taylor rules for the ecb using expectations data we estimate taylor rules for the euro area using consensus economics data for expected inflation and output growth and compare these estimates with more conventional specifications in which actual outcomes are used we find that the ecb takes expected inflation and expected output growth into account in setting interest rates while in the more conventional model specification the coefficient of realized inflation is not significantly different from zero

money growth output gaps and inflation at low and high frequency spectral estimates for switzerland abstract while central banks generally have abandoned monetary targeting many continue to attach weight to monetary aggregates in setting policy this raises the issue of how money can be combined with other variables when analysing inflation we decompose inflation in switzerland into two frequency bands and show that inflation is granger caused by monetary factors at low frequencies defined as those corresponding to periodicities of more than 4 years but is granger caused by the output gap at high frequencies we also estimate phillips curve models that are augmented by the low frequency components of the monetary factors

harvests and business cycles in nineteenth century america most major american industrial business cycles from around 1880 to the first world war were caused by fluctuations in the size of the cotton harvest due to economically exogenous factors such as weather wheat and corn harvests did not affect industrial production nor did the cotton harvest before the late 1870s the unique effect of the cotton harvest in this period can be explained as an essentially monetary phenomenon the result of interactions between harvests international gold flows and high powered money demand under america s goldstandard regime of 1879 1914

money at low frequencies many central banks have abandoned monetary targeting because the link between money growth and inflation seemed to disappear in the 1980s using spectral regression techniques we show that for the euro area japan the uk and the us there is a unit relationship between money growth and inflation at low frequencies when the impact of interest rate changes on money demand is accounted for we estimate phillips curve equations in which the low frequency information from money growth is combined with high frequency information from the output gap to explain movements in inflation jel c22 e3

on the merits of antitrust liability in regulated industries abstractwe examine the merits of subjecting an incumbent supplier of regulated services to antitrust review we show that antitrust review can harm consumers even when the review entails no direct costs of implementation the harm to consumers arises in part because imperfect antitrust review can crowd out more effective regulatory oversight more generally antitrust review can usefully complement regulatory oversight but affects the nature of the optimal regulatory policy

banking and interest rates in monetary policy analysis a quantitative exploration abstract the paper reconsiders the role of money and banking in monetary policy analysis by including a banking sector and money in an optimizing model otherwise of a standard type the model is implemented quantitatively with a calibration based on us data it is reasonably successful in providing an endogenous explanation for substantial steady state differentials between the interbank policy rate and i the collateralized loan rate ii the uncollateralized loan rate iii the t bill rate iv the net marginal product of capital and v a pure intertemporal rate we find a differential of over 3 p a between iii and iv thereby contributing to resolution of the equity premium puzzle dynamic impulse response functions imply pro or counter cyclical movements in an external finance premium that can be of quantitative significance in addition they suggest that a central bank that fails to recognize the distinction between interbank and other short rates could miss its appropriate settings by as much as 4 p a also shocks to banking productivity or collateral effectiveness call for large responses in the policy rate

investigating m3 money demand in the euro area abstract euro area monetary growth has exceeded its target since 2001 likewise recent empirical studies did not find evidence in favour of a stable long run money demand function in contrast to the bulk of the literature we are able to identify a stable long run money demand relationship this result is obtained when the analysis is done without the short run homogeneity restriction between money and prices the basic equation can be improved by allowing for asymmetric adjustment in a low inflation environment opportunity costs of holding money have decreased thus the apparent monetary overhang is reconciled within standard models

discriminatory dealing with downstream competitors evidence from the cellular industry one concern about regulated monopolies entering unregulated vertically related markets is that they will discriminate against competitors of their unregulated affiliates however prohibiting regulated monopolies from offering related goods may preclude production by the most efficient provider we take advantage of variation across geographic cellular phone markets in the us to examine the effect of integration on output quality and prices we find some evidence consistent with efficiencies greater concentration of lines to users is associated with greater output and higher quality and some consistent with discrimination greater interconnection facility ownership concentration is associated with lower output and quality

