debt regimes and the effectiveness of monetary policy abstract this paper develops a medium scale non linear model of the us economy our proposed model a threshold vector autoregression with stochastic volatility assumes that changes in government debt to gdp ratios drive the transition between regimes capturing low and high debt regimes the introduction of hierarchical priors enables us to flexibly shrink the empirical model towards the moments implied by a dynamic stochastic general equilibrium model in the empirical application we analyze regime specific monetary policy shocks our findings indicate that the effect of monetary policy is less pronounced in high debt regimes pointing towards differences in the underlying monetary policy transmission mechanisms forecast error variance decompositions enable us to shed further light on the relative importance of monetary policy shocks within different debt regimes in terms of explaining the variance of forecast errors

identifying a forward looking monetary policy in an open economy i identify a forward looking monetary policy function in a forecast augmented var foavar model by using forecasted macroeconomic variables in addition to the realized variables used in a standard var i find that forecasted variables play a greater role than realized variables in a central bank s policy decisions i also find that a contractionary policy shock in the foavar generates impulse responses of macroeconomic variables that are consistent with the predictions of economic theory while the same shock causes a price puzzle and a delayed overshooting response of the exchange rate in the standard model

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

steady state price distributions in a noisy search equilibrium abstract in a model of noisy search where customers repeat purchase this paper characterises an equilibrium where each store changes its price as its stock of regular customers changes through time as stores in the market are of different size and age price dispersion is an equilibrium outcome along the equilibrium path smaller younger stores announce lower prices and grow faster than larger established stores furthermore the youngest stores set prices below marginal cost to build business up quickly each is willing to take an early operating loss to attract customers quickly in anticipation of extracting customer switching rents in the future journal of economic literature classification numbers d40 l10

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

when do long run identifying restrictions give reliable results many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long run effects of shocks this article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions although many aspects of these issues have been raised before this article draws out and illustrates the implications for inferences under the long run scheme furthermore it provides strategies for dealing with the problems

price dispersion price flexibility and repeated purchasing this paper presents a search model in which consumers repeatedly purchase a commodity the repetition of purchases leads to the formation of implicit contracts with sellers which generate a kink in the demand curve facing each seller these kinks can generate equilibrium price dispersion under conditions where single purchase search models predict no price dispersion despite the kinks prices are at least partially flexible in that some and possibly all sellers change their prices in response to changes in production costs or demand dispersion de prix flexibilite des prix et achats repetes ce memoire presente un modele de recherche dans lequel les consommateurs font des achats repete s d un bien la repetition de l achat entraine la formation de contrats implicites avec les vendeurs ceci cree un pli dans la cedule de demande a laquelle chaque vendeur fait face ces plis peuvent engendrer une dispersion des prix d equilibre alors que le meme modele ne predirait aucune dispersion de prix en l absence d achats repet s malgre les plis les prix sont au moins partiellement flexibles puisque certains vendeurs tous peut re peuvent changer leurs prix en reponse a des changements dans les cofuts de production ou dans la demande

is the us dollar a suitable anchor for the newly proposed gcc currency responses of inflation and non oil output growth from the gulf cooperation council gcc countries to monetary policy shocks from the united states us were estimated to determine whether there is evidence to support the us dollar as the anchor for the proposed unified currency a structural vector autoregression identified with short run restrictions was employed for each country with fed funds rate as the us monetary policy instrument non oil output growth and inflation the main results suggest that for inflation the gcc countries show synchronised responses to monetary policy shocks from the us which are similar to inflation in the us and for non oil output growth there is no clear indication that us monetary policy can be as effective for the gcc countries as it is domestically consequently importing us monetary policy via a dollar peg may guarantee only stable inflation for the gcc countries not necessarily stable non oil output growth if the non oil output response is made conscientiously and there are concerns over the dollar s ability to perform its role as a store of value a basket peg with both the us dollar and the euro may be a sound alternative as confirmed by the variance decomposition analysis of our augmented svar with a proxy for the european short term interest rate

