strategic segmentation of a market abstract when competing firms target information towards specific consumers through direct marketing activities complete segmentation of markets can result we analyze a two stage duopoly where prior to price competition each firm targets information to specific consumers and only consumers informed by a firm can buy from it this has the effect of endogenously determining market segments in a model of sales in equilibrium pure local monopoly emerges firms target and sell to mutually exclusive market segments when the cost of marketing approaches zero market shares reflect relative production efficiency equal shares when firms are symmetric this may not be the case when marketing cost is high

inflation persistence alternative interpretations and policy implications in this paper i consider the policy implications of two alternative structural interpretations of observed inflation persistence which correspond to two alternative specifications of the new keynesian phillips curve nkpc the first specification allows for some degree of intrinsic persistence by way of a lagged inflation term in the nkpc the second is a purely forward looking model in which expectations farther into the future matter and coefficients are time varying in this specification most of the observed inflation persistence is attributed to fluctuations in the underlying inflation trend which are a consequence of monetary policy rather than a structural feature of the economy with a simple quantitative exercise i illustrate the consequences of implementing monetary policy assuming a degree of intrinsic persistence that differs from the true one the results suggest that the costs of implementing a stabilization policy when the policymaker overestimates the degree of intrinsic persistence are potentially higher than the costs of ignoring actual structural persistence the result is more clear cut when the policymaker minimizes a welfare based loss function

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

inflation dynamics and real marginal costs new evidence from u s manufacturing industries this paper deals with the analysis of price setting in u s manufacturing industries recent studies have heavily criticized the ability of the new keynesian phillips curve nkpc to t aggregate in ation see e g rudd and whelan 2006 can rational expectations sticky price models explain in ation dynamics american economic review vol 96 1 pp 303 320 we challenge this evidence showing that forward looking behavior as implied by the new keynesian model of price setting is widely supported at the sectoral level in fact current and expected future values of the income share of intermediate goods emerge as

pooling forecasts in linear rational expectations models abstract estimating linear rational expectations models in a limited information setting requires replacing the expectations of future endogenous variables either with instrumented actual values or with forecast survey data applying the method of gottfries and persson empirical examinations of the information sets of economic agents quarterly journal of economics 103 251 259 i show how to augment these methods with actual future values of the endogenous variables to improve statistical efficiency the method is illustrated with an application to the us hybrid new keynesian phillips curve where traditional lagged instruments and the median forecast from the survey of professional forecasters both appear to miss significant information used by price setters so that forecast pooling with actual values improves the statistical fit to inflation

cyclical productivity in a model of labor hoarding abstract this paper develops a dynamic model of labor hoarding to explain two empirical facts the cyclical behavior of total factor productivity and the dynamic correlations of sectoral productivity with aggregate variables the model features convex costs of adjusting the labor force which induce firms to vary the intensity of labor utilization over the cycle in particular cyclical variations in labor effort take place as a response to expected future changes in industry conditions i test the restrictions imposed by the model for several two digit manufacturing industries under different assumptions about market structure and returns to scale then using the assumption that aggregate variables carry information about future changes in industry conditions i simulate the model s dynamic response of hours and productivity to aggregate innovations and compare them to those estimated from the data

empirical evidence on inflation expectations in the new keynesian phillips curve abstract we review the main identification strategies and empirical evidence on the role of expectations in the new keynesian phillips curve paying particular attention to the issue of weak identi

efficiency wages and the business cycle puzzle abstract the main thrust of this work is to open the real business cycle rbc methodology to non walrasian considerations and reciprocally to submit some non walrasian models to the discipline of the rbc approach in doing so we provide a first rbc model with involuntary unemployment and a suboptimal equilibrium path we also demonstrate the promise and difficulty of resolving the business cycle puzzle by appealing to quantity rationing in the labor market

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

forming priors for dsge models and how it affects the assessment of nominal rigidities abstract we discuss prior elicitation for the parameters of dynamic stochastic general equilibrium dsge models and provide a method for constructing prior distributions for a subset of these parameters from beliefs about steady state relationships and second moments of the endogenous variables the empirical application documents how the specification of the prior distribution affects our assessment of the relative importance of price and wage rigidities in a new keynesian dsge model