the monetary policy of the european central bank the first six years of ecb monetary policy are examined using a general framework that allows central bankers to weight differently positive and negative deviations of inflation output and the interest rate from their reference values the empirical analysis on synthetic euro area data suggests that the objective of price stability is symmetric whereas the objectives of real activity and interest rate stabilizations are not output contractions imply larger policy responses than output expansions of the same size while movements in the interest rate are larger when the level of the interest rate is relatively high the hypothesis of m3 growth rate targeting is rejected

retail competition in electricity markets abstract the introduction of competition into retail electricity supply gave rise to great expectations however to date its performance has proven less than stellar owing primarily to the theoretical concepts underpinning this reform which draw heavily on the austrian school neither consumers decision processes nor this sector s technical paradigm were adequately accounted for leading to an uncorrect estimation of the expected impact of opening to competition short and medium term prospects for the evolution of retail markets must be reconsidered from the perspective of greater stability not a generalization of competition but rather a persistent segmentation between active and inactive clients not a large and rapid diffusion of radical innovations in commercialisation with the potential for undermining the incumbents positions

interest rates inflation and federal reserve policy since 1980 this paper characterizes federal reserve policy since 1980 as one that actively manages short term nominal interest rates in order to control inflation and evaluates this policy using a dynamic stochastic sticky price model of the united states economy the results show that the fed s policy insulates aggregate output from the effects of exogenous demand side disturbances and by calling for a modest but persistent reduction in short term interest rates following a positive technology shock helps the economy to respond to supply side disturbances as it would in the absence of nominal rigidities

theoretical analysis regarding a zero lower bound on nominal interest rates this paper explores several issues concerning a possible zero lower bound zlb including its theoretical rationale the magnitude of effects of low sustained inflation on real interest rates the validity of analyzing monetary policy in models with no monetary variables and the dynamic stabilizing properties of taylor rules in a zlb context the most important argument however is that if the short nominal rate is immobilized at zero there nevertheless exists a route for monetary stabilization policy to be effective via the foreign exchange market its quantitative importance is examined in a calibrated optimizing open economy model

the two pillars of the european central bank i interpret the european central bank s two pillar strategy by proposing an empirical model for inflation that distinguishes between the short and long run components of inflation the latter component depends on an exponentially weighted moving average of past monetary growth and the former on the output gap estimates for the 1971 2003 period suggest that money can be combined with other indicators to form the broadly based assessment of the outlook for future price developments that constitutes the ecb s second pillar however the analysis does not suggest that money should be treated differently from other indicators while money is a useful policy indicator all relevant indicators should be assessed in an integrated manner and a separate pillar focused on monetary aggregates does not appear necessary stefan gerlach

the european central bank s monetary pillar after the financial crisis abstract we apply a structural topic model stm to analyze european central bank ecb communication regarding the monetary pillar of its monetary policy strategy we do so by quantifying the transcripts of the ecb president s introductory statements at the press conferences that accompany the regular meetings of the ecb governing council our evidence shows that within its monetary pillar the ecb has gradually shifted its focus away from a genuine monetary analysis towards monitoring the stability of the european financial system we go on to augment a standard taylor rule by quantitative indicators obtained from the stm to assess whether the monetary pillar in general and the shift in focus in particular has had a measurable impact on the ecb s monetary policy stance we find that the monetary analysis has had a bearing on the interest rate setting in the early years of the ecb s existence but this influence completely disappears in the latter years of the sample furthermore we find no evidence that financial stability considerations in the ecb communication have influenced interest rate decisions either before or after the financial crisis

innovation regimes r d and radical innovations in telecommunications abstract by introducing the concept of innovation regimes the aim of this article is to show how the rapid pace of technological development in the telecom sector may be explained by the close links between the sector s own r d and the creation of numerous innovations many of which are radical in contemporary innovation theory a theoretical antinomy exists whereas the creation of incremental innovations is variously explained in terms of rational responses to markets dynamics of technological regimes dominant design etc radical innovations in contrast are explained in terms of serendipity chance or haphazard scientific discoveries evidence from analysis of innovations in the telecom sector suggests that innovation regimes have provided a capability of coordination direction and leadership in the creation of many of the radical technological innovations that have emerged in the sector thus one may claim that the strong innovation regimes and high r d intensity of the telecom sector at least until recently have provided a capability of creating innovations on purpose for a purpose the policy implications of this contradict some of the assumptions on which the prevailing market oriented r d governance models and policies are based and which are supported by contemporary innovation theories