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

using private forecasts to estimate the effects of monetary policy i develop a methodology that uses the forecasts of market participants and of policy makers to estimate the effects of monetary policy on output and inflation my approach has advantages over the standard practice of fitting a vector autoregression to the data i apply my methodology to data on output interest rates and prices i find that even using the federal reserve board s greenbook forecasts to control for the policy maker s information set prices rise initially in response to a monetary contraction this finding undermines the standard justification for including an index of commodity prices in vars

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

multiproduct equilibrium price dispersion abstract the model of burdett and judd econometrica51 1993 955 969 is generalized to the case of may goods consumers choose the best price observed for each good there are two classes of equilibria those that involve constant expected profits for each good independently of price and those with increasing profits for each good in price a continuum of the latter type always exists these equilibria are qualitatively different than the unique equilibrium of the single good case journal of economic literature classification numbers d83 d43 l13

imperfect information multiple shocks and policy s signaling role abstract in multiple shock models when agents have imperfect information they attempt to infer a shock s type in addition to its size in this environment monetary policy plays an important signaling role this paper highlights this signaling role by showing that conclusions from imperfect information monetary models are sensitive to the number of shocks included with multiple shocks contractionary monetary policy can initially increase inflation and delay the eventual disinflation moreover multiple shocks can result in destabilizing price flexibility while optimal policy s response to one shock will depend on the existence of other shocks contrary to a typical linear quadratic framework

the corona pandemic a game theoretic perspective on regional and global governance we argue that the incentive structure of all individual and coordinated measures across countries to contain the corona pandemic is that of a weakest link public good game we discuss a selection of theoretical and experimental key results of weakest link games and interpret them in the light of the corona pandemic first we highlight that experimental evidence does not support the assumption that coordination can be trivially solved even among symmetric players second we argue that for asymmetric countries the weakest link game does not only pose a problem of coordination but also a problem of cooperation third we show how and under which conditions self enforcing treaties can foster coordination and cooperation we account for the possibility that countries make mistakes when choosing their actions our discussion shows that north south cooperation is relevant and likely to be self enforcing and that regional cooperation e g within the eu will also be important

turnover externalities with marketplace trading this article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly since buyers have idiosyncratic match payoffs for each seller s good some buyers rather than trade with the current stock of sellers wait for new sellers to enter the marketplace to obtain a good they like a turnover externality exists where all traders are better off with higher entry rates of new traders furthermore this turnover externality supports multiple pareto rankable equilibria this provides new insights into similar results obtained in the random matching literature

labor market dynamics when un employment is a social norm this paper proposes a new keynesian model with search and matching frictions in the labor market that can account for the cyclicality and persistence of vacancies unemployment job creation inflation and the real wage after a monetary shock motivated by evidence from psychology unemployment is modeled as a social norm the norm is defined here as the belief that individuals in society prioritize or should prioritize the search for gainful employment whereas those who do not are perceived as outside the norm and consequently stigmatized households pressure the unemployed to find jobs the fewer unemployed workers there are the more supporters the norm has and therefore the greater the pressure and psychological cost experienced by each jobseeker as this psychological cost is procyclical it hinders the wage from absorbing most of the effect of the shock thus the model is able to capture the high volatility of vacancies and unemployment observed in the data accounting for the shimer puzzle the paper also departs from the literature by introducing price rigidity in the labor market inducing additional inertia and persistence in inflation and the real wage after a monetary shock the model s responses after a monetary shock are in line with the responses obtained from a var on us data

market structure and communicable diseases communicable diseases pose a formidable challenge for public policy using numerical simulations we show under which scenarios a monopolist s price and prevalence paths converge to a non zero steady state in contrast a planner typically eradicates the disease if eradication is impossible the planner subsidizes treatments as long as the prevalence can be controlled drug resistance exacerbates the welfare difference between monopoly and first best outcomes nevertheless because the negative externalities from resistance compete with the positive externalities of treatment a mixed competition monopoly regime may perform better than competition alone this result has important implications for the design of many drug patents les maladies contagieuses posent un defi important a la politique publique a l aide de simulations numeriques on montre dans quels scenarios les prix de monopole et le sentier de prevalence tendent a engendrer un regime permanent ou la maladie ne disparait pas un planificateur typiquement elimine la maladie si l eradication est impossible le planificateur subventionne les traitements aussi longtemps que la prevalence peut etre controlee la resistance au remede agrandit l ecart de bien etre entre le cas du monopole et l optimum cependant comme les effets externes negatifs de la resistance au traitement sont en conflit avec les effets externes positifs des traitements un regime mixte concurrence monopole peut donner de meilleurs resultats que la seule concurrence ce resultat a des implications importantes pour l elaboration de nombreux brevets pharmaceutiques