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

the new keynesian phillips curve revisited abstract several authors have questioned the evidence claimed by gali and gertler 1999 and gali et al 2001 that a hybrid version of the new keynesian phillips curve approximates european and us inflation dynamics quite well we re examine the evidence using the vector autoregressive framework and likelihood based methods paying particular attention to the stationary and nonstationary and possibly cointegrated nature of variables involved our results show that the exact as well as the inexact form of the hybrid nkpc are clearly at odds with the european data on the other hand gali and gertler 1999 finding that the inexact hybrid nkpc is a good first approximation to the us inflation dynamics seems less at odds with the data however the assumption of the model that the stochastic term forms a sequence of innovations may be problematic as we find indication of autocorrelation in the estimated residuals the exact form of the hybrid nkpc is firmly rejected by the us data

a quantitative comparison of sticky price and sticky information models of price setting i estimate sticky price and sticky information models of price setting for the united states via maximum likelihood techniques reaching several conclusions first the sticky price model fits best and captures inflation dynamics as well as reduced form equations once hybrid behavior is allowed second the importance of hybrid behavior in sticky price models is potentially consistent with a role for some information imperfections such as sticky information as a complement to nominal price rigidities finally the favorable results herein for the hybrid sticky price model when evaluated by statistics that summarize the relative fit of different models is consistent with the existing literature that is both supportive and dismissive of such models as this literature has largely ignored fit in evaluating such models many previous studies have focused on ancillary issues such as the standard errors associated with certain parameters or granger causality tests that may not provide much information about sticky price models

labor market dynamics with search frictions and fair wage considerations fairness considerations in wage setting can improve the ability of the diamond mortensen pissarides search and matching model to account for u s labor market dynamics firms production is influenced by workers effort input which depends on whether workers consider the employment relation as fair a typical worker s effort is determined in a comparison of individual current wage with wage norms including the outside option the individual past wage and the wage level in the steady state the fairness considerations in the search framework give rise to endogenous real wage rigidity and realistic volatilities of unemployment vacancies and labor market tightness jel e24 e32 j64

the consequences of rigid wages in search models the standard theory of equilibrium unemployment the mortensen pissarides search and matching model cannot explain the magnitude of the business cycle fluctuations in two of its central elements unemployment and vacancies modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude significantly improving the performance of the model despite this the welfare consequences of such rigid wages is negligible jel e24 e32 j30 j41 j63 j64

the new keynesian phillips curve from sticky inflation to sticky prices the new keynesian phillips curve nkpc model of inflation dynamics based on forward looking expectations is of great theoretical significance in monetary policy analysis empirical studies however often find that backward looking inflation inertia dominates the dynamics of the short run aggregate supply curve this inconsistency is examined by investigating multiple structural changes in the nkpc for the u s between 1960 and 2005 employing both inflation expectations survey data and a rational expectations approximation we find that forward looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation providing empirical support for sticky price models over the last two decades a break in the intercept of the nkpc is also identified around 2001 and this may be associated with u s monetary policy in that period

do interest rates drive inflation dynamics an analysis of the cost channel of monetary transmission abstract this paper proposes a novel approach to empirically assessing the impact of the cost channel of monetary transmission on the dynamics of inflation within a new keynesian phillips curve framework according to the cost channel higher interest rates translate into higher marginal costs of production and eventually into higher inflation we exploit the present value implications of the model to derive a series of fundamental inflation that is contrasted with actual inflation we show that the cost channel adds significantly to the explanation of inflation dynamics in forward looking sticky price models for the us the uk and the euro area moreover the cost channel can explain inflation episodes that cannot be accounted for by the standard new keynesian model

shirking unemployment and aggregate fluctuations empirically real wages exhibit relatively little cyclical variation and a weak cyclical pattern early real business cycle rbc models predict to the contrary large procyclical real wage movements incorporating efficiency wages into a rbc environment would seem promising since one prediction from the efficiency wage literature is real wage rigidity this paper evaluates a common microfoundation for efficiency wages the shirking model with respect to its predictions for real wages within a rbc style model simulations of the model reveal that it can generate dampened but still strongly procyclical real wage behavior

international evidence on the efficacy of new keynesian models of inflation persistence in this paper we take an agnostic view of the phillips curve debate and carry out an empirical investigation of the relative and absolute efficacy of calvo sticky price sp sticky information si and sticky price with indexation models spi with emphasis on their ability to mimic inflationary dynamics in particular we look at evidence for a group of 13 oecd countries and we consider three alternative measures of inflationary pressure including the output gap labor share and unemployment we find that the calvo sp and the si models essentially perform no better than a strawman constant inflation model when used to explain inflation persistence indeed virtually all inflationary dynamics end up being captured by the residuals of the estimated versions of these models we find that spi model is preferable because it captures the type of strong inflationary persistence that has in the past characterized the economies of the countries in our sample however two caveats to this conclusion are that improvement in performance is driven mostly by the time series part of the model i e lagged inflation and that the spi model overemphasizes inflationary persistence thus there appears to be room for improvement via either modified versions of the above models or via development of new models that better track inflation persistence

