efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

an approximation of the distribution of learning estimates in macroeconomic models abstract adaptive learning under constant gain allows persistent deviations of beliefs from equilibrium so as to more realistically reflect agents attempt of tracking the continuous evolution of the economy a characterization of these beliefs is therefore paramount to a proper understanding of the role of expectations in the determination of macroeconomic outcomes in this paper we propose a simple approximation of the first two moments mean and variance of the asymptotic distribution of learning estimates for a general class of dynamic macroeconomic models under constant gain learning our approximation provides renewed convergence conditions that depend on the learning gain and the model s structural parameters we validate the accuracy of our approximation with numerical simulations of a cobweb model a standard new keynesian model and a model including a lagged endogenous variable the relevance of our results is further evidenced by an analysis of learning stability and the effects of alternative specifications of interest rate policy rules on the distribution of agents beliefs

whom can we trust to run the fed theoretical support for the founders views abstract the federal reserve has been called a bizarre policymaking structure this paper documents and formalizes a historical argument that the fed s structure was a response to public conflict over inflation s redistributive powers the paper shows that in the face of conflict over redistributive inflation policy by majority can lead to policy that is worse even for the majority than obvious alternatives in balancing the interests for and against surprise inflation the fed s structure can lead to a better outcome

learning and time varying macroeconomic volatility abstract this paper presents a dsge model in which agents learning about the economy can endogenously generate time varying macroeconomic volatility economic agents use simple models to form expectations and need to learn the relevant parameters their gain coefficient is endogenous and is adjusted according to past forecast errors the model is estimated using likelihood based bayesian methods the endogenous gain is jointly estimated with the structural parameters of the system the estimation results show that private agents appear to have often switched to constant gain learning with a high constant gain during most of the 1970s and until the early 1980s while reverting to a decreasing gain later on as a result the model can generate a pattern of volatility which is increasing in the 1970s and falling in the second half of the sample with a decline that can roughly match the magnitude of the so called great moderation in the 1984 2007 period the paper also documents how a failure to incorporate learning into the estimation may lead econometricians to spuriously find time varying volatility in the exogenous shocks even when these have constant variance by construction

optimal seigniorage and financial liberalization abstract this paper analyzes the effect of financial integration for countries relying on the taxation of their domestic financial system a two country model with overlapping generations and explicit financial intermediation is used goverments derive revenues from seigniorage and set optimally but non cooperatively the rate of inflation and the level of required reserves on bank deposits a financial liberalizations leads to lower reserve ratios higher inflation rates and larger stocks of government debt when the liberalization is anticipated governments may temporarily increase the reserve ratios before the liberalization occurs jel f30 e60

fiscal spending the terms of trade and real interest rates this paper investigates the international movements in real interest rates and investment spending in response to a temporary fiscal expansion in one country it is shown that fiscal expansion may lead investment spending to be negatively correlated across countries this is because real interest rates relevant for investment purposes may move asymmetrically between countries in response to an expansion in fiscal spending the crucial factors which determine whether or not this occurs are a a transfer criterion which depends upon the spending propensities of the government relative to those of private consumers and b the intertemporal elasticity of substitution in consumption

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

on the initialization of adaptive learning in macroeconomic models abstract we review and evaluate methods previously adopted in the applied literature of adaptive learning in order to initialize agents beliefs previous methods are classified into three broad classes equilibrium related training sample based and estimation based we conduct several simulations comparing the accuracy of the initial estimates provided by these methods and how they affect the accuracy of other estimated model parameters we find evidence against their joint estimation with standard moment conditions as the accuracy of estimated initials tends to deteriorate with the sample size spillover effects also deteriorate the accuracy of the estimates of the model s structural parameters we show how this problem can be attenuated by penalizing the variance of estimation errors even so the joint estimation of learning initials with other model parameters is still subject to severe distortions in small samples we find that equilibrium related and training sample based initials are less prone to these issues we also demonstrate the empirical relevance of our results by estimating a new keynesian phillips curve with learning where we find that our estimation approach provides robustness to the initialization of learning that allows us to conclude that under adaptive learning the degree of price stickiness is lower compared to inferences under rational expectations