monetary policy inflation expectations and the price puzzle this article re examines the var evidence on the price puzzle and proposes a new theoretical interpretation using actual data and two identification strategies based on zero restrictions and model consistent sign restrictions we find that the positive response of prices to a monetary policy shock is historically limited to the sub samples that are typically associated with a weak interest rate response to inflation using pseudo data generated by a sticky price model of the us economy we then show that the structural vars are capable of reproducing the price puzzle only when monetary policy is passive the omission in the vars of a variable capturing expected inflation is found to account for the price puzzle observed in simulated and actual data structural vector autoregressions svars are widely used for measuring and understanding the effects of monetary policy innovations on the aggregate economy while most results in the var literature are consistent with economic intuition and macroeconomic theory the typically found positive and significant reaction of the price level on impact to a monetary policy shock is a fact that most monetary models

inflation dynamics and the cost channel of monetary transmission evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so called cost channel of monetary transmission in this paper we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in g7 countries we augment the so called hybrid new keynesian philips curve by letting firms costs for external funds rise with the short run nominal interest rate our estimates reveal that the magnitude of this cost channel strongly varies between countries including member countries of the emu in accordance with differences in their financial systems simulations of a new keynesian model further show that the presence of the cost channel substantially affects the transmission of monetary policy shocks in particular the inflation response

monetary transmission mechanism in central and eastern europe surveying the surveyable this paper surveys recent advances in empirical studies of the monetary transmission mechanism mtm with special attention to central and eastern europe cee our results indicate that the strength of the exchange rate pass through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so called composition effect the asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic household house prices may become an exception with higher levels mortgage lending and with high owner occupancy ratios while the credit channel could be a powerful channel of monetary transmission as new funds raised on capital markets are close to zero in cee it is actually not as both commercial banks and non financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies the moderately good news is however that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area

oligopolistic pricing with heterogeneous consumer search abstract a finite number of identical stores sell a homogeneous good to consumers with heterogeneous search costs who search sequentially with perfect recall and without replacement consumers search rules are optimal with respect to the stores pricing strategies and consumers must visit a store to obtain information about its actual price a symmetric nash equilibrium sne always exists the model exhibits a variety of equilibrium behaviors between monopoly pricing and marginal cost pricing the competitiveness of a market depends crucially on the shape of the search cost distribution moreso than on the number of competing firms

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

global disease eradication an infectious disease can only be eradicated globally if it is eliminated in every country but does this require only international coordination or does it require cooperation using a model that blends epidemiology economics and game theory this paper shows that coordination will not always suffice even when the global benefits of eradication exceed the costs in general eradication will require strong international institutions jel h41 i18 k33 o19

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

private eradication of mobile public bads we consider analytically the non cooperative behavior of many private property owners who each controls the stock of a public bad such as an invasive weed species infectious disease fire or agricultural pest the stock of the public bad can grow and disperse across a spatial domain of arbitrary size in this setting we characterize the conditions under which private property owners will control or eradicate and determine how this decision depends on property specific environmental features and on the behavior of other landowners we show that high mobility or lower control by others result in lower private control but when the marginal dynamic cost of the bad is sufficiently large we find that complete eradication may be privately optimal despite the lack of consideration of others welfare in these cases eradication arises in the non cooperative game and is also socially optimal so there is in effect no externality finally when property harboring the bad is not owned or is owned in common we derive the side payments required to efficiently control the mobile public bad

monetary and fiscal policy switching a growing body of evidence finds that policy reaction functions vary substantially over different periods in the united states this paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a markov process can change the impacts of policy shocks in one regime monetary policy follows the taylor principle and taxes rise strongly with debt in another regime the taylor principle fails to hold and taxes are exogenous an example shows that a unique bounded non ricardian equilibrium exists in this environment a computational model illustrates that because agents decision rules embed the probability that policies will change in the future monetary and tax shocks always produce wealth effects when it is possible that fiscal policy will be unresponsive to debt at times active monetary policy like a taylor rule in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks the paper also considers the implications of policy switching for two empirical issues

