can we explain inflation persistence in a way that is consistent with the microevidence on nominal rigidity this paper adopts the impulse response methodology to under stand inflation persistence it has often been argued that existing models of pricing fail to explain the persistence that we observe we adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting we also evaluate how far the theories are consistent with recent evidence on price and wage rigidity we find that allowing for a distribution of durations can take us a long way to solving the puzzle of inflation persistence but not all the way yet

oil price shocks and the macroeconomy this paper examines the impact of oil price shocks and attempts to explain why the rise in oil prices up to 2008 had little impact on the world economy it makes three main arguments first that oil prices have never been as important as is popularly thought second that the most important route through which oil prices affect output is monetary policy when oil prices pass through to core inflation monetary authorities raise interest rates slowing growth based on the second argument the third argument is that high oil prices have not reduced growth in recent years because they no longer pass through to core inflation so the monetary tightening previously seen in response to high oil prices is absent it also argues that oil prices had little impact on the global recession of 20089

exchange rate pass through in developing and emerging markets a survey of conceptual methodological and policy issues and selected empirical findings abstractglobal integration has increased the international linkages of financial markets for emerging market countries a key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices known as exchange rate pass through erpt this article reviews the conceptual methodological and policy issues connected with erpt in emerging market and developing countries and critically surveys selected empirical studies a key contribution is to categorise and compare the heterogeneous methodologies used to extract erpt measures in the empirical literature single equation models and systems methods are contrasted frequent misspecifications that produce unreliable erpt estimates are highlighted the discerning policy maker needs to ascertain by which methods erpt measures were calculated the controls and restrictions applied and the time frame and stability of the estimates

a simple stochastic adjustment process in this note we present a stochastic adjustment process which has nice optimality and probablistic dynamic stability properties for a large class of economic environments in addition the process relies on a strikingly simple information exchange procedure at each iteration it can also be termed as strongly locally individually incentive compatible 2 in that each consumer agent has no incentive to lie about his preferences provided he is concerned only with maximization of one step expected utility gain at each iteration the obvious source of inspiration for this process is the stochastic decentralized resource allocation mechanism the b process by hurwicz radner and reiter 2 indeed it should be regarded as the latter s informationally simplified descendent for general background information on resource allocation mechanisms and motivations for designing such mechanisms see hurwicz radner and reiter 2 and hahn 1 in order to simplify the exposition we present the process only for the case of pure exchange economies with possible consumption externalities for more general cases see mitsui 4 mitsui 4 also constructs a core convergent version of the process

stabilising properties of discretionary monetary policies in a small open economy this article sets out a simple new keynesian open economy model and shows that the conduct of discretionary monetary policy in an open economy differs substantially from the closedeconomy framework the article shows analytically that the existence of the direct exchange rate channel in the open economy phillips curve impairs the perfect stabilising property of monetary policy in the face of demand side disturbances under domestic inflation targeting if cpi inflation is instead the target then the perfect stabilising property of monetary policy breaks down even in the absence of the direct exchange rate channel in the phillips curve

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

an evaluation of the importance of subsistence food production for assessments of poverty and policy targeting evidence from romania a representative survey of romanian households highlights the importance of subsistence food production to consumer welfare estimates of the incidence of poverty are sensitive to the valuation of subsistence production particularly for certain sub groups the characteristics of those engaged in subsistence food production are profiled and sub groups identified using a combination of factor and cluster analysis the factor analysis identifies three dimensions of indicators to characterise households rurality financial resources and time dedicated to main activity based on these factors four clusters of romanian households are identified the two poorest groups are the most rural and dependent on subsistence production and the assessment of the latter s value is most important to these groups in terms the numbers classified as poor poverty alleviation strategies for each sub group are discussed

incentives in the generalized mdp procedure for the provision of public goods malinvaud 1970 1971 and dreze and de la vallee poussin 1971 have independently proposed a well defined planning procedure for an economy with public goods this procedure which has come to be called the mdp procedure has several desirable properties given correct revelation of each participant s preference if each individual truthfully announces his marginal rates of substitution between public goods and a private good every trajectory of the process lies entirely in the space of feasible allocations and monotonically converges to an individually rational pareto optimum moreover as is shown in champsaur 1976 given correct revelation this procedure is neutral to any kind of distributional value judgements in the sense that every individually rational pareto optimum can be attained as a limit of some trajectory defined by the process in connection with the problem of whether the participants in the mdp procedure reveal their correct preferences little literature has so far been written there are now results available which have been derived by dreze and de la vallee poussin 1971 and roberts 1979 that i at every iterative stage telling the truth is a maximin strategy for each individual and at an equilibrium of the process is a nash equilibrium strategy and that ii correct revelation produces a dominant strategy equilibrium at every instant if a society consists of just two individuals nevertheless maximin strategies are played only because of the rather restricted assumption on each participant s behaviour while confinement to the case of a two person society is too severe to give meaningful implications for reality in either case one might be fully justified in believing that truthful revelation will hardly appear in the mdp procedure fortunately almost all the properties of the mdp procedure can be preserved under circumstances where the agents misrepresent their marginal rates of substitution henry 1979 and roberts 1979 have shown that as long as each individual chooses a nash type strategy at each instant the process maintains the same properties as in the case of correct revelation except that the adjustment speeds of public goods are significantly reduced this result implies the mdp procedure is implementable under game theoretic circumstances but at the same time it exposes serious problems in several respects in the first place since the nash equilibrium strategy of each agent is not necessarily the truthful announcement the virtue of honesty is no longer of positive significance in the mdp procedure secondly for the validity of its solution concept if each agent plays a nash equilibrium strategy at all he must have complete knowledge relating to the possible strategies chosen by all the other agents clearly this supposition