advertising in competitive markets in this paper small firms sell a homogeneous good to small consumers under conditions of free entry but consumers receive price information only through firms advertising in equilibrium every firm on the continuous price distribution buys less advertising than is socially optimal the result is robust if firms advertise in just one medium if readers of different advertising media are positively correlated excess advertising can occur in media used exclusively to advertise discount prices copyright 1991 by american economic association

the provision of information in a bertrand oligopoly a two stage model of a homogeneous good oligopoly is constructed that is composed of a first stage determining costless information provision to consumers and then a second stage of price setting a perfect equilibrium is found that is characterized by les s than full information and by positive expected profits an alternati ve interpretation of the model is of firms deciding the proportion of contracts to tender for and then the prices at which the tenders wil l be made copyright 1993 by blackwell publishing ltd

behavioral heterogeneity in u s inflation dynamics in this article we develop and estimate a behavioral model of inflation dynamics with heterogeneous firms in our stylized framework there are two groups of price setters fundamentalists and rando

identification robust analysis of dsge and structural macroeconomic models abstract full and limited information identification robust methods are proposed for structural systems notably dsge models which are valid whether identification is weak or strong theory intrinsic or data specific the proposed methods are applied to a standard new keynesian system for the u s single and multi equation estimation and fit are also compared when a unique rational expectation stable equilibrium is imposed the model is rejected in contrast limited information inference produces informative results regarding forward looking behavior in the nkpc and precise conclusions on feedback coefficients in the reaction function which cannot be reached via single equation methods

private information wage bargaining and employment fluctuations shimer 2005 pointed out that although we have a satisfactory theory of why some workers are unemployed at any given time we don t know why the number of unemployed workers varies so much over time the basic mortensen pissarides 1994 model does not generate nearly enough volatility in unemployment for plausible parameter values this paper extends the mortensen pissarides model to allow for informational rents productivity is subject to publicly observed aggregate shocks and to idiosyncratic shocks that are seen only by the employer it is shown that there is a unique equilibrium provided that the idiosyncratic shocks are not too large the main result is that small fluctuations in productivity that are privately observed by employers can give rise to a kind of wage stickiness in equilibrium and the informational rents associated with this stickiness are sufficient to generate relatively large unemployment fluctuations

an open economy new keynesian phillips curve for the u k abstract we estimate a pricing equation or new keynesian phillips curve nkpc obtained from a structural dynamic model of price setting based on rotemberg 1982 sticky prices in the united states journal of political economy 90 6 1187 1211 and extended to capture employment adjustment costs and the openness of the united kingdom this model nests the baseline gali and gertler 1999 inflation dynamics a structural econometric analysis quarterly journal of economics 110 127 159 and sbordone 2002 prices and unit labor costs a new test of price stickiness journal of monetary economics 49 265 292 relationship between inflation and marginal cost in the limiting case of no employment adjustment costs no impact of relative prices of imported inputs on real marginal cost and a constant equilibrium markup our findings indicate that each of our modifications to the baseline nkpc model is important for u k data so that inflation in the u k is explained both by changes in employment and by changes in real import prices in general and real oil prices in particular external competitive pressures also seem to affect u k inflation via their impact on the equilibrium price markup of domestic firms

do expected future marginal costs drive inflation dynamics abstract this article discusses a more general interpretation of the two step minimum distance estimation procedure proposed in sbordone 2002 the estimator is again applied to a version of the new keynesian phillips curve where inflation dynamics are driven by the expected evolution of marginal costs the article clarifies econometric issues addresses concerns about uncertainty and model misspecification raised in recent studies and assesses the robustness of previous results while confirming the importance of forward looking terms in accounting for inflation dynamics it suggests how the methodology can be applied to extend the analysis of inflation to a multivariate setting

labor market dynamics when unemployment is a worker discipline device efficiency wage models of the effort elicitation type have important implications for labor market dynamics these models have a wide array of discontinuous sunspot equilibria driven by extraneous variables in addition to well behaved equilibria characterized by continuous slowly adjusting patterns of employment many aspects of actual labor markets can be replicated by these models for example the longer run movements they predict in employment allow macroeconomic evidence for a large labor supply elasticity to be reconciled with panel data evidence for a small labor supply elasticity many testable but as yet untested predictions about labor market dynamics can also be generated this abstract was borrowed from another version of this item

identification robust minimum distance estimation of the new keynesian phillips curve limited information identification robust methods on the indexation and price rigidity parameters of the new keynesian phillips curve yield very wide confidence intervals full information methods impose more restrictions on the reduced form dynamics and thus make more efficient use of the information in the data however such methods are also subject to weak instrument problems we propose identification robust minimum distance methods for exploiting these additional restrictions and show that they yield considerably smaller confidence intervals for the coefficients of the model compared to their limited information generalized method of moments counterparts in contrast to previous studies we find evidence of partial but not full indexation and obtain sharper inference on the degree of price stickiness however this parameter remains weakly identified

employment fluctuations with downward wage rigidity the role of moral hazard we study the cyclical dynamics of job creation and destruction when workers effort is not perfectly observable the no shirking constraint may amplify fluctuations in hiring by making firms surplus share procyclical and may cause a burst of inefficient firing when a downturn begins but quantitatively it mainly raises the cost of motivating marginal workers in booms since firms cannot commit to keep them in recessions and thereby strongly damps the countercyclical fluctuations in the separation rate this implies a robust beveridge curve but casts doubt on ramey and watson s 1997 contractual fragility mechanism and worsens shimer s 2005a volatility puzzle

firms price cost and activity expectations evidence from micro data firms expectations play a central role in modern macroeconomic models but little is known empirically about how these are formed or whether they matter for economic outcomes using a novel panel data set of manufacturing firms expectations about prices and wage rates new orders employment and unit costs for the united kingdom we document a range of stylized facts about the properties of firms expectations and their relationship with recent experience there is wide dispersion of expectations across firms expected future price and wage growth are influenced by firm specific factors but macroeconomic factors also matter expectations of employment and new orders are influenced by firm specific measures of past orders while expected unit costs seem to be influenced more by firm specific cost pressures and aggregate import prices after controlling for a wide range of variables we find a significant connection between past expected price and wage increases and their out turns but there is also strong evidence that firms expectations are clearly not rational

estimating the new keynesian phillips curve a vertical production chain approach it has become customary to estimate the new keynesian phillips curve nkpc with gmm using a large instrument set that includes lags of variables that are ad hoc to the model researchers have also conventionally used real unit labor cost rulc as the proxy for real marginal cost even though it is difficult to support its significance this paper introduces a new proxy for the real marginal cost term as well as a new instrument set both of which are based on the micro foundations of the vertical chain of production i find that the new proxy based on input prices as opposed to wages provides a more robust and significant fit to the model instruments that are based on the vertical chain of production appear to be both more valid and relevant towards the model

modeling inflation dynamics a critical review of recent research in recent years a broad academic consensus has arisen around the use of rational expectations sticky price models to capture inflation dynamics these models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen and moreover are perceived to be robust to the lucas critique in a way that earlier econometric models of inflation are not we review the principal conclusions of this literature concerning 1 the ability of these models to fit the data 2 the importance of rational forward looking expectations in price setting and 3 the appropriate measure of inflationary pressures we argue that existing rational expectations sticky price models fail to provide a useful empirical description of the inflation process especially relative to traditional econometric phillips curves of the sort commonly employed for policy analysis

inflation dynamics in a small open economy this is the peer reviewed version of the following article boug p cappelen a swensen a r 2017 inflation dynamics in a small open economy scandinavian journal of economics 119 4 1010 1039 which has been published in final form at https doi org 10 1111 sjoe 12194 this article may be used for non commercial purposes in accordance with wiley terms and conditions for use of self archived versions

customer poaching and advertising this paper is a first look at the dynamic effects of customer poaching in homogeneous product markets where firms need to invest in advertising to generate awareness when a firm is able to recognize customers with different purchasing histories it may send them targeted advertisements with different prices it is shown that only the firm which advertises the highest price in the first period will engage in price discrimination a practice that clearly benefits the discriminating firm this poaching gives rise to the race for discrimination effect through which price discrimination may act actually to soften price competition rather than intensify it as a result all firms may become better off even when only one of them can engage in price discrimination this paper offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising in markets with low or no advertising costs allowing firms to price discriminate leads them to provide too little advertising which is not good for consumers and overall welfare only in markets with high advertising costs might firms overadvertise regarding the welfare effects price discrimination is generally bad for welfare and consumer surplus though good for firms

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

employment efficiency and sticky wages evidence from flows in the labor market i consider three views of the labor market in the first wages are flexible and employment follows the principle of bilateral efficiency workers never lose their jobs because of sticky wages in the second wages are sticky and inefficient layoffs do occur in the third wages are also sticky but employment governance is efficient i show that the behavior of flows in the labor market strongly favors the third view in the modern u s economy recessions do not begin with a burst of layoffs unemployment rises because jobs are hard to find not because an unusual number of people are thrown into unemployment

identifying the new keynesian phillips curve phillips curves are central to discussions of inflation dynamics and monetary policy the hybrid new keynesian phillips curve nkpc describes how past inflation expected future inflation and a measure of real aggregate demand drive the current inflation rate this paper studies the potential weak identification of the nkpc under generalized method of moments and traces this syndrome to a lack of higher order dynamics in exogenous variables we employ analytic methods to understand the economics of the nkpc identification problem in the canonical three equation new keynesian model we revisit the empirical evidence for the usa the uk and canada by constructing tests and confidence intervals based on the anderson and rubin 1949 statistic which is robust to weak identification we also apply the guggenberger and smith 2008 lm test to the underlying nkpc pricing parameters both tests yield little evidence of forward looking inflation dynamics copyright 2008 john wiley sons ltd

business cycles with worker moral hazard we consider an economy with unemployment where firms pay efficiency wages due to effort enforcement problems and face output prices that vary cyclically between a high and a low level ph and pl we show that for a range of pl ph 1 employment and the wage will be cylically rigid and that this range is greater the shorter h periods are for lower pl ph employment will vary procyclically but then also the wage and more so the more employment varies this implies a limited role for efficiency wage theory in explaining employment variations over the business cycle but a greater role for explaining productivity fluctuations according to okun s law

business cycles unemployment insurance and the calibration of matching models this paper theoretically and empirically documents a puzzle that arises when an rbc economy with a job matching function is used to model unemployment the standard model can generate sufficiently large cyclical fluctuations in unemployment or a sufficiently small response of unemployment to labor market policies but it cannot do both variable search and separation finite ui benefit duration efficiency wages and capital all fail to resolve this puzzle however either sticky wages or match specific productivity shocks can improve the model s performance by making the firm s flow of surplus more procyclical which makes hiring more procyclical too

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

what drives inflation in new keynesian models abstract this paper estimates variants of a small scale new keynesian model using observations on inflation inflation expectations and nominal interest rates we ask whether those variables alone can tell us something about the time series properties of real marginal costs

inflation dynamics marginal cost and the output gap evidence from three countries recent studies have argued that the new keynesian phillips curve calvo pricing model is empirically valid provided that real marginal cost rather than detrended output is used as the variable driving inflation one interpretation of this result is that real marginal cost is not closely related to the output gap and so models for monetary policy need to include labormarket rigidities an alternative interpretation is that marginal cost and the output gap are closely related but that the latter needs to be measured in a manner consistent with dynamic general equilibrium models to date there has been little econometric investigation of this alternative interpretation this paper provides estimates of the new keynesian phillips curve for the u s the u k and australia using theory consistent estimates of the output gap using this theory to measure the output gap leads to a considerable improvement in the empirical performance of output gapbased phillips curves

identication using stability restrictions this paper studies inference in models that are identified by moment restrictions we show how instability of the moments can be used constructively to improve the identification of structural parameters that are stable over time a leading example is macroeconomic models that are immune to the well known lucas 1976 critique in the face of policy regime shifts this insight is used to develop novel econometric methods that extend the widely used generalized method of moments gmm the proposed methods yield improved inference on the parameters of the new keynesian phillips curve

inventory investment and the empirical phillips curve in this paper we study the calvo pricing models with finished goods inventory investment to demonstrate that the current inflation can be expressed as a function of the marginal cost of sales not the marginal production cost and expected future inflation under the assumption that the true aggregate marginal costs are not observable in actual data we make use of equilibrium conditions for aggregate finished goods inventories to measure the time series of marginal costs thereby leading to the construction of inflation series on the basis of the phillips curve our results indicate the possibility of a successful fit of the empirical new keynesian phillips curve without relying on unit labor cost a conventional measure of marginal production cost in the literature

var based estimation of euler equations with an application to new keynesian pricing abstract var based estimation of euler equations exploits cross equation restrictions that the theory imposes on a vector autoregressive var process for market expectations this paper shows that sargent s 1979 a note on maximum likelihood estimation of the rational expectations model of the term structure journal of monetary economics 5 133 143 original approach of imposing these restrictions on the endogenous variable of the euler equation i e computing the rational expectations solution implies multiple solutions and is therefore impracticable the paper shows that this identification problem can be circumvented by reverse engineering the cross equation restrictions on the forcing variable of the euler equation the proposed reverse engineering approach contrasts with the conventional approach in the literature that avoids the identification problem by constraining the system formed by the euler equation and the var process to yield a unique stable rational expectations equilibrium this uniqueness condition makes little economic sense because the var process is just a reduced form approximation of true market expectations and a simulation experiment shows that imposing uniqueness can lead to severe misspecification bias the severity of this misspecification bias is illustrated in practice with an application to gali and gertler s 1999 inflation dynamics a structural econometric analysis journal of monetary economics 44 195 222 hybrid new keynesian phillips curve

labor market volatility in matching models with endogenous separations the business cycle behavior of a matching model with endogenous separations is studied in this paper we show that whether aggregate productivity shocks have a larger effect on the vacancy unemployment ratio than in a model with exogenous separations depends on whether worker productivity stochastically increases with tenure the difference in the response is quantitatively small however we also show that the cleansing effect introduced by allowing for endogenous separations can help in reconciling the model with observed fluctuations in the unemployment rate but not with those in the vacancy rate

implicit contracts incentive compatibility and involuntary unemployment this paper considers the enforceability of employment contracts when employees performance cannot be verified in court so that piece rate contracts are not legally enforceable part i shows that there exists a variety of self enforcing implicit contracts modelled as perfect equilibria in a repeated game and characterizes all the wage and performance outcomes that can be implemented implementation requires a strictly positive surplus from employment the form of the contract depending on how this surplus is divided between firm and employee piece rate contracts and contracts with an informally agreed bonus can be made self enforcing but the use of severance pay and bonding does not extend the set of implementable allocations the resulting contracts resemble actual labor contracts more than do the contracts in standard principal agent models part ii analyses market equilibrium with these contracts also modelled as perfect equilibria in a repeated game and shows that many such equilibria exist unfilled vacancies and unemployed workers can co exist despite the existence of contracts that are potentially mutually beneficial for those jobs that are filled any division of the potential surplus is possible so that the market can have at the same time involuntary unemployment and vacancies that are unfilled despite filled jobs earning positive profits as a criterion for selecting equilibria a notion of renegotiation proofness is applied then either all workers are employed or all jobs filled but any division of the potential surplus is still possible the paper explores what further restrictions on beliefs give rise to a walrasian outcome in which all the potential surplus goes to the short side of the market and to an efficiency wage type outcome in which the potential surplus goes to the long side

robustness of the estimates of the hybrid new keynesian phillips curve abstract gali and gertler 1999 inflation dynamics a structural econometric approach journal of monetary eonomics 44 2 195 222 developed a hybrid variant of the new keynesian phillips curve that relates inflation to real marginal cost expected future inflation and lagged inflation gmm estimates of the model suggest that forward looking behavior is dominant the coefficient on expected future inflation substantially exceeds the coefficient on lagged inflation while the latter differs significantly from zero it is quantitatively modest several authors have suggested that our results are the product of specification bias or suspect estimation methods here we show that these claims are incorrect and that our results are robust to a variety of estimation procedures including gmm estimation of the closed form and nonlinear instrumental variables also as we discuss many others have obtained very similar results to ours using a systems approach including fiml techniques hence the conclusions of gg and others regarding the importance of forward looking behavior remain robust

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

pricing with customer recognition abstract this article studies the dynamic effects of behaviour based price discrimination and customer recognition in a duopolistic market where the distribution of consumers preferences is discrete consumers are myopic and firms are forward looking in the static and first period equilibrium firms choose prices with mixed strategies when price discrimination is allowed forward looking firms have an incentive to avoid customer recognition thus the probability that both will have positive first period sales decreases as they become more patient furthermore an asymmetric equilibrium sometimes exists yielding a 100 0 division of the first period sales as a whole price discrimination is bad for profits but good for consumer surplus and welfare