excess liquidity bank pricing rules and monetary policy abstract this paper studies the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections the demand for excess reserves is determined by precautionary factors and the opportunity cost of holding cash it is argued that excess liquidity may impart greater stickiness to the deposit rate in response to a monetary contraction and induce an easing of collateral requirements on borrowers which in turn may translate into a lower risk premium and lower lending rates as a result asymmetric bank pricing behavior under excess liquidity may hamper the ability of a contractionary monetary policy to lower inflation

analyzing the effects of us monetary policy shocks in dollarized countries identifying monetary policy shocks is difficult therefore instead of trying to do this perfectly this paper exploits a natural setting that reduces the consequences of shock misidentification it does so by basing conclusions upon the responses of variables in three dollarized countries ecuador el salvador and panama they import us monetary policy just as genuine us states do but have the advantage that non monetary us shocks are not imported perfectly consequently this setting reduces the effects of any mistakenly included non monetary us shocks while leaving the effects of true monetary shocks unaffected results suggest that prices fall after monetary contractions output does not show a clear response

structural models of the liquidity effect in this paper we examine a number of recent studies that claim to have obtained a well defined liquidity effect using structural var models based on broad measures of money these studies can be distinguished in terms of the identifying restrictions sample periods and frequency of data used we show that estimation of the structural coefficients of all these models can be achieved by instrumental variable methods where the instruments are predetermined variables and the estimated structural errors from other equations in the system overall our judgment is that the evidence for a liquidity effect from these studies is much less certain than suggested in the original papers primarily because of the poor quality of the instruments used in estimation and the sensitivity of the estimates to the sample period used

how to solve the price puzzle a meta analysis the short run increase in prices following an unexpected tightening of monetary policy constitutes a frequently reported puzzle yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed we collect about 1 000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results our ndings indicate publication selection in favor of the intuitive response of prices to a tightening the estimates depend systematically on study design when misspecications are

a simple model of price dispersion abstract this article considers a simple stock flow matching model with fully informed market participants unlike the standard matching literature prices are assumed to be set ex ante when sellers pre commit themselves to sell their products at an advertised price the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs in a marketplace with full information this provides new insights into the price dispersion literature which instead commonly assumes that buyers are not perfectly informed and engage in a costly search

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

the price puzzle reconsidered abstract a large literature has employed structural vector autoregressive svar models to investigate the empirical effects of u s monetary policy many of these models regularly produce a price puzzle a rise in the aggregate price level in response to a contractionary innovation to monetary policy unless commodity prices are included conventional wisdom maintains that commodity prices resolve the price puzzle because they contain information that helps the federal reserve forecast inflation i examine a number of plausible alternative indicator variables and find little correlation between an ability to forecast inflation and an ability to resolve the price puzzle additionally a sub sample investigation reveals that evidence of a price puzzle is associated primarily with the 1959 1979 sample period and that most indicators including commodity prices cannot resolve the puzzle over this period

indeterminacy change points and the price puzzle in an estimated dsge model abstract we extend lubik and schorfheide s 2004 testing for indeterminacy an application to u s monetary policy american economic review 94 190 217 likelihood based estimation of dynamic stochastic general equilibrium dsge models under indeterminacy to encompass a sample period the includes both determinacy and indeterminacy by implementing a change point methodology chib s 1998 estimation and comparison of multiple change point models journal of econometrics 86 221 241 by letting the data provide estimates of the dates of the determinacy regimes and allowing the estimates of structural parameters to be the same across regimes we obtain more precise estimates of the differences in characteristics such as the impulse responses across the regimes the most striking finding about the indeterminacy regime which is estimated to coincide with the great inflation of the 1970s is that it exhibits the price puzzle in that the inflation rate rises immediately and in a sustained manner following a positive interest rate shock thus the price puzzle might have been a genuine phenomenon under indeterminacy rather than a false finding to be excised through specification search and parameter restrictions

self fulfilling expectations and the inflation of the 1970s evidence from the livingston survey abstract using survey data on expectations we examine whether the response of monetary policy to sudden movements in expected inflation contributed to the persistent high inflation of the 1970s the evidence suggests that prior to 1979 the fed accommodated temporary shocks to expected inflation which then led to persistent increases in actual inflation we do not find this behavior in the post 1979 data among commonly cited factors oil and fiscal shocks do not appear to have triggered an increase in expected inflation that eventually resulted in higher actual inflation

reconsidering monetary policy an empirical examination of the relationship between interest rates and nominal gdp growth in the u s u k germany and japan abstract the rate of interest the price of money is said to be a key policy tool economics has in general emphasised prices this theoretical bias results from the axiomatic deductive methodology centring on equilibrium without equilibrium quantity constraints are more important than prices in determining market outcomes in disequilibrium interest rates should be far less useful as policy variable and economics should be more concerned with quantities including resource constraints to investigate we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth examining the relationship between 3 month and 10 year benchmark rates and nominal gdp growth over half a century in four of the five largest economies we find that interest rates follow gdp growth and are consistently positively correlated with growth if policy makers really aimed at setting rates consistent with a recovery they would need to raise them we conclude that conventional monetary policy as operated by central banks for the past half century is fundamentally flawed policy makers had better focus on the quantity variables that cause growth

monetary policy and exchange rate overshooting dornbusch was right after all abstract dornbusch s exchange rate overshooting hypothesis is a central building block in international macroeconomics yet empirical studies of monetary policy have typically found exchange rate effects that are inconsistent with overshooting this puzzling result has been viewed by some researchers as a stylized fact to be reckoned with in policy modelling however many of these studies in particular those using vector autoregressive vars approaches have disregarded the strong contemporaneous interaction between monetary policy and exchange rate movements by placing zero restrictions on them in contrast we achieve identification by imposing a long run neutrality restriction on the real exchange rate thereby allowing for contemporaneous interaction between the interest rate and the exchange rate in a study of four open economies we find that the puzzles disappear in particular a contractionary monetary policy shock has a strong effect on the exchange rate which appreciates on impact the maximum effect occurs within 1 2 quarters and the exchange rate thereafter gradually depreciates to baseline consistent with the dornbusch overshooting hypothesis and with few exceptions consistent with uncovered interest parity uip

commodity prices interest rates and the dollar this paper sheds light on recent fluctuations in commodity prices we investigate whether a decline in real interest rates and the us dollar contributes to higher commodity prices and whether commodity prices display overshooting behavior in response to changes in real interest rates we analyze the behavior of real prices of crude oil food metals and industrial raw materials the analysis is based on structural var models estimated on quarterly data over the period 1990q1 2007q4 our results suggest that commodity prices increase significantly in response to reductions in real interest rates moreover oil prices and prices of industrial raw materials tend to display overshooting behavior in response to such interest rate changes the evidence also suggests that a weaker dollar leads to higher commodity prices shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in commodity prices

externalities and compulsary vaccinations abstract this paper challenges the conventional wisdom that because of the free rider problem a case can be made for compulsary vaccination against infectious disease for a very general class of models requiring that all individuals be vaccinated is strictly dominated by free choice the market allocation is not optimum and in the full information optimum some individuals would be compelled to be vaccinated this allocation can be achieved by taxes and subsidies however the government can exploit the revelation properties of vaccination and achieve an even better allocation than the full information optimum

monetary policy in a markov switching vector error correction model monetary policy vector autoregressions vars typically presume stability of the long run outcomes we introduce the possibility of switches in the long run equilibrium in a cointegrated var by allowing both the covariance matrix and weighting matrix in the error correction term to switch we find that monetary policy alternates between sustaining long run growth and disinflationary regimes allowing state changes can also help explain the price puzzle and justify the use of commodity prices as a corrective measure finally we show that regime switching has implications for disinflationary monetary policy and can explain the variety of sacrifice ratio estimates that exist in the literature