policymakers horizon and the sustainability of international cooperation abstract this paper examines the impact of policymakers horizon on the sustainability of international cooperation we describe a prisoners dilemma game between two infinitely lived countries run by policymakers we show that re election incentives can act as a discipline device making it easier to sustain cooperation between policymakers with finite but potentially renewable mandates than between infinitely lived policymakers we also show that when voting suffers from a recency bias policymakers may have incentives to collude to get re elected and term limits may help international cooperation

the stability of macroeconomic systems with bayesian learners we study abstract macroeconomic systems in which expectations play an important role consistent with the recent literature on recursive learning and expectations we replace the agents in the economy with econometricians unlike the recursive learning literature however the econometricians in the analysis here are bayesian learners we are interested in the extent to which expectational stability remains the key concept in the bayesian environment we isolate conditions under which versions of expectational stability conditions govern the stability of these systems just as in the standard case of recursive learning we conclude that bayesian learning schemes while they are more sophisticated do not alter the essential expectational stability findings in the literature

a political economy theory of partial decentralization we revisit the classic problem of tax competition in the context of federal nations and derive a positive theory of partial decentralization a capital poor median voter chooses to use redistributive capital taxes to provide public goods the expectation of high capital taxes however results in a small capital stock which lowers returns to redistribution the median voter therefore wants to commit to a lower level of capital taxes she does so by setting a partial degree of decentralization in the constitution the equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results we show that the degree of decentralization is nonmonotonic in inequality increasing in the redistributive efficiency of public good provision and decreasing in capital productivity when public goods are heterogeneous in their capacity to transfer funds all voters agree that goods with high redistributive capacity should be decentralized

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

managerial career concerns privatization and restructuring in transition economies abstract we set up a dynamic adverse selection model to explain how career concerns may induce managers in state owned enterprises soes to restructure their firms it is shown how government monopsony power over managers led to the ratchet effect under a socialist economy even under reforms coming short of privatization the introduction of a managerial labour market through privatization introduces competition for managers and eliminates the ratchet effect thereby inducing managers to restructure the model is consistent with the empirical evidence of soes restructuring in transition economies

the terms of trade and the international coordination of fiscal policy this paper develops an example of a noncooperative game between fiscal authorities in two countries the key strategic link between countries is the terms of trade an equilibrium without cooperation is characterized by excessive tax rates and public spending levels in each country the outcome is analogous to the nash equilibrium of the static optimal tarif game in trade theory but in this model there is also a dynamic distortion caused by noncooperative behaviour this dynamic distortion depresses capital accumulation and reduces the equilibrium capital stock in each country numerical examples suggest a significant welfare benefit of cooperation

expectation shocks and learning as drivers of the business cycle psychological factors market sentiments and less than fully rational shifts in beliefs are widely believed to play a role in the economy yet they are rarely considered in macroeconomic models this paper evaluates the empirical role of expectational shocks on business cycle fluctuations the paper relaxes the rational expectations assumption to exploit survey data on expectations in the estimation of a new keynesian model which allows for learning by economic agents expectation shocks affect the formation of expectations and capture waves of optimism and pessimism that lead agents to form forecasts that deviate from those implied by their learning model the empirical results uncover a crucial role for these novel expectations shocks as a major driving force of the u s business cycle expectation shocks regarding future real activity are the main source of economic fluctuations accounting for roughly half of business cycle fluctuations

privatization in eastern europe irreversibility and critical mass effects abstract this paper proposes a model to shed light on two important policy features of privatization in central and eastern europe the idea of a necessary critical mass of privatization on one hand and the great difficulties encountered in the actual privatization process on the other the model incorporates a positive externality related to the size of the private sector multiple equilibria may arise for political and economic reasons policies of free distribution are analysed with the model they may eliminate the danger of policy reversals due to excess unemployment but may at the same time increase the relative cost of restructuring leading in some cases to pareto inferior outcomes