interpreting euro area inflation at high and low frequencies abstract several authors have recently interpreted the european central bank s ecb s two pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands the ecb has publicly supported this understanding of the framework this paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions which allow for a natural definition of the short and long run in terms of specific frequency bands and causality tests in the frequency domain the main finding is that variations in inflation are well explained by low frequency movements of money and real output growth and high frequency fluctuations of the output gap

investigating m3 money demand in the euro area new evidence based on standard models monetary growth in the euro area has exceeded its target level especially since 2001 likewise recent empirical studies did not find evidence in favour of a stable long run relationship between the variables entering the money demand function instead the equation appears to be increasingly unstable if more recent data are included since the link between money balances and macroeconomic variables seems to has become rather fragile these results put serious doubts concerning the rationale of monetary aggregates in the monetary policy strategy of the ecb however if the analysis is done without imposing a short run homogeneity restriction between money and prices a stable long run money demand relationship can be identified where recursively estimated parameters are almost stable in addition the corresponding error correction model survives a wide array of specification tests including procedures for nonlinearities and parameter instability hence the apparent monetary overhang is in line with standard models of money demand behaviour and is not expected to lead to a rise in inflation

real balance effects timing and equilibrium determination this paper examines whether the existence and the timing of real balance effects contribute to the determination of the absolute price level as suggested by patinkin 1949 1965 and if they afiect conditions for local equilibrium uniqueness and stability i show that there exists a unique price level sequence that is consistent with an equilibrium under interest rate policy only if beginning ofperiod money yields transaction services predetermined real money balances can then serve as a state variable implying that interest rate setting must be passive a violation of the taylor principle for unique stable and non oscillatory equilibrium sequences on the contrary when the end of period money stock facilitates transactions the equilibrium displays nominal indeterminacy and equilibrium uniqueness requires an interest rate setting consistent with the taylor principle

pricing to preclude sabotage in regulated industries abstract we characterize the optimal access price and retail price for a vertically integrated incumbent supplier v that faces limited competition from a new entrant in the retail sector the optimal prices provide v with a relatively high wholesale profit margin and a relatively low retail profit margin consequently v has no incentive to raise the costs of its retail rival

the case for inflation stability abstract we evaluate the case for inflation stabilization in a new keynesian nns model that includes various frictions capital accumulation and a variety of shocks in such a model price rigidity may provide the monetary authorities with an opportunity to improve upon the inefficient flexible price equilibrium via the suitable cyclical manipulation of real marginal costs we find that such an opportunity is of limited value and that a strong case for perfect inflation stabilization remains policies that tolerate a small amount of inflation variability may outperform perfect inflation targeting when capital adjustment costs are low and the monetary distortion is substantial but only if prices are very flexible

on the sources of macroeconomic stability in the euro area in the mid 1990s the euro area experienced a change in macroeconomic volatility around the same time at business cycle frequencies the correlation between inflation and money growth changed markedly turning from positive to negative distinguishing the periods pre and post 1994 we estimate a dynamic stochastic general equilibrium model with money for the euro area the model accounts for the salient facts we then perform several counterfactual exercises to assess the drivers of these phenomena the moderation of real variables was essentially due to relatively smaller shocks to investment wage markups and preferences the apparent lack of evidence for the quantity theory of money in the short run and the changes in the volatility of nominal variables resulted primarily from a more anti inflationary and gradual monetary policy

estimation of search frictions in the british electricity market this paper studies consumer search and pricing behaviour in the british domestic electricity market following its opening to competition in 1999 we develop a sequential search model in which an incumbent and an entrant group compete for consumers who nd it costly to obtain information on prices other than from their current supplier we use a large data set on prices and input costs to structurally estimate the model our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns we confront our estimates with observed switching behaviour and