goodwill intertemporal price dependence and the repurchase decision stigler s i96i pioneering article on the economics of information directed economists attention to market situations where the classical assumption of perfect knowledge could not be supported his theory pictured a world in which prices were not known to the consumer a priori information being scarce was also costly but information had clear economic value to those wishing to possess it focus of the new theory thus came to be on an individual optimising over benefits expected price reductions and costs time spent canvassing to the activity of information gathering or search whilst this new direction taken by consumer theory has been towards greater descriptive realism the attendant drawbacks have been several technical complexities of formulation have commonly resulted in highly simplified models with utility linear in prices and purchase restricted to a single unit of the good even when time has been explicitly taken into account an invariable assumption has been the independence of prices from one period to the next 2 after twenty years stigler still remains alone in the literature as having made an attempt to integrate the idea of intertemporally correlated prices with the important economic concept of goodwill the present paper is an attempt to remedy within the context of a single model the above mentioned deficiencies the main emphasis of the paper as the title suggests is on the role of goodwill and intertemporal price dependence in the repurchase decision the decision whether or not to buy again at the same store or to look around the framework proposed is a dynamic one in which the consumer has in each period to a finite horizon an ex post and ex ante utility maximisation problem the ex post problem concerns her consumption decision in any period once prices are known the ex ante problem her decision as to how much

dynamic epidemiology and the market for vaccinations abstract the intent of this paper is to raise the question of how and when externalities can arise in the market for vaccinations static and dynamic models of such markets are developed and compared a special case in a continuous time dynamic framework is examined and is found to be efficient i e there is no externality this is in contrast to the results from the static formulation raising doubts about the suitability of a static approach these results indicate that the question of whether there are externalities in individual immunization decisions is more involved than is generally supposed

policy regimes policy shifts and u s business cycles abstract using an estimated dsge model with monetary and fiscal policy interactions and allowing for equilibrium indeterminacy we find that a passive monetary and passive fiscal policy regime prevailed in the pre volcker period this gave rise to self fulfilling beliefs and unconventional transmission mechanisms of policy shifts unanticipated increases in interest rates increased inflation and output while unanticipated increases in lump sum taxes decreased inflation and output we show that had the monetary policy regime of the post volcker era been in place pre volcker inflation volatility would have been lower by 25 and the rise of inflation in the 1970s would not have occurred

monetary policy shocks choleski identification and dnk models abstract a popular identifying assumption in structural var studies is that the monetary policy shock does not affect macroeconomic variables contemporaneously we examine the consequences of using this identification strategy when the data generating process is a basic dynamic new keynesian dnk model but without these assumed time delays the principle conclusion is that the standard choleski assumption can severely distort the impulse response functions producing price puzzles and muted responses of inflation and the output gap to monetary shocks

solving the price puzzle with an alternative indicator of monetary policy we identify the effects of monetary policy shocks on macroeconomic variables in vars using the divisia m4 measure of money as the policy indicator variable we obtain theoretically sensible responses whether or not a commodity price index is included thus we eliminate the well known empirical puzzles from the var by a novel choice in a policy variable rather than the usual attachment of an ad hoc variable

commodity price shocks and the business cycle structural evidence for the u s this paper evaluates the relative importance of commodity price shocks in the u s business cycle therefore we extend the standard set of business cycle shocks to include unexpected changes in commodity prices the resulting svar shows that commodity price shocks are a very important driving force of macroeconomic fluctuations second only to investment specific technology shocks particularly with respect to inflation neutral technology shocks and monetary policy shocks on the other hand seem less relevant at business cycle frequencies neutral technology shocks rather play an important role at low frequencies

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

identifying monetary policy shocks with changes in open market operations abstract in this paper we reexamine the effects of monetary policy shocks by exploiting the information contained in open market operations a sticky price model is developed where money is the counterpart of securities deposited at the central bank the model s solution reveals that a rise in central bank holdings of open market securities can be interpreted as a monetary expansion estimates of vector autoregressions for us data are further provided showing that reactions to an unanticipated rise in open market securities are consistent with common priors about a monetary expansion i e a decline in the federal funds rate a rise in output and inertia in price responses compared to federal funds rate shocks prices do not exhibit a puzzling behavior and a larger fraction of the gdp forecast error variance can be attributed to open market shocks however the explanatory power of the latter has decreased since federal funds rate targets have been announced