribution in the united states a solution to the problem of american exceptionalism abstract the two main political parties in the united states in the period 1976 1992 put forth policies on redistribution and on issues pertaining directly to race we argue that redistributive politics in the us can be fully understood only by taking account of the interconnection between these issues in political competition we identify two mechanisms through which racism among american voters decreases the degree of redistribution that would otherwise obtain in common with others we suggest that voter racism decreases the degree of redistribution due to an anti solidarity effect that some voters oppose government transfer payments to minorities whom they view as undeserving we suggest a second effect as well that some voters who desire redistribution nevertheless vote for the anti redistributive republican party because its position on the race issue is more consonant with their own and this too decreases the degree of redistribution in political equilibrium this we name the policy bundle effect we propose a formal model of multi dimensional political competition that enables us to estimate the magnitude of these two effects and estimate the model for the period in question we compute that voter racism reduced the income tax rate by 11 18 points the total effect decomposes about equally into the two sub effects we also find that the democratic vote share is 5 38 points lower than it would have been absent racism the magnitude of this effect would seem to explain the difference between the sizes of the public sector in the us and northern european countries

the perils of nominal targets a monetary authority can be committed to pursuing an inflation price level or nominal gdp target yet systematically fail to achieve the prescribed goal constrained by the zero lower bound on the policy rate the monetary authority is unable to implement its objectives when private sector expectations stray far enough from the target low inflation expectations become self fulfilling resulting in an additional markov equilibrium in which the monetary authority falls short of the nominal target average output is below its efficient level and the policy rate is typically low introducing a stabilization goal for long term nominal rates can implement a unique markov equilibrium without fully compromising stabilization policy

delegating optimal monetary policy inertia abstract in a forward looking business cycle model central banks can achieve the timeless optimal commitment equilibrium even in the absence of a commitment technology if they are delegated with an objective function that is different from the societal one the paper develops a general linear quadratic method to solve for the optimal delegation parameters that generate the optimal amount of inertia in a markov perfect equilibrium and studies the optimal design of some policy regimes that are nested within this framework the squared optimal targeting rule inflation output gap growth and nominal income growth targeting and inflation and output gap contracts

targeting nominal income growth or inflation within a simple new keynesian model emphasizing forward looking behavior of private agents i evaluate optimal nominal income growth targeting versus optimal inflation targeting when the economy is mainly subject to shocks that do not involve monetary policy trade offs for society inflation targeting is preferable otherwise nominal income growth targeting may be superior because it induces inertial policy making which improves the inflation output gap trade off somewhat paradoxically inflation targeting may be relatively less favorable the more society dislikes inflation and the more persistent are the effects of inflation generating shocks jel e42 e52 f58

revisiting the uncertain unit root in gdp and cpi testing for non linear trend reversion we test for the presence of a unit root in u s gdp and cpi allowing for non linear trend reversion under the alternative hypothesis in contrast to most previous results we find evidence in favour of trend stationarity for both variables

central bank reputation in a forward looking model this paper examines whether reputation concerns can induce the central bank to implement the time inconsistent optimal monetary policy in the standard new keynesian model interestingly the forward looking nature of this model enables us to account for the coordination of the private agents on the punishment length of their trigger strategy our results suggest that both the inflation bias and the stabilization bias can be overcome by a reputation concerned central bank for the calibrations used in the literature these results enable us to endogenize woodford s timeless perspective and tend to weaken the case for recent monetary policy delegation proposals

a time varying natural rate of interest for the euro area abstract we estimate a time varying natural rate of interest tvnri for a synthetic euro area over the period 1979q1 2004q4 using a small macroeconomic model broadly following a methodology developed by laubach and williams 2003 measuring the natural rate of interest the review of economics and statistics 85 4 1063 1070 for the united states the kalman filter simultaneously estimates the output gap and the natural rate of interest our identifying assumptions include a close relationship between the tvnri and the low frequency fluctuations of potential output growth the difference between the real rate of interest and its estimated natural level offers valuable insights into the monetary policy stance over the last two decades and a half

attitudes toward highly skilled and low skilled immigration evidence from a survey experiment past research has emphasized two critical economic concerns that appear to generate anti immigrant sentiment among native citizens concerns about labor market competition and concerns about the fiscal burden on public services we provide direct tests of both models of attitude formation using an original survey experiment embedded in a nationwide u s survey the labor market competition model predicts that natives will be most opposed to immigrants who have skill levels similar to their own we find instead that both low skilled and highly skilled natives strongly prefer highly skilled immigrants over low skilled immigrants and this preference is not decreasing in natives skill levels the fiscal burden model anticipates that rich natives oppose low skilled immigration more than poor natives and that this gap is larger in states with greater fiscal exposure in terms of immigrant access to public services we find instead that rich and poor natives are equally opposed to low skilled immigration in general in states with high fiscal exposure poor rich natives are more less opposed to low skilled immigration than they are elsewhere this indicates that concerns among poor natives about constraints on welfare benefits as a result of immigration are more relevant than concerns among the rich about increased taxes overall the results suggest that economic self interest at least as currently theorized does not explain voter attitudes toward immigration the results are consistent with alternative arguments emphasizing noneconomic concerns associated with ethnocentrism or sociotropic considerations about how the local economy as a whole may be affected by immigration

immigration wages and compositional amenities economists are often puzzled by the stronger public opposition to immigration than trade since the two policies have symmetric effects on wages unlike trade however immigration changes the composition of the local population imposing potential externalities on natives while previous studies have focused on fiscal spillovers a broader class of externalities arise because people value the compositional amenities associated with the characteristics of their neighbors and co workers in this paper we present a new method for quantifying the relative importance of these amenities in shaping attitudes toward immigration we use data for 21 countries in the 2002 european social survey which included a series of questions on the economic and social impacts of immigration as well as on the desirability of increasing or reducing immigrant inflows we find that individual attitudes toward immigration policy reflect a combination of concerns over conventional economic impacts i e on wages and taxes and compositional amenities with substantially more weight on composition effects most of the difference in attitudes to immigration between more and less educated natives is attributable to heightened concerns over compositional amenities among the less educated

the signaling effect of raising inflation abstract this paper argues that central bankers should temporarily raise inflation when anticipating liquidity traps to ensure the credibility of otherwise time inconsistent forward guidance policies as stable inflation in normal times either stems from central bankers desire to maintain credibility or from aversion to inflation the private sector is unable to infer the central banker s willingness to follow through on promises from observing stable inflation jeopardizing the efficiency of forward guidance policy we show that this signaling motive can justify temporary deviations of inflation from target well above 2 but also that the low inflation volatility during the great moderation was insufficient to ensure fully efficient forward guidance when needed

a review of interest and prices foundations of a theory of monetary policy by michael woodford this is a review article of interests and prices foundations of a theory of monetary policy princeton university press 2003 by michael woodford

price level targeting and the delegation issue in an open economy a weight conservative central banker setting policy with discretion and stabilizing the real exchange rate adjusted rex price level and the output gap can replicate the behavior of the rate of rex inflation and the output gap under policy from a timeless perspective