direct effects of base money on aggregate demand theory and evidence abstract meltzer the transmission process working paper carnegie mellon university 1999a shows that real monetary base growth is a significant determinant of consumption growth in the us controlling for the short term real interest rate in this paper i show that the same property of base money holds for total output relative to trend or potential in both the us and the uk the standard optimizing is lm model cannot account for this result but i show that it can once the long term nominal interest rate is included in the money demand function because the long term real rate matters for aggregate demand the presence of the long term nominal rate in the money demand function increases the effect of nominal money stock changes on real aggregate demand when prices are sticky

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

central bank misperceptions and the role of money in interest rate rules research with keynesian style models has emphasized the importance of the output gap for policies aimed at controlling inflation while declaring monetary aggregates largely irrelevant critics however have argued that these models need to be modified to account for observed money growth and inflation trends and that monetary trends may serve as a useful cross check for monetary policy we identify an important source of monetary trends in form of persistent central bank misperceptions regarding potential output simulations with historical output gap estimates indicate that such misperceptions may induce persistent errors in monetary policy and sustained trends in money growth and inflation if interest rate prescriptions derived from keynesian style models are augmented with a cross check against money based estimates of trend inflation inflation control is improved substantially

tobin s imperfect asset substitution in optimizing general equilibrium in this paper we present a dynamic optimizing model that allows explicitly for imperfect substitutability between different financial assets this is specified in a manner which captures tobin s 1969 view that an expansion of one asset s supply affects both the yield on that asset and the spread or risk premium between returns on that asset and alternative assets our estimates of this model on u s data confirm that some of the observed deviations of long term rates from the expectations theory of the term structure can be traced to movements in the relative stocks of financial assets the richer aggregate demand and asset specifications imply that there exists an additional channel of monetary policy our results suggest that central bank operations exercise a modest influence on the relative prices of alternative financial securities and so exert an extra effect on long term yields and aggregate demand separate from their effect on the expected path of short term rates

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

a simple adaptive measure of core inflation this paper proposes a new measure of core inflation and compares it with several existing measures the new measure is adaptive and is designed to track sudden and persistent movements in inflation such as those arising from changes in monetary policy regimes the adaptive measure filters out transients more effectively than existing measures and it is a superior predictor of locally mean reverting components of inflation

money in monetary policy design a formal characterization of ecb style cross checking the european central bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision the case against including money in the central bank s interest rate rule is based on a st andard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades in this paper we develop a justifi cation for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates we formulate a novel characterization of ecb style monetary cross checking and show that it can generate substantial stabilization benefits in the event of persistent policy mis perceptions regarding potential output

tortoises and hares choice among technologies of unknown merit recent work in the area of competing technologies and increasing returns has largely been concerned with the effectiveness of the market in delivering optimal outcomes the existence of inefficient market outcomes suggests that there might be a place for intervention in the technology choice process this paper develops a model of sequential choice in which the choice process is subject to centralized control the model is used to show that intervention can increase the expected present value of the technology adoption process it remains however that one technology and not necessarily the best will come to dominate the market copyright 1991 by royal economic society

price level determinacy with an interest rate policy rule and rational expectations abstract this paper reconsiders a result obtained by sargent and wallace namely that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money stock it is shown that the indeterminacy vanishes if the interest rate rule is chosen so as to have a desired effect on the expected quantity of money demanded this holds even if considerable weight is given in the choice of a rule to the aim of smoothing interest rate fluctuations

monetary policy and the transaction role of money in the us the declining importance of money in transactions can explain the well known fact that u s interest rate policy was passive in the pre volcker period and active after 1982 we generalise a standard cashless new keynesian model woodford2003 by incorporating an explicit transaction role for money in the pre volcker period we estimate that money did play an important role and determinacy required a passive interest rate policy however after 1982 money no longer played an important role in facilitating transactions correspondingly the conventional view prevails and an active policy ensured equilibrium determinacy