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

a characterization of strongly locally incentive compatible planning procedures with public goods this paper provides a systematic study of planning procedures with public goods in which local truthful revelation of preferences is a dominant strategy these procedures are said to be strongly locally individually incentive compatible sliic we first characterize the time invariant continuously differentiable planning procedures that are sliic then we study properties such as balancedness cheatproofness with respect to coalitions neutrality individual rationality and we point out the connection with the mdp procedures

inflation targeting and exchange rate pass through this paper analyzes how endogenous imperfect exchange rate pass through affects inflation targeting optimal monetary policies in a new keynesian small open economy the paper shows that an inverse relation exists between the pass through and the insulation of the economy from foreign and monetary policy shocks and that imperfect pass through tends to decrease the variability of the terms of trade furthermore with cpi inflation targeting in the short run delayed pass through constrains monetary policy more than incomplete pass through and interest rate smoothing amplifies this effect when the pass through decreases the variability in economic activity tends to rise and the trade off between the stabilization of cpi inflation and output worsens in direct relation to how strictly the central bank is targeting cpi inflation in contrast with domestic inflation targeting optimal monetary policy is not constrained and opposite results occur consequently imperfect pass through favors the choice of domestic to cpi inflation targeting

romania s accession to the eu short term welfare effects on food consumers this paper focuses on estimation of the welfare effects on different romanian households of assumed food price changes as a result of eu accession using the slutsky compensating variation approach results suggest that these changes affect welfare differently for various categories of households although on average the welfare loss is 2 6 a higher impact is estimated for low income groups however the relatively high share of home produced consumption of food diminishes these impacts in particular for rural households and somewhat smaller monetary amounts would be required if compensation is paid

strategic behavior in decentralized planning procedures noncooperative strategic behaviors are studied in the malinvaud dreze de la vallee poussin decentralized planning procedure we depart from the assumption of myopic behavior by assuming that every agent takes into account the effect over a given period of time 0 t of his answers to the center one shows that for t large every nash equilibrium of the ensuing game in intertemporal strategies approaches i a competitive equilibrium in an exchange economy and ii a lindahl equilibrium in an economy with public goods thus the center loses any significant influence on the income distribution

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

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

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

has the inflation process changed does it change inflation has been low in many countries for at least a decade but have inflation processes changed in ways that would help make low inflation permanent using both aggregate and disaggregated inflation data we find that the means of inflation processes have become smaller over the past two decades and that allowing for these changes in the mean their persistence has not declined much changes in monetary policy frameworks and recessions appear to have contributed to a reduction in the mean of inflation but do not appear to have a meaningful impact on persistence and there is some evidence that the shifts in inflation expectations are the proximate cause of the changes in the mean of inflation these findings suggest that policy makers should focus on maintaining credibility and carefully monitoring inflation expectations for any indication that they are rising stephen g cecchetti and guy debelle

dynamic procedures and incentives in public good economies in this paper we consider economies involving one public good one private good and convex technology and propose an informationally decentralized dynamic nontatonnement procedure that converges in general from the initial endowments to an allocation in the core of the economy we then consider a general class of procedures and show that there exists none in the class that is locally incentive compatible and individually rational these results show that there exists a trade off between the requirements of local incentive compatibility and equitable cost sharing

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

theory and practice of decentralized planning procedures the paper surveys the theory of decentralized planning procedures dealing with price guided quantity guided and mixed procedures informational and incentive properties of the various procedures are dealt with as is the problem of public goods the practice of planning in the u s s r hungary and india is also discussed copyright 1990 by blackwell publishers ltd

incentive compatibility without compensation abstract standard public good mechanisms rely on a transferable medium of compensation to overcome incentive compatibility constraints groves laffont if no such medium exists and information is incomplete the available rules with satisfactory welfare and incentice compatibility properties require a unidimensional set of alternatives we define a dynamic procedure for two dimensional economies that is pareto optimal and individually rational with incentives as those of rules exploiting compensatory transfers