reforms and the real exchange rate the role of pricing to market abstract the paper investigates how endogenous markups affect the extent to which policy reforms can influence international competitiveness in a two country model where trade costs allow for international market segmentation we show that endogenous pricing to market behavior of firms acts as an important transmission channel of the policies by strengthening the degree of competition between firms product market deregulation at home leads to a reduction in domestic markups which generally leads to an improvement in the international competitiveness of the home country conversely the power of competitive tax policy to depreciate the real exchange rate is dampened as domestic firms take the opportunity of the labor tax cut to increase their markups the variability of markups also affects the normative implications of the reforms this indicates the importance of taking into account endogenous pricing to market behavior when intending to correctly evaluate the overall effects of the reforms

the return of the wage phillips curve the standard new keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment under some assumptions that relation takes a form similar to that found in empirical applications starting with the original phillips 1958 curve and may thus be viewed as providing some theoretical foundations to the latter the structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the u s economy even under the strong assumption of a constant natural rate of unemployment

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

multiperiod loans occasionally binding constraints and monetary policy a quantitative evaluation we study the implications of multiperiod mortgage loans for monetary policy considering several realistic modifications fixed interest rate contracts a lower bound constraint on newly granted loans and the possibility of the collateral constraint to become slack to an otherwise standard dsge model with housing and financial intermediaries we estimate the model in its nonlinear form and argue that all these features are important to understand the evolution of mortgage debt during the recent us housing market boom and bust we show how the nonlinearities associated with the two constraints make the transmission of monetary policy dependent on the housing cycle with weaker effects observed when house prices are high or start falling sharply we also find that higher average loan duration makes monetary policy less effective and may lead to asymmetric responses to positive and negative monetary shocks

capital goods measured tfp and growth the case of spain the effect of investing in equipment and or structures on tfp and long run growth is investigated here we argue that economies can grow in spite of stagnant tfp if the investment rate is inefficiently high we study the case of spain where real gdp per worker grew at 2 74 percent annually and tfp was stagnant during 1996 2007 we show that low spanish tfp is due to low istc and an inefficiently high investment in residential structures we quantify the effect of the housing boom of the 2000s the total cost of subsidies to residential structures in terms of tfp and income growth

bank regulation and international financial stability a case against the 2006 basel framework for controlling tail risk in trading books abstract in attempting to promote international financial stability the basel committee on banking supervision 2006 provided a framework that sought to control the amount of tail risk that large banks around the world would take in their trading books relative to their corresponding minimum capital requirements however many of these banks suffered significant trading losses during the recent financial crisis our paper examines whether the basel framework allowed banks to take substantive tail risk in their trading books without a capital requirement penalty we find that it allowed banks to do so and that its minimum capital requirements can be notably procyclical hence focusing on the way the basel framework sought to control the amount of tail risk in trading books relative to their corresponding minimum capital requirements our paper supports the view that it was not properly designed to promote financial stability we also discuss alternative regulatory frameworks that would potentially be more effective than the basel framework in preventing banks from taking substantive tail risk in their trading books without a capital requirement penalty

structural reforms in a debt overhang we assess the eects of reforms in product and labor markets in an econ omy where credit restrictions and long term debt combine to produce a persis tent recession with slow deleveraging following a negative nancial shock we show that reforms that reduce markups in product markets stimulate output and employment even in the short run despite their de ationary eects by favouring a faster recovery of investment and collateral values product mar ket reforms bring forward the end of the deleveraging phase this last eect is missing in the case of labor market reforms the short run eects of which are sensitive to the response of trade ows and to debt maturity

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

estimating demand heterogeneity using aggregated data an application to the frozen pizza category this paper combines different aggregate level data sets to identify new product demand in consumer packaged goods cpg categories our approach augments market level time series data with widely available summaries of household purchase behavior i e brand penetration and purchase set size data we show that this augmentation is helpful in the estimation of consumer heterogeneity for instance observing a brand with relatively large shares and low penetration typically indicates that preferences are dispersed with relatively few customers liking the brand a lot whereas the combination of share and penetration is informative about heterogeneity with realistic sample sizes in isolation neither variable may lead to precise estimates of heterogeneity in addition other widely available data e g category penetration is helpful in estimating the size of the total market using a large monte carlo study the paper demonstrates the benefits of the proposed approach in estimating model parameters price elasticities and brand switching empirically the approach is used to evaluate the launch of a new national brand digiorno in the frozen pizza category the new brand is inferred to be very successful at expanding the category while avoiding cannibalization of existing company share using only standard information i e market shares to estimate the demand model leads in our data to poor estimates of the degree of consumer taste variation and of switching to a new brand

debt deleveraging and the exchange rate abstract deleveraging from high debt can provoke deep recession with significant international side effects swings in the nominal exchange rate and large variations in consumption output and terms of trade can happen during the adjustment all these movements are inefficient and interesting trade offs emerge from the perspective of global welfare the optimal adjustment to global imbalances should not necessarily require large movements in the nominal exchange rate a global liquidity trap can be desirable when countries are more open to trade

macroeconomic effects of regulation and deregulation in goods and labor markets product and labor market deregulation reduce and redistribute rents leading economic players to adjust to this new distribution it typically comes with distribution and dynamic effects to study these effects we build a macroeconomic model on two central assumptions monopolistic competition in the goods market which determines the size of rents and bargaining in the labor market which determines the distribution of rents product market regulation determines entry costs and the degree of competition labor market regulation determines the bargaining power of workers we show the effects of deregulation we then use our results to discuss the political economy of deregulation and recent macroeconomic evolutions in europe

understanding the gains from wage flexibility the exchange rate connection we study the gains from increased wage exibility and their dependence on exchange rate policy using a small open economy model with staggered price and wage setting two results stand out i the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize the exchange rate and ii an increase in wage exibility often reduces welfare and more likely so in economies under an exchange rate peg or an exchange rate focused monetary policy our ndings call into question the common view that wage exibility is particularly desirable in a currency union

leaning against the credit cycle how should a central bank act to stabilize the ratio of debt over gross domestic product gdp we show how the persistent nature of household debt shapes the answer to this question in environments where households repay mortgages gradually surprise interest hikes only weakly influence household debt and tend to increase debt to gdp in the short run while reducing it in the medium run interest rate rules with a positive weight on debt to gdp cause indeterminacy compared to inflation targeting debt to gdp stabilization calls for a more expansionary policy when debt to gdp is high so as to deflate the debt burden through inflation and output growth

an evaluation of the basle guidelines for backtesting banks internal risk management models the 1996 amendment to the baste capital accord to incorporate market risks constitutes a breakthrough in the determination of capital requirements rather than dictating these requirements through a uniform supervisory approach banks are allowed to use their own internal models for computing the capital required in order to mitigate moral hazard problems and stimulate banks to use adequate internal models the models must be subjected to a backtesting procedure if a model produces too many incorrect predictions increased capital requirements result this paper provides an evaluation of the current internal models approach in conjunction with the proposed backtesting procedure in particular using a stylized representation of the present supervisory framework we investigate whether banks are provided with the right incentives to come up with the correct internal model we find that under the current regulatory framework banks are prone to under reporting their true market risk a much stricter penalty scheme is required in order to align banks incentives with those of the supervisor we check the sensitivity of our results to changes in the length of the planning horizon portfolio risk time preferences risk attitudes and the distribution of financial returns

the use of expert opinion quality and reputation indicators by consumers evidence from the french vaulting stallion semen market we build a model inspired by the standard hedonic approach developed by rosen 1974 and completed by landon and smith 1997 1998 to analyse the price of french vaulting stallion semen in 2004 we show that reputation modelled as an endogenous factor plays a less important role than information on true quality for the explanation of price dispersion this result is explained by the fact that information on studhorses is not only available but also reliable insofar as the quality of a stallion is stable over time contrary to nondurable products like wine or cigars this explains also why consumers on this market do not use expert opinions to make their choices

options and structured products in behavioral portfolios abstract options and structured products have no roles in mean variance portfolios but they have roles in behavioral portfolios behavioral portfolios are composed of mental account sub portfolios each associated with a goal such as retirement income or bequest investors optimize each mental account by finding the assets and asset allocation that maximizes the expected return of each mental account sub portfolio subject to the condition that the probability of failing to reach a preset threshold aspiration level not exceed a preset probability put options are useful in downside protection mental accounts whose goal is avoiding poverty whereas call options are useful in upside potential mental accounts whose goal is a shot at riches we also explore the roles in behavioral portfolios of option collars capital guaranteed notes and barrier range notes

capital requirements and the behaviour of commercial banks abstract i study the consequences of capital regulations on the portfolio choices of commercial banks elaborating on previous work by kareken and wallace 1978 koehn and santomero 1980 and kim and santomero 1988 i obtain the following results if the objective of commercial banks is maximization of the market value of their future profits value maximizing banks capital regulations cannot prevent banks from choosing very specialized and very risky portfolios risk based insurance premia are in fact the relevant instrument for that purpose on the other hand if banks behave as portfolio managers utility maximizing banks capital regulations can be effective but only if the weights used in the computation of the ratio are proportional to the systematic risks of the assets their betas because of limited liability of commercial banks a minimum capital regulation or a closing rule may become necessary as well to prevent failing banks from betting for resurrection

noisy advertising and the predation rule in antitrust analysis can advertising by dominant firms pose a predatory threat theoretically the answer clearly is yes however empirical evidence indicating the importance of this theoretical finding is largely missing economists empirical studies of advertising which typically focus on the question of whether high levels of advertising are indicative of the presence of a barrier to entry or signal that advertising information can substitute for consumption experience usually employ average advertising levels that hide strategically focused price cuts or changes in short term advertising rates

the impact of ecb policy on structural reforms abstract we estimate the impact of monetary policy on structural reform adoption in the euro area we identify exogenous ecb policy changes through an event study that extracts the unexpected variation in euro area interest rates on policy announcement days we find that surprise monetary expansions increase the number of reforms significantly and that the effect is stronger for countries with weaker macroeconomic fundamentals or tighter public budget constraints these findings are consistent with the hypothesis that expansionary monetary policy by attenuating the short run costs of reforms and increasing governments financial leeway spurs competition friendly supply side policy

a simultaneous equations model of coffee brand pricing and advertising this paper explores the relationship between a differentiated brand s market share and its price in the con text of a model that recognizes the endogeneity of the brand s advertising behavior and pricing decisions the empirical analysis suggests that general foods charged higher prices for its regular grind maxwell house coffee in geographic areas where the brand s market share was relatively large available cross sectional time series data and company documents sug gest that this empirical relationship is attributable to the preference grocery retailers have for putting dominant coffee brands on special rather than cross sectional variations in costs market concentration or consumer tastes i introduction r his paper explores the relationship between a differentiated brand s market share and its price in the context of a model that recognizes the endogeneity of the brand s advertising behav ior and pricing decisions by using price as the measure of economic performance rather than accounting profits and by recognizing that adver tising is determined simultaneously with price the empirical tests reported here avoid some of the more serious problems of structure perfor mance studies moreover by focusing on the rela tionship between a single brand s market share and price this study analyzes the unilateral mar ket power of a differentiated brand as well as the effect of market wide concentration on a brand s prices the empirical analysis focuses on the hypothe sis that the general foods corporation charged higher prices for its regular grind maxwell house coffee in geographic areas where the brand s market share was large during the 1970s we identify a statistically significant positive relation ship between maxwell house s wholesale price

do coffee roasters benefit from high prices of green coffee abstract the german coffee industry has repeatedly made the puzzling statement that it would prefer higher prices of green coffee its main input likewise it supported the maintenance of the coffee tax in this paper an oligopoly model with differentiated products is used to illustrate the possibility of profit raising cost increases the relationship between prices and costs of roasted coffee in germany is estimated and the hypothesis of overshifting is tested in addition the demand for coffee is studied however the empirical analysis does not confirm that increasing costs lead to higher profits alternative explanations for the coffee industry s statements based on long term considerations are also discussed