a small estimated euro area model with rational expectations and nominal rigidities abstract we estimate a small model of the euro area to be used for evaluating alternative monetary policy strategies starting with the relationship between output and inflation we compare the fit of the nominal wage contracting model due to taylor j political econom 88 1980 1 and the relative real wage contracting model proposed by buiter and jewitt the manchester school 49 1981 211 reprinted in buiter ed macroeconomic theory and stabilization policy manchester university press manchester 1989 and estimated with u s data by fuhrer and moore quart j econom 110 1995 127 while fuhrer and moore reject nominal contracts in favor of relative contracts which induce more inflation persistence we find that both specifications fit euro area data reasonably well when considering france germany and italy separately however we find that nominal contracts fit german data better while the relative contracting model does well with respect to formerly high inflation countries such as france and italy we close the model by estimating an aggregate demand relationship and investigate the implications of nominal versus relative contracts for the inflation output variability tradeoff when monetary policy follows taylor s rule

price stability and the ecb s monetary policy strategy abstract this paper focuses on the price stability objective within the framework of the single monetary policy strategy it starts by reviewing what this objective which is common to all central banks means second this paper focuses exclusively on the anchoring of short to medium term inflation expectations part 2 several measures show that this anchoring is effective a two pillar small structural macro economic model framework is used to analyze the impact that this anchoring of expectations has on the determination of the short to medium term inflation rate from this point of view observed inflation in the euro area seems to be in line with the theory and the ecb s action seems to be very effective third we focus on the other aspect of monetary stability the degree of price level uncertainty and the anchoring of inflation expectations in the medium to long term even though this assessment is more difficult than it is in the short to medium term since we only have a track record covering 6 years various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ecb

money and inflation in the euro area a case for monetary indicators abstract this paper examines inflation indicators for the euro area by studying the relationship between inflation output money and interest rates using data spanning 1980 2001 the central finding is that both the output gap and the real money gap the difference between the real money stock and the long run equilibrium real money stock contain considerable information regarding future inflation in contrast the eurosystem s money growth indicator the difference between nominal money growth and a reference value the prominent first pillar in its monetary strategy contains little information about future inflation and no information beyond that contained in the output and real money gaps the predictive performance of the output gap has improved compared to that in a previous version of this paper most likely because of better estimation methods

unemployment fears and deflationary spirals the interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features in isolation dampen them during recessions fears of unemployment stir up precautionary sentiments which induces agents to save more the additional savings may be used as investments in both a productive asset equity and an unproductive asset money but even a small rise in money demand has important consequences the desire to hold money puts deflationary pressure on the economy which provided that nominal wages are sticky increases wage costs and reduces firm profits lower profits repress the desire to save in equity which increases the fear of unemployment and so on this is a powerful mechanism which causes the model to behave differently from both its complete markets version and a version with incomplete markets but without aggregate uncertainty in contrast to previous results in the literature agents uniformly prefer non trivial levels of unemployment insurance

output gaps and monetary policy in the emu area abstract several considerations suggest that the ecb may respond to emu wide output gaps in setting policy estimated reaction functions indicate that central banks respond to output gaps a taylor rule in which the central bank responds to inflation and the gap accounts for recent movements in interest rates in the emu area and optimal control exercises conducted in estimated econometric models suggest that reacting to the gap may be optimal even if the central bank cares solely about inflation in this paper we obtain point estimates with associated confidence bands of the emu wide output gap using uc models

regulation vertical integration and sabotage we consider the incentive of a dominant firm that supplies a necessary input to a bertrand competitive differentiated products downstream industry to 1 vertically integrate forward and 2 raise its downstream rivals costs through non price activities which we characterize generally as sabotage we examine these incentives both in the absence and presence of a regulatory constraint on the upstream price we find that while an incentive for vertical integration is present regardless of the existence of the regulatory constraint the incentive for sabotage emerges only in the presence of binding input price regulation welfare effects are also explored

sticky price models and the natural rate hypothesis abstract a major criticism of standard specifications of price adjustment in models for monetary policy analysis is that they violate the natural rate hypothesis by allowing output to differ from potential in steady state in this paper we estimate a dynamic optimizing business cycle model whose price setting behavior satisfies the natural rate hypothesis the price adjustment specifications we consider are the sticky information specification of mankiw and reis sticky information versus sticky prices a proposal to replace the new keynesian phillips curve quarterly journal of economics 117 1295 1328 and the indexed contracts of christiano et al nominal rigidities and the dynamic effects of a shock to monetary policy journal of political economy 113 1 45 our empirical estimates of the real side of the economy are similar whichever price adjustment specification is chosen consequently the alternative model specifications deliver similar estimates of the u s output gap series but the empirical behavior of the gap series differs substantially from standard gap estimates

do real balance effects invalidate the taylor principle in closed and open economies this paper examines the determinacy implications of forecast based monetary policy rules that set the interest rate in response to expected future inflation in a neo wicksellian model that incorporates real balance effects we show that the presence of such effects in closed economies restricts the ability of the taylor principle to prevent indeterminacy of the rational expectations equilibrium the problem is exacerbated in open economies particularly if the policy rule reacts to consumer price rather than domestic price inflation however determinacy can be restored in both closed and open economies with the addition of monetary policy inertia

a new comparative approach to macroeconomic modeling and policy analysis in the aftermath of the global financial crisis the state of m acroeconomic modeling and the use of macroeconomic models in policy analysis has come under heavy criticism macroeconomists in academia and policy institutions are blamed for relying too much on a particular class of macroeconomic models that did not sufficiently this paper propose s a comparative approach to macroeconomic policy analysis that is open to competing modeling paradigms macroeconomic model comparison projects have helped produce some very influenti al insights such as the taylor rule however they have been infrequent and costly because they require the input of many teams of researchers and multiple meetings to obtain a limited set of comparative findings this paper provides a new comparative approach to model based research and policy analysis that enables individual researchers to conduct model comparisons easily frequently at low cost and on a large scale using this approach a model archive is built that incl udes many well known empirically estimated models that may be used for quantitative analysis of monetary and fiscal stabilization policies a computational platform is created that allows straightforward comparisons of models implications its application is illustrated by compa ring different monetary and fiscal policies across selected models researchers can easily include new models in the data base and compare the effects of novel extensions to established benchmarks thereby fostering a comparative instead of insular approach to model development

non discrimination clauses in the retail energy sector the british energy regulator will soon review a non discrimination licence condition which it imposed to ensure that energy retailers charge the same mark up in different regions many consumers are loyal to incumbent firms necessitating heavy discounting by entrants to attract customers which had led to regional price discrimination matching characteristics of the energy market to models of discrimination we identify the necessary conditions for the licence condition to have a positive effect for consumers and explore whether the policy has helped potentially vulnerable consumers we conclude that the most likely effect of the licence condition is to reduce competition in the mainstream energy markets and welcome the regulator s latest review of the retail market

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

technology shocks and aggregate fluctuations in an estimated hybrid rbc model this paper contributes to the on going empirical debate regarding the role of the rbc model and in particular of technology shocks in explaining aggregate fluctuations to this end we estimate the model s posterior density using markov chain monte carlo mcmc methods within this framework we extend ireland s 2001 2004 hybrid estimation approach to allow for a vector autoregressive moving average varma process to describe the movements and co movements of the model s errors not explained by the basic rbc model the results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model s fit relative to the var and ar alternatives moreover despite setting the rbc model a more difficult task under the varma specification our analysis based on forecast error and spectral decompositions suggests that the rbc model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post war u s economy

money s role in the monetary business cycle a small structural model of the monetary business cycle implies that real money balances enter into a correctly specified forward looking is curve if and only if they enter into a correctly specified forward looking phillips curve the model also implies that empirical measures of real balances must be adjusted for shifts in money demand to accurately isolate and quantify the dynamic effects of money on output and inflation maximum likelihood estimates of the modelos parameters take both these considerations into account but still suggest that money plays a minimal role in the monetary business cycle

eurosystem monetary targeting lessons from u s data abstract using a small empirical model of inflation output and money estimated on u s data we compare the relative performance of monetary targeting and inflation targeting the results show monetary targeting to be quite inefficient yielding both higher inflation and output variability this is true even with a nonstochastic money demand formulation our results are also robust to using a p model of inflation therefore in these popular frameworks there is no support for the prominent role given to money growth in the eurosystem s monetary policy strategy

information variables for monetary policy in an estimated structural model of the euro area a small scale new keynesian model for the euro area is estimated with maximum likelihood under the assumptions of imperfect information and discretionary monetary policy the estimated parametrization of this widely used dynamic stochastic model unveils the monetary authorities objectives and the information content of two indicator variables monetary aggregates and real unit labour costs the results highlight a significant policy concern about interest rate smoothing and inflation almost no concern for output gap stabilization emerges regarding indicator variables unit labour costs provide information on potential output that is helpful for stabilization policy no useful information role emerges for monetary aggregates

the information content of money in forecasting euro area inflation this article contributes to the debate on the role of money in monetary policy by analysing the information content of money in forecasting euro area inflation we compare the predictive performance within and among various classes of structural and empirical models in a consistent framework using bayesian and other estimation techniques we find that money contains relevant information for inflation in some model classes money based new keynesian dynamic stochastic general equilibrium dsge models and vector autoregressions vars incorporating money perform better than their cashless counterparts but there are also indications that the contribution of money has its limits the marginal contribution of money to forecasting accuracy is often small money adds little to dynamic factor models and it worsens forecasting accuracy of partial equilibrium models finally nonmonetary models dominate monetary models in an all out horserace

estimating the evolution of money s role in the u s monetary business cycle we assess money s role in the post wwii u s business cycle by employing both fixed coefficient and rolling window bayesian estimations of a structural model of the business cycle with money our empirical evidence favors a specification with drifting parameters for money consumption nonseparability and the federal reserve s reaction to nominal money growth the role of money is estimated to have been important during the 1970s and declined afterward the omission of money produces severely distorted impulse response functions relative to the model with money money is found to be important in replicating the u s output volatility during the great inflation

the demand for m3 in the euro area in this paper an empirically stable money demand model for m3 in the euro area is constructed starting with a multivariate system three cointegrating relationships with economic content are found i the spread between the long term and the short term nominal interest rates ii the long term real interest rate and iii a long run demand for broad money m3 there is evidence that the determinants of m3 money demand are weakly exogenous with respect to the long run parameters hence following a general to specific modelling approach a parsimonious conditional error correction model for m3 money demand is derived which can be interpreted economically for the conditional model long run and short run parameter stability is extensively tested and not rejected copyright 2001 john wiley sons ltd

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

do monetary indicators lead euro area inflation abstract this paper assesses based on euro area data whether the strong in sample long run link between money growth and inflation that has been highlighted by a number of recent empirical studies is exploitable to predict inflation out of sample the results from standard bivariate forecasting models suggest that no monetary nor any other single indicator significantly outperforms a simple benchmark forecast the further analysis shows that it would be premature however to discard based on such evidence the usefulness of monetary and all other indicators first it is shown that based on judgemental adjustments to monetary indicators correcting for the effects of identifiable persistent velocity shifts it appears possible to significantly improve predictive ability in real time second i find that a factor forecasting model combining monetary and economic indicators which can be regarded as a generalized quantity theory or two pillar phillips curve forecasting model delivers a fairly good and stable forecasting performance

money in an estimated business cycle model of the euro area this article examines the role of money in a small scale dynamic general equilibrium model of the euro zone estimated by maximum likelihood the model allows for both intertemporal and intratemporal non separability in preferences we find first that real balances do not affect the marginal utility of consumption second money demand shocks mainly help to forecast real balances while real shocks explain the bulk of price output and interest rates fluctuations third the calculation of the natural rate of interest reveals that the evolution of the interest rate is mostly accounted for by the real sources of fluctuations

m3 money demand and excess liquidity in the euro area recent empirical studies have found evidence of unstable long run money demand functions if recent data are used if the link between money balances and the macroeconomy is fragile the rationale of monetary aggