a simple general equilibrium model of large excess reserves abstract in a general equilibrium macroeconomic model with a banking system that can hold large excess reserves and is subject to possibly binding capital constraints i study how the quantity of government provided monetary assets is related to the price level in steady state when the central bank does not pay interest on reserves the price level moves one for one with the monetary base if instead the central bank can pay interest on reserves at market rates the price level can decouple from the quantity of monetary assets in the economy a larger monetary base need not imply a higher price level however for large enough levels of reserves the capital constraint binds and the tight link between money and prices reemerges

special remedies for special causes involuntary unemployment in keynes political writings this paper analyses the proposals keynes made in his political writings regarding unemployment extending arguments made in the general theory the first issue is the relevance of voluntary unemployment to an understanding of keynes views on structural unemployment the second issue is the connection between on the one hand keynes argument in favour of public works state planning and more generally the socialisation of investment and on the other the analysis of involuntary unemployment made in the general theory emphasis is placed on long term pessimistic expectations and on the market valuation of capital assets copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

transmutability generalised darwinism and the limits to conceptual integration this article explores the limits to conceptual integration between evolutionary biology cognitive neuroscience and economics the new learning in the natural sciences supplies material to update and enrich the microfoundations of institutional economics specifically the instinct habit psychology the framing of social reality with evolutionary concepts is however misguided in important respects metaphorical modelling is the transfer of concepts developed for the understanding of one domain to another ontological distinct domain the argument is made that the generalisation of darwinian principles to the phenomena of institutional persistence and change is theorising by metaphor because there are crucial ontological differences separating the natural and social domains social reality has the property of transmutability meaning the social environment unlike the natural domain is changeable by human agency this article endeavours to explain how the generalisation of the natural selection principle evokes a fallacious conception of institutional reality the idea that fitness in the social economic sphere is a matter of purposive adaptation by agents to exogenous conditions is misleading because real success in business or politics is transformative and is achieved by catalysing and maintaining advantageous shifts of widely prevalent habits of thought and behaviour copyright oup

confidence based optimisation for the newsvendor problem under binomial poisson and exponential demand abstract we introduce a novel strategy to address the issue of demand estimation in single item single period stochastic inventory optimisation problems our strategy analytically combines confidence interval analysis and inventory optimisation we assume that the decision maker is given a set of past demand samples and we employ confidence interval analysis in order to identify a range of candidate order quantities that with prescribed confidence probability includes the real optimal order quantity for the underlying stochastic demand process with unknown stationary parameter s in addition for each candidate order quantity that is identified our approach produces an upper and a lower bound for the associated cost we apply this approach to three demand distributions in the exponential family binomial poisson and exponential for two of these distributions we also discuss the extension to the case of unobserved lost sales numerical examples are presented in which we show how our approach complements existing frequentist e g based on maximum likelihood estimators or bayesian strategies

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

money and liquidity effects separating demand from supply in the canonical monetary policy model money is endogenous to the optimal path for interest rates and output but when liquidity provision by banks dominates the demand for transactions money from the real economy money is likely to contain information for future output because of its impact on financial spreads and so we decompose broad money into primitive demand and supply shocks we find that supply shocks have played a significant role in the time series in each of the usa uk and eurozone in the short to medium term we further consider to what extent the supply of broad money is related to policy or to liquidity effects from financial intermediation

the aaea ever growing and changing research challenges the changing economic conditions over the past century along with changes in technology and developments in economic theory and quantitative methods helped shape the profession we currently refer to as agricultural and applied economics the broadening of the profession from the original focus on the farm and agricultural industry to encompass international affairs governmental policies resources and environmental and rural affairs is discussed within this context emergence of the subdisciplines and some of the major individual contributions are noted the final section argues that members of the profession are well positioned to continue contributing research that will help society achieve its goals and notes six challenges that provide such opportunities

the when the how and the why of mathematical expression in the history of economic analysis when one reads about the history of the use of mathematical expression in economics one gets the impression of a few brave but lonely innovators like daniel bernoulli 1738 achille isnard 1781 n f canard 1801 johann von thunen 1826 and antoine augustin cournot 1838 present at the creation of economic thought and later a feisty band of visionaries associated with the marginalist revolution at the turn of the century who had the right tools in their rucksacks and then finally the full flowering of activity in the postwar period through it all there is the unmistakable conviction that this movement was cumulative inevitable and indeed natural

the distribution of money balances and the nonneutrality of money recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade given quasi linear preferences this makes the distribution of money degenerate which keeps the models simple but precludes the discussion of distributional effects of monetary policy we generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically we show that unexpected symmetric lump sum money injections may increase short run output and welfare whereas asymmetric injections may increase long run output and welfare

inflation output and welfare this paper studies the effects of anticipated inflation on aggregate output and welfare within a search theoretic framework we allow money holders to choose the intensities with which they search for trading partners so inflation affects the frequency of trade as well as the quantity of output produced in each trade we consider the standard pricing mechanism for search models i e ex post bargaining as well as a notion of competitive pricing if prices are bargained over the equilibrium is generically inefficient and an increase in inflation reduces buyers search intensities output and welfare if prices are posted and buyers can direct their search search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates the friedman rule achieves the first best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates

optimal inventory decisions for a risk averse retailer when offering layaway abstract layaway allows economically disadvantaged budget constrained consumers to purchase expensive items through amortized payments and nominal program fees as opposed to using high interest financing options such as credit cards and payday loans we consider a risk averse retailer s ordering decisions when offering a layaway program we use the net loss and total loss functions found in the literature to determine a risk averse retailer s optimal order quantity under conditional value at risk cvar we next analyze the effects of the model parameters retailer s risk aversion the market default rate enrollment fee cancellation fee and so on on the optimal order quantity decisions we show that the optimal order quantity depends on different loss functions and different demand distribution functions further we show that as market default rate increases or the retailer becomes more risk averse then a rational retailer will not offer a layaway program

economics and the self organisation approach alfred marshall revisited the economics of alfred marshall is reassessed in the light of new developments in the natural sciences whereby a nonequilibrium thermodynamic approach is adopted to analyze self organization in dissipative structures it is argued that there is a clear correspondence between marshall s treatment of time irreversibility and this modern approach particularly when the latter is set in an informational context thus his principles is viewed as a very useful starting point in adapting the self organization approach for application in economics the main features of such a post marshallian approach to economics are discussed and compared with the mechanical approach of neoclassicism copyright 1993 by royal economic society

economic theory in the mathematical mode iif a symbolic date were to be chosen for the birth of mathematical economics our profession in rare unanimous agreement would select 1838 the year in which augustin cournot published his recherches sur les principes mathematiques de la thetorie des richesses students of the history of economic analysis could point out contributions made to mathematical economics as early as the beginning of the eighteenth century they could also point out johann heinrich von thunen s der isolierte staat 1826 a prototypical example of the use of mathematical reasoning in economic theory with little mathematical formalism but cournot stands out as the first great builder of mathematical models explaining economic phenomena among his successors in the nineteenth century and the early twentieth century the highest prominence will be given in this lecture to leon walras 1834 1910 the founder of the mathematical theory of general economic equilibrium to francis y edgeworth 1845 1926 and to vilfredo pareto 1848 1923 all three lived long enough into the twentieth century to have increased for all nobel laureates the value of the economics prize had it like the other prizes been initiated in 1901 if 1838 is the symbolic birthdate of mathematical economics 1944 is the symbolic beginning of its contemporary period in that year john von neumann and oskar morgenstern published the first edition of the theory of games and economic behavior an event that announced a profound and extensive transformation of economic theory in the following decade powerful intellectual stimuli also came from many other directions in addition to von neumann and morgenstern s book wassily leontiefs input output analysis paul samuelson s foundations of economic analysis tjalling koopmans activity analysis of production and george dant

formalising economics social change values mechanics and mathematics in economic discourse the mathematisation and formalisation of economic science has been one of the most important features of the development of economic science in the latter part of the twentieth century what were the causes behind this ubiquitous mathematisation of economic science recent scholarship places excessive emphasis on the role and prestige of mathematics as a scientific tool in this paper we argue this is inadequate not least because it fails to account for the whole classical era when mathematical economists failed to have any impact explaining this failure is one of the main aims of this paper most accounts focus mostly on the intellectual factors involved failing to do justice to what amounts to a multifaceted and complicated phenomenon involving social economic political intellectual normative and institutional factors partly redressing the balance by bringing to the fore the various factors involved is the other prime aim of this paper

a bayesian approach to determine the value of information in the newsboy problem abstract the potential benefits of demand forecasting in a newsboy problem are to decrease the risk of overstocking or shortage but forecasting is usually not free in this paper a model to help the decision maker in a newsboy problem to assess the value of information is presented first two cases on available demand information are considered to develop an upper bound of the cost that the decision maker would spend on forecasting then a bayesian approach to forecasting is proposed and evai the expected value of additional information is computed to help the decision maker in deciding whether to use the extra information finally the relationship between the evai and model parameters is discussed

bayes solution to dynamic inventory models under unknown demand distribution this paper considers the periodic review inventory problem for which one or more parameters of the demand distribution are unknown with a known prior distribution chosen from the natural conjugate

adaptive learning and monetary exchange abstract this paper investigates three classic questions in monetary theory how can an intrinsically worthless asset such as fiat money maintain value as a medium of exchange what are the short run and long run effects of a change in the money supply what is the social cost of inflation i answer these questions using a microfounded model of monetary exchange that replaces the rational expectations assumption with an adaptive learning rule first i show that monetary exchange is a robust arrangement in the sense that agents are able to learn the stationary monetary equilibrium while the non monetary equilibrium is unstable under learning second an unanticipated monetary injection has real effects in the short run because learning the value of money takes time in the long run agents successfully learn the value of money hence money is neutral third under a constant money growth policy an increase in the growth rate of money increases output in the short run producing a short run phillips curve a ten percent increase in the money growth rate has a social cost of 0 41 percent of output per year alternatively a ten percent decrease in the money growth rate has a social benefit of 0 37 percent of output per year

nonneutrality of money in dispersion hume revisited for a class of standard and widely used preferences a one shot money injection in a standard matching model can induce a significant and persistent output response by dispersing the distribution of wealth decentralized trade matters for both persistence and significance in the presence of government bonds the injection has a liquidity effect and the inflation rate right following the injection may be below the steady state rate level

the censored newsvendor and the optimal acquisition of information this paper investigates the effect of demand censoring on the optimal policy in newsvendor inventory models with general parametric demand distributions and unknown parameter values we show that the newsvendor problem withobservable lost sales reduces to a sequence of single period problems while the newsvendor problem withunobservable lost sales requires a dynamic analysis using a bayesian markov decision process approach we show that the optimalin ventory level in the presence of censored demand ishigher than would be determined using a bayesian myopic policy we explore the economic rationality for this observation and illustrate it with numerical examples

chronicle of a deflation unforetold suppose the nominal money supply could be cut literally overnight by say 20 what would happen to prices wages output the answer can be found in 1720s france where just such an experiment was carried out repeatedly prices adjusted instantaneously and fully on one market only that for foreign exchange prices on other markets such as commodities as well as prices of manufactured goods and industrial wages fell slowly over many months and not by the full amount of the nominal reduction coincidentally or not the industrial sector as represented by manufacturing of woolen cloths experienced a contraction of 30 when the government changed course and increased the nominal money supply overnight by 20 prices responded much more and the woolen industry rebounded

comment lucas on involuntary unemployment keynes distinguishes three concepts voluntary frictional and keynesian involuntary unemployment frictional unemployment is a classical form of involuntary unemployment not voluntary as lucas suggests and reflects the marshallian rather than walrasian treatment of time and equilibrium lucas contradicts both keynes and pigou in asserting that there are always immediate vacancies for unskilled labour and abstracts from the very problem that keynes seeks to address if voluntary unemployment is re defined appropriately as de vroey helpfully suggests elsewhere the prefix involuntary is dispensable not because all unemployment is voluntary as lucas would have it but because it is all involuntary copyright 2006 oxford university press

lucas on involuntary unemployment the aim of this paper is to examine critically lucas arguments against keynes s general theory and in particular against keynes s concept of involuntary unemployment it comprises two main parts in the first i question lucas s claim that keynes betrayed the equilibrium discipline by freeing himself from the postulates of optimising behaviour and market clearing in the second i discuss lucas three arguments against the involuntary unemployment concept first that there is no rationale for drawing a distinction between two sorts of unemployment second that every economic outcome features voluntarity and involuntarity jointly and third that alternatives to unemployment are always present

estimating the demand distributions of single period items having frequent stockouts abstract very often the service level of a single period newsboy type product is set at such a low level that i stockouts occur in the majority of the periods and ii a large right hand side of the empirical demand distribution is never observable this paper reports a practical approach for estimating the periodic demand distribution of such a product the approach has three components i using the non parametric product limit method to estimate the fractiles of the observable left hand side of the empirical distribution ii using a subjective approach and an extrapolation of hourly sales approach to fill in the missing right hand side of the empirical distribution iii fitting the estimates obtained in the preceding two components to a tocher curve which can handle the diversity of shapes of a realistic demand distribution and is also computationally very convenient for subsequent calculations for production inventory decisions the entire approach is shown to be simpler but more powerful than existing alternatives for the problem

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

cross regime evidence of macroeconomic rationality rational expectations macromodels predict that the short run effects of monetary shocks on real output x should be negatively related across policy regimes to the variability of such shocks this paper presents cross regime tests of this and related propositions based on a sample of 47 countries the within regime estimates reveal a consistent pattern of positive short run real output effects with neutrality of money holding in the long run the cross regime tests show that x is negatively related to the variance of monetary shocks positively related to the variance of real output shocks negatively related to the variance of velocity shocks and unrelated to either the mean or variance of anticipated money growth

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

the adjustment of prices to monetary shocks when trade is uncertain and sequential trade is both uncertain and sequential money surprises are not neutral because prices at the beginning of the trading process cannot depend on its end in contrast with fixed price models in this paper sellers can change prices during trade in contrast with lucas s article here there is no asymmetry in the information about the money supply the price quoted by individual sellers may adjust slowly to changes in the targeted money supply but the distribution of quoted prices adjusts perfectly to these changes and the real price distribution is independent of the anticipated rate of change in the money supply

revenue sharing in movie exhibition and the arrival of sound i introduction at least since adam smith economists have been intrigued by share contracts there has been a proliferation of models most of which tend to explain the share contract as resulting from some mix of optimal risk bearing and optimal effort motivation 1 a large number of researchers have attempted to test these models empirically sharecropping contracts not surprisingly are the most intensively examined the bibliography in knoeber 2000 but similar studies have been conducted in many other areas for example martin 1988 and lafontaine 1992 examine franchise arrangements hallagan 1978 investigates contracts used to lease gold claims leffler and rucker 1991 analyze a sample of private timber sale contracts goldberg and erickson 1987 study long term contracts for the sale of petroleum coke aggarwal and samwick 1999 investigate incentive contracts between firms and their executives and chisholm 1997 goldberg 1997 and weinstein 1998 all examine profit sharing contracts between fi lm companies and the talent this article differs in an important respect from most previous studies which analyze a cross section of contracts in an attempt to determine how or whether they vary according to the attributes of the contracting parties or the products being contracted for instead it investigates an area where a sudden technology shock led to the rapid and widespread replacement of one form of contracting by another the industry is the motion picture business and the shock was the arrival of sound during the silent film era the vast majority of first run feature films were rented to cinemas for flat daily or weekly payments within two years of the release of the first sound picture revenue sharing contracts were the norm and they remain the norm to this day 2 my goal is to investigate the degree to which the standard economic concerns moral hazard risk sharing and measurement problems can explain this change because the contracting parties remained the same the question becomes what was altered in the nature of the product or in its provision so as to have altered correspondingly the incentives faced i conclude the following first the advent of sound fundamentally changed the inputs live music and other acts supplied by the exhibitor and central to the show were replaced by a soundtrack and short sound films supplied by the film company the benefit of deterring exhibitor shirking through the use of flat rental fees which made the exhibitor full residual claimant declined accordingly the party whose effort makes the largest contribution to marginal product generally receives the largest proportion of the residual claims and in the decades following the arrival of sound the proportion of residual claims collected by film companies rose steadily in addition average revenue per film increased with sound whereas the cost of ensuring that exhibitors reported attendance revenue honestly done by locating a film company s representative in the theater remained the same the ex post division of revenue necessary for revenue sharing thus became cheaper on a per film basis finally uncertainty ab out the value in terms of expected attendance revenue of the early sound films appears to have raised the cost of negotiating lump sum rental fees and thus promoted experiments with revenue sharing however although this may have contributed initially it cannot explain the practice s persistence uncertainty about film values declined as talking films became better known ii the nature of the problem a film company contracts with an exhibitor so that they may jointly produce the final good a movie presentation 3 to that end each supplies essential inputs the film company provides the movie itself assembled from a variety of inputs and some sort of national advertising support the exhibitor provides the theater which consists of seating projection equipment a refreshment stand and other support activities and some form of local advertising

stalking information bayesian inventory management with unobserved lost sales retailers are frequently uncertain about the underlying demand distribution of a new product when taking the empirical bayesian approach of scarf 1959 they simultaneously stock the product over time and learn about the distribution assuming that unmet demand is lost and unobserved this learning must be based on observing sales rather than demand which differs from sales in the event of a stockout using the framework and results of braden and freimer 1991 the cumulative learning about the underlying demand distribution is captured by two parameters a scale parameter that reflects the predicted size of the underlying market and a shape parameter that indicates both the size of the market and the precision with which the underlying distribution is known an important simplification result of scarf 1960 and azoury 1985 which allows the scale parameter to be removed from the optimization is shown to extend to this setting we present examples that reveal two interesting phenomena 1 a retailer may hope that compared to stocking out realized demand will be strictly less than the stock level even though stocking out would signal a stochastically larger demand distribution and 2 it can be optimal to drop a product after a period of successful sales we also present specific conditions under which the following results hold 1 investment in excess stocks to enhance learning will occur in every dynamic problem and 2 a product is never dropped after a period of poor sales the model is extended to multiple independent markets whose distributions depend proportionately on a single unknown parameter we argue that smaller markets should be given better service as an effective means of acquiring information

the new classical macroeconomics comprises articles published between 1972 and 1992 on new classical macroeconomics it starts by examining the rational expectations hypothesis and the application of general equilibrium to labour markets and continues with various arguments for the ineffectiveness of government policy

parameter estimation and performance measurement in lost sales inventory systems abstract in most retail environments the only information available on customer demand comes from sales data when a product is out of stock there is generally no knowledge of what potential sales have been lost this creates problems when it comes to estimating forecasting the demand distribution and its parameters this paper looks at this problem and considers ways of overcoming it in particular making use of data captured by modern point of sale systems

keynes lucas and involuntary unemployment a reply to hayes in this response to mark hayes s criticism of his article lucas on involuntary unemployment the author insists on the need to draw a distinction between labour rationing a market outcome and unemployment the activity of job seeking economic theory is mainly concerned with the former yet the issue of the voluntarity versus the involuntarity of unemployment pertains to unemployment as an activity failing to make this distinction cannot but lead to semantic confusion

money inflation and output under fiat and commodity standards we examine the behavior of money inflation and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity using long term historical data for 15 countries we find that under fiat standards the growth rates of various monetary aggregates are more highly correlated with inflation and with each other than under commodity standards money growth inflation and output growth are also higher in contrast we do not find that money growth is more highly correlated with output growth under one standard than under the other

myopic policies for some inventory models with uncertain demand distributions the majority of papers on stochastic inventory theory make the assumption that the distribution of consumer demand in each time period is known with certainty while this assumption is unsupported in many applied contexts it is conventionally held that more realistic models are more difficult to solve and will not yield simple operational policies this paper shows that a simple inventory policy based upon a critical fractile can be optimal or near optimal in some inventory models with parameter adaptive demand processes in these some parameter of the demand distribution is not known with certainty and estimates of the parameter are updated in a statistical fashion as demand is observed through time examples include exponentially smoothed forecasts and bayesian updating of parameter estimates bounds on the value loss relative to optimal cost when using the critical fractile policy can be calculated directly from the problem data some numerical examples illustrate the technique

dynamic inconsistencies counterfactual implications of a class of rational expectations models a number of recent papers have developed dynamic macroeconomic models that incorporate rational expectations and optimizing foundations while the theoretical motivation behind these models is sound the dynamic implications of many of the specifications that assume rational expectations and optimizing behavior can be seriously at odds with the data for both inflation and real side variables exhibit gradual and hump shaped responses to real and monetary shocks for models that are intended for monetary policy analysis these dynamic shortcomings should be considered quite serious when monetary policy has only short run effects on real variables the inability to approximately capture the short run responses of inflation or real variables to policy shocks makes a model unsuitable for policy analysis this paper identifies a simple feature common to many dynamic specifications for prices and real variables that causes the problem the paper also discusses several potential solutions to the problem including alterations to the expectations assumption to the order of differencing implicit in the model and to the underlying behavioral assumptions this abstract was borrowed from another version of this item

expectational diversity in monetary economies abstract we investigate an overlapping generations monetary economy in which expectations depend upon backward looking predictors of the future price level we use discrete choice theory to model how agents select a predictor based on its past forecast error letting the number of available predictors tend to infinity we obtain the large type limit of the system taking the large type limit dramatically reduces the number of free parameters while maintaining the expectational diversity which we argue is necessary for constructing plausible learning based models the model s dynamics are strongly influenced by the intensity of choice which measures how sensitive an agent s predictor choice is to differences in forecast errors across predictors when the intensity of choice is low the monetary steady state is stable as the intensity of choice increases and if certain parametric restrictions are met the system undergoes a hopf bifurcation in which case we document the existence of highly irregular equilibrium price paths

inflation and monetary dynamics in the us a quantity theory approach in this article we investigate the long run link between inflation and money growth in the united states since 1960 a measure of the long run inflation trend is constructed which bears the interpreation of monetary inflation rate and is directly related to the excess nominal money growth process money growth less output growth as postulated by the quantity theory consistent with the memory characteristics of the series their fractional integration and cointegration properties are taken into account in empirical modelling the proposed measure is then compared with several existing measures of core inflation aimed at capturing long run inflation dynamics but unrelated to money growth the monetary long run inflation rate performs well in out of sample forecasting exercises especially over a 2 3 year horizon yielding valuable information to monetary policymakers