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

cross border externalities and cooperation among representative democracies abstract this paper analyzes the provision of public goods with cross border externalities by representative democracies the level of provision of each country is decided by a policy maker elected by majority rule at the country level we compare the case in which policy makers set their policies noncooperatively with the case in which they set their policies through coasian cooperation cooperation induces policy makers to internalize cross border externalities but it also induces strategic voters to elect a policy maker who cares less about the public good to reduce their public good contribution the former effect increases public good provision while the latter reduces it we show that once voters incentives are taken into account whether cooperation is beneficial depends neither on voters preferences nor on the magnitude of spillovers nor on the size bargaining power or efficiency of each country instead it depends only on the curvature of the demand for the public good cooperation increases decreases public good provision when the demand function is more less convex than the unit elastic demand function hence the desirability of international cooperation depends mostly on the type of public good considered

domestic politics and the international coordination of fiscal policies abstract this paper investigates the desirability of international fiscal policy coordination in the presence of a domestic political distortion the domestic distortion results from the inability of the current policymaker to enter into a binding agreement with future policymakers about the composition of public spending this distortion generates a bias towards budget deficits international coordination can exacerbate the deficit bias and thus reduce social welfare at home and abroad the reason is that international coordination reduces the cost of running budget deficits and thus enhances the adverse effects of the domestic political distortion

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

var analysis and the great moderation post world war ii us macroeconomic history is usually divided into two distinct subperiods the former period which extends up to the end of the volcker disinflation is characterized by a significant extent of macroeconomic turbulence with highly volatile inflation and output growth the latter period from the end of the volcker disinflation up to the present day is marked in contrast by significantly smaller volatilities for both inflation and output growth these dramatic changes in the reduced form properties of the us economy over the last several decades char acterize a phenomenon known as the great moderation see in particular chang jin kim and charles nelson 1999 margaret mcconnell and gabriel perez quiros 2000 a vast empirical literature has investigated the source s of the great moderation in an attempt to disentangle the relative contributions of two main explanations good policy and good luck based on time varying or markov switching structural var methods the good luck hypoth esis has been advocated by a number of authors including james h stock and mark w watson 2003 giorgio e primiceri 2005 christopher sims and tao zha 2006 and luca gambetti evi pappa and fabio canova 2008

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

determinacy learnability and monetary policy inertia we show how monetary policy inertia can help alleviate problems of indeterminacy and non existence of stationary equilibrium observed for some commonly studied monetary policy rules we also find that inertia promotes learnability of equilibrium the context is a simple forward looking model of the macroeconomy widely used in the rapidly expanding literature in this area we conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions

privatisation and market structure in a transition economy abstract a model is developed in which an industry of n 1 firms is privatised the participation method of privatisation is used whereby firms are sold for cash but the state retains a proportionate share of ownership in each firm the new private owner has the opportunity to make a reorganisational investment before output is produced this investment is unobservable by the state and therefore non contractible there is cournot competition in the product market the welfare maximising retained ownership share for the state is analysed taking into account that potential buyers of firms may have limited access to finance

robust stability of monetary policy rules under adaptive learning recent research has explored how minor changes in expectation formation can change the stability properties of a model duffy and xiao 2007 evans and honkapohja 2009 this article builds on this research by examining an economy subject to a variety of monetary policy rules under an endogenous learning algorithm proposed by marcet and nicolini 2003 the results indicate that operational versions of optimal discretionary rules are not robustly stable as in evans and honkapohja 2009 in addition commitment rules are not robust to minor changes in expectational structure and parameter values

bad luck bad policy and learning a markov switching approach to understanding postwar u s macroeconomic dynamics abstract this paper evaluates the role of monetary policy in understanding the u s post war macroeconomic fluctuations we construct a medium size dsge model in which the central bank through a real time learning process can make mistakes in estimating key elasticities between macroeconomic aggregates and the central banks objectives may change over time the model also features time varying volatilities of non policy shocks we find that misperceptions of the persistence of inflation and the slope of the phillips curve could affect optimal monetary policy decision making therefore their accurate prediction is key for achieving successful monetary policy outcomes in addition we argue that the monetary policy shift geared toward inflation stabilization in the late 1970s changed the composition of output making the marginal efficiency of investment shock that proxies for the functioning of the financial sector the most important contributor to the business cycle

