resolving new keynesian anomalies with wealth in the utility function at the zero lower bound the new keynesian model predicts that output and inflation collapse to implausibly low levels and that government spending and forward guidance have implausibly large effects to resolve these anomalies we introduce wealth into the utility function the justification is that wealth is a marker of social status and people value status since people partly save to accrue social status the euler equation is modified as a result when the marginal utility of wealth is sufficiently large the dynamical system representing the zero lower bound equilibrium transforms from a saddle to a source which resolves all the anomalies

fleetwood on causal holism clarification and critique fleetwood 2002 cambridge journal of economics vol 26 no 1 27 45 provided a critical evaluation of causal holism boylan and o gorman 1995 ekonomia vol 1 no 2 9 21 from the perspective of critical realism for fleetwood there are three fundamental areas of disagreement namely the differential approaches to unobservable entities description and explanation in this paper the authors dispute fleetwood s analysis of causal holism in all these areas to contextualise and clarify their disagreements with fleetwood the authors examine the most significant differences between the two methodological frameworks they argue that notwithstanding their shared criticism of mainstream economics critical realism and causal holism remain methodologically incompatible copyright 2006 oxford university press

modelling the impacts of a carbon emission differentiated vehicle tax system on co2 emissions intensity from new vehicle purchases in ireland abstract the increasing awareness of the effects of climate change on the environment and the economic pressure on oil supply has focused international attention on reducing co 2 emissions and energy usage across all sectors in order to meet their kyoto protocol commitments and in line with european union policy the irish government has introduced a carbon based tax system for new vehicles purchased from the 1st of july 2008 this new legislation aims to reduce carbon emissions in the transport sector a sector which is responsible for a significant proportion of both this paper presents the results of the development calibration and application of a car choice model which predicts the changes in co 2 emissions intensity from new vehicle purchases as a result of the changes in vehicle tax policy and fuel price in ireland the model also predicts the impact of such changes on tax revenue for the irish government and the changes in the split between the number of diesel and petrol vehicles purchased the investigation found that the introduction of these new carbon based taxes in ireland will result in a reduction of 3 6 3 8 in co 2 emissions intensity and a reduction in annual tax revenue of 191 m

managing expectations instruments vs targets should policymakers offer forward guidance in terms of a path for an instrument such as interest rates or a target for an outcome such as unemployment we study how the optimal approach depends on a departure from rational expectations people have a limited understanding of the behavior of others and of the general equilibrium ge effects of policy the bite of such bounded rationality on implementability and welfare is minimized by target based guidance if and only if ge feedbacks are strong enough this offers a rationale for why central banks should shine the spotlight on unemployment when faced with a prolonged liquidity trap a steep keynesian cross or a large financial accelerator

a quantitative easing experiment abstract we experimentally investigate the effect of a central bank buying bonds for cash in a quantitative easing qe operation in our experiment the bonds are perfect substitutes for cash and have a constant fundamental value which is not affected by qe in the rational expectations equilibrium we find that qe raises bond prices above those in the benchmark treatment without qe subjects in the benchmark treatment learned to trade the bonds at their fundamental value but those in treatments with qe became more convinced after repeated exposure to the same treatment that qe boosts bond prices this suggests the possibility of a behavioural channel for the observed effects of actual qe operations on bond yields

delphic and odyssean monetary policy shocks evidence from the euro area abstract what drives the reaction of financial markets to central bank communication on the days of policy decisions we highlight the role of two factors that we identify from high frequency monetary surprises news on future macroeconomic conditions delphic shocks and news on future monetary policy shocks odyssean shocks these two shocks move the yield curve in the same direction but have opposite effects on financial conditions and macroeconomic expectations they also have a different impact on macroeconomic outcomes so that central bankers cannot infer the degree of stimulus they provide by looking at the mere reaction of the yield curve

pegging the interest rate on bank reserves a resolution of new keynesian puzzles and paradoxes abstract introducing bank reserves or money into the basic new keynesian nk model offers a resolution of nk puzzles and paradoxes the resulting models deliver local equilibrium determinacy under an exogenous interest rate on reserves and an exogenous nominal stock of reserves even for an arbitrarily small monetary friction this leads to a resolution of the forward guidance puzzle the fiscal multiplier puzzle and the paradox of flexibility as the monetary friction becomes vanishingly small the models converge to the basic nk model and serve to select a particular equilibrium of that model which also offers a resolution of the paradox of toil

axiomatization and formalism in economics in this paper we address a number of issues in the historiography and methodology of the formalization of economics in the twentieth century we argue that debreu s approach to formalism pursuing his bourbakist programme was based on hilbert s version of finitism the latter project attempted to retain its place in cantor s paradise and in so doing bequeathed serious methodological consequences there was however at the turn of the twentieth century an alternative version of finitism available that provided by poincare which if adopted by economics would have led to a radically different approach to economic theorizing and modelling we argue that these reflections must be embedded in an alternative larger methodological framework copyright 2007 the authors journal compilation 2007 blackwell publishing ltd

greening the vehicle fleet norway s co2 differentiated registration tax abstract in 2007 norway established its vehicle registration tax linked to vehicle co2 intensities in 2009 the tax was modified to a feebate structure but maintained its link to co2 intensities using a panel dataset to exploit the quasi experimental tax reforms we estimate that a 1000 nok 125 usd tax increment reduces new vehicle sales by 1 06 1 58 this result yields an elasticity of average co2 intensity to co2 price implied by the tax of 0 06 with a pass through of the tax to car prices of 88 the resulting elasticity of average co2 intensity to average car price is 0 53 thus the tax significantly shifts consumers toward lower emission vehicles our counterfactual simulations suggest that high emission vehicle segments lose market shares and become less co2 intensive while low emission vehicle segments gain market shares

are the costs of reducing greenhouse gases from passenger vehicles negative energy models suggest that the costs of reducing carbon emissions from transportation are high relative to those for other sectors this paper discusses why taxes or equivalent permit systems to reduce passenger vehicle emissions produce large net benefits rather than costs when account is taken of a their impact on reducing other highway externalities besides carbon and b interactions with the broader fiscal system both of these considerations also strengthen the case for a tax based approach over fuel economy regulation while fiscal considerations strengthen the case for taxes over grandfathered emissions permits the paper also comments on the practical relevance of automobile fuel taxes or their policy equivalents to broader legislation intended to mitigate climate change

new vehicle fuel economy in the uk impact of the recession and recent policies interests in vehicle fuel economy have increased in the past few years with the implementations of more stringent cafe standard in usa and mandatory carbon emission standard in the eu we seek to understand the effects of recent policies such as restructuring of vehicle excise duties and eu standard on new vehicle fuel economy in the uk in the past few years there have been substantial fluctuations in income and fuel prices offering an interesting testing ground to understand their impact on the demand for fuel economy in vehicles we use a monthly dataset to find that the emission standard is the largest driver for fuel economy improvements in recent years also contrary to some recent findings in europe and in uk we find that income has an effect and that the recession had some role in improving the fuel economy the effects of fuel prices were relatively small restructuring of the ved also improved new vehicle fuel economy in the uk but the scrappage scheme had no significant effect results indicate that both supply and demand side policies are effective in improving fuel economy although quantitatively the emission standard appears more effective due to its stringency it is also important to consider the effects of income while devising demand side policies

monetary policy bounded rationality and incomplete markets this paper extends the benchmark new keynesian model by introducing two frictions i agent heterogeneity with incomplete markets uninsurable idiosyncratic risk and occasionally binding borrowing constraints and ii bounded rationality in the form of level k thinking compared to the benchmark model we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy which is more pronounced at long horizons and offers a potential rationalization of the forward guidance puzzle each of these frictions in isolation would lead to no or much smaller departures from the benchmark model

the simple economics of motor vehicle pollution a case for fuel tax the volume of pollution produced by an automobile is determined by driver s behavior along three margins i vehicle selection ii kilometers driven and iii on road fuel economy the first two margins have been studied extensively however the third has received scant attention how significant is this intensive margin what would be the optimal policies when it is taken into account the paper develops and analyzes a simple model of the technical and behavioral mechanisms that determine the volume emissions produced by a car the results show that an optimal fuel tax would provide drivers with appropriate incentives along all three margins and that only public information is needed for a fuel tax to be set optimally in contrast an optimal distance tax would require private information lastly relative to the optimal fuel tax a simple uniform fuel tax is shown to be progressive thus being already deployed worldwide a uniform fuel tax is an attractive second best policy these findings should be accounted for when designing new mechanisms to alleviate motor vehicle pollution

a meta analysis of the price elasticity of gasoline demand a sur approach abstract automobile gasoline demand can be expressed as a multiplicative function of fuel efficiency mileage per car and car ownership this implies a linear relationship between the price elasticity of total fuel demand and the price elasticities of fuel efficiency mileage per car and car ownership in this meta analytical study we aim to investigate and explain the variation in empirical estimates of the price elasticity of gasoline demand a methodological novelty is that we use the linear relationship between the elasticities to develop a meta analytical estimation approach based on a seemingly unrelated regression sur model with cross equation restrictions this approach enables us to combine observations of different elasticities and thus increase our sample size furthermore it allows for a more detailed interpretation of our meta regression results the empirical results of the study demonstrate that the sur approach leads to more precise results i e lower standard errors than a standard meta analytical approach we find that with mean short run and long run price elasticities of 0 34 and 0 84 respectively the demand for gasoline is not very price sensitive both in the short and the long run the impact of a change in the gasoline price on demand is mainly driven by responses in fuel efficiency and mileage per car and to a slightly lesser degree by changes in car ownership furthermore we find that study characteristics relating to the geographic area studied the year of the study the type of data used the time horizon and the functional specification of the demand equation have a significant impact on the estimated value of the price elasticity of gasoline demand

the impact of tax reform on new car purchases in ireland we examine the impact of recent tax reforms in ireland on private car transport and its greenhouse gas emissions a carbon tax was introduced on fuels and purchase vehicle registration and ownership motor taxes were switched from engine size to potential emissions we use a demographic model of the car stock by age size and fuel and a car purchase model that reflects the heterogeneous distribution of mileage and usage costs across various engine sizes the model shows a dramatic shift from petrol to diesel cars particularly for large engines the same pattern is observed in the latest data on car sales this has a substantial impact on tax revenue as car owners shift to the lower tax rates the tax burden has shifted from car ownership to car use and that the overall tax burden on private car transport falls as diesel engines are more fuel efficient than petrol engines carbon dioxide emissions fall modestly or if we consider the rebound effect of travel costs on mileage minimally from the perspective of the revenue the costs per tonne of carbon dioxide avoided are very high

can more public information raise uncertainty the international evidence on forward guidance abstract central banks have used different types of forward guidance this paper reports cross country evidence showing that in general forward guidance mutes the response of government bond yields to macroeconomic news however calendar based guidance with a short horizon counter intuitively raises it using a stylized model where agents learn from market signals it shows that the public release of more precise information about future rates lowers the informativeness of market signals and as a consequence may increase uncertainty and amplify the reaction of expectations to macroeconomic news

uncovered interest parity forward guidance and the exchange rate under uncovered interest parity uip the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials is invariant to the horizon at which the change is expected empirical evidence using us euro area and uk data points to a substantial deviation from that invariance prediction expectations of interest rate differentials in the near distant future are shown to have much larger smaller effects on the real exchange rate than is implied by uip some possible explanations are discussed

boylan and o gorman s causal holism a critical realist evaluation boylan and o gorman have recently elaborated an interesting new perspective called causal holism which attempts to go beyond developments in rhetoric and realism the aim of this paper is to evaluate causal holism from the perspective of critical realism emphasis is placed primarily on three areas of disagreement differential approaches to unobservable entities description and explanation although areas of agreement are also considered the conclusion gives a sketch of what a critical realist causal holist view of economics might look like

ambiguous policy announcements we study the effects of an announcement of a future shift in monetary policy when agents face knightian uncertainty about the commitment capacity of the monetary authority households are ambiguity averse and are differentially exposed to inflation due to differences in wealth in response to the announcement of a future loosening in monetary policy only wealthy households creditors will act as if the announcement will be fully implemented due to the potential loss of wealth from the prospective policy easing and when creditors believe the announcement more than debtors their expected wealth losses are larger than the wealth gains that debtors expect hence the economy responds as if aggregate net wealth falls which attenuates the effects of the announcement we study the quantitative properties of the model in a liquidity trap after allowing for a realistic characterization of households wealth portfolio