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

the time varying volatility of macroeconomic fluctuations we investigate the sources of the important shifts in the volatility of us mac roeconomic variables in the postwar period to this end we propose the esti mation of dsge models allowing for time variation in the volatility of the structural innovations we apply our estimation strategy to a large scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades jel c51 e32

czech privatisation 25 years later privatisation is still a hot political topic today and divides economists as well as politicians and the general public the paper aims to capture the czech privatisation in its historical economic and political contexts the first part explains the difference between transitional privatisation and standard privatisation the second part examines the interests in the privatisation process the third part discusses the privatisation methods used in the czech republic the fourth part offers an international comparison

intergenerational policies public debt and economic growth a politico economic analysis abstract this study presents a two period overlapping generations model with endogenous growth in each period the government representing young and old generations provides a public good financed by labor income taxation and public debt issuance and the government s policies are determined by probabilistic voting increased political power of the old lowers economic growth a debt ceiling rule is considered to resolve the negative growth effect but it creates a trade off between generations in terms of welfare

bounded rationality monetary policy and macroeconomic stability abstract this paper estimates a behavioral new keynesian model to revisit the evidence that passive us monetary policy in the pre 1979 sample led to indeterminate equilibria and sunspot driven fluctuations while active policy after 1982 by satisfying the taylor principle was instrumental in restoring macroeconomic stability the model assumes cognitive discounting i e consumers and firms pay less attention to variables further into the future we estimate the model allowing for both determinacy and indeterminacy the empirical results show that determinacy is preferred both before and after 1979 even if monetary policy is found to react only mildly to inflation pre volcker the substantial degrees of bounded rationality that we estimate prevent the economy from falling into indeterminacy

booms and busts in economic activity a behavioral explanation booms and busts in economic activity are a regular occurrence they lead to a strong empirical regularity i e that output gaps and output growth are non normally distributed mainstream macroeconomic models explain this phenomenon by invoking exogenous shocks that are non normally distributed this is not a very satisfactory explanation as it shifts our ignorance one step further i propose an explanation based on a behavioral macroeconomic model in which agents are assumed to have limited cognitive abilities and thus develop different beliefs this model produces waves of optimism and pessimism in an endogenous way animal spirits and provides for a better endogenous explanation of the observed non normality in output movements i also analyze the implications for monetary policy

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

learning and the great moderation we study a stylized theory of the volatility reduction in the u s after 1984 the great moderation which attributes part of the stabilization to less volatile shocks and another part to more difficult inference on the part of bayesian households attempting to learn the latent state of the economy we use a standard equilibrium business cycle model with technology following an unobserved regime switching process after 1984 according to kim and nelson 1999a the variance of u s macroeconomic aggregates declined because boom and recession regimes moved closer together keeping conditional variance unchanged in our model this makes the signal extraction problem more difficult for bayesian households and in response they moderate their behavior reinforcing the effect of the less volatile stochastic technology and contributing an extra measure of moderation to the economy we construct example economies in which this learning effect accounts for about 30 of a volatility reduction of the magnitude observed in the postwar u s data

adaptive expectations underparameterization and the lucas critique abstract a striking implication of the replacement of adaptive expectations by rational expectations was the lucas critique which showed that expectation parameters and endogenous variable dynamics depend on policy parameters we consider this issue from the vantage point of bounded rationality where for transparency we model bounded rationality by means of simple adaptive expectations we show that for a range of processes monetary policy remains subject to the lucas critique however there are also regimes in which the expectation parameter is locally invariant and the lucas critique does not apply

political influence and the dynamic consistency of policy garfinkel department of economics university of fornia 3151 social science plaza irvine ca 92697 lee artment of economics university of california 3151 soscience plaza irvine ca 92697 and international monfund 700 19th street nw washington dc 20431 we k without implicating avinash dixit amihai glazer chel grossman luisa lambertini stergios skaperdas an ymous referee and seminar participants at the university alifornia los angeles california state universityerton and the 1998 winter meetings of the econometociety for helpful comments on previous drafts of this r which had been circulated under the title political ipline and the dynamic consistency of policy the s expressed in this paper are those of the authors and ld not be attributed to the international monetary fund see torsten persson and guido tabellini 1990 for a ul survey of this literature

recurrent hyperinflations and learning we use a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the 1980 s in a standard monetary model we replace the assumption of full rational expectations by a formal definition of quasi rational learning the model under learning matches some crucial stylized facts observed during the recurrent hyperinflations experienced by several countries in the 1980 s remarkably well we argue that despite being a small departure from rational expectations quasi rational learning does not preclude falsifiability of the model it does not violate reasonable rationality requirements and it can be used for policy evaluation

a simple recursive forecasting model abstract we compare the performance of alternative recursive forecasting models a simple constant gain algorithm used widely in the learning literature both forecasts well out of sample and also provides the best fit to the survey of professional forecasters

the lucas critique and the stability of empirical models this paper re considers the empirical relevance of the lucas critique using a dsge sticky price model in which a weak central bank response to inflation generates equilibrium indeterminacy the model is calibrated on the magnitude of the historical shift in the federal reserve s policy rule and is capable of generating the decline in the volatility of inflation and real activity observed in u s data using monte carlo simulations and a backward looking model of aggregate supply and demand we show that shifts in the policy rule induce breaks in both the reduced form coefficients and the reduced form error variances the statistics of popular parameter stability tests are shown to have low power if such heteroskedasticity is neglected in contrast when the instability of the reduced form error variances is accounted for the lucas critique is found to be empirically relevant for both artificial and actual data

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

international macroeconomic policy coordination when policymakers do not agree on the true model the authors relax the assumption of the literature on international coordination that policymakers know the true model t wo countries will still be able to agree on a cooperative policy pack age that each believes will improve the objective function relative t o the nash noncooperative solution however the bargaining solution may move the target variables in the wrong direction these points ar e illustrated with monetary and fiscal multipliers taken from simulat ions of ten leading econometric models out of 1 000 possible combina tions of models that could represent u s beliefs non u s beliefs and the true model monetary coordination improves u s welfare in on ly 546 cases copyright 1988 by american economic association

privatization and corporate control in the czech republic czech privatization vladimir dlouh and jan mladek in 1990 czechoslovakia was highly centralized we examine the subsequent programme of rapid privatization and assess its success in stimulating both a secondary market and adequate corporate governance privatization relied not just on vouchers but on three other channels restitution of physical assets to former owners small enterprise privatization and sale of large enterprises all three fostered political support for privatization and transition in general two waves of voucher privatization have also disposed of nearly half the state owned enterprises initially incumbent managers supported vouchers expecting diffuse ownership to weaken corporate control however the success of investment privatization funds in concentrating ownership made managers more critical of the second voucher wave despite trying to create a us style capital market the prominence of banks as parents of ipfs has led to something much closer to german corporate banking ownership this success may be hard for other countries to emulate czechoslovakia enjoyed three key advantages a tradition of sound banking an endowment of quality enterprises to be privatized and proximity to the german market

savings commodity market rationing and the real rate of interest in china abstract the theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically estimation problems encountered in using futures data are discussed since forward rates and futures prices have been found to be approximately equal and because risk in daily risk premiums in the futures market unbiasedness of daily futures prices as predictors of the following day s futures price is rejected for all currencies reconciliation of daily and monthyl data requires positive serial correlation in daily risk premiums

empirical calibration of adaptive learning abstract adaptive learning introduces persistence in the evolution of agents beliefs over time helping explain why economies present sluggish adjustments towards equilibrium the pace of this learning process is directly determined by the gain parameter we document and evaluate gain calibrations for a broad range of model specifications with macroeconomic data also developing alternative approaches to the endogenous determination of time varying gains in real time our key findings are that learning gains are higher for inflation than for output growth and interest rates and that calibrations to match survey forecasts are lower than those derived according to forecasting performance suggesting some degree of bounded rationality in the speed with which agents update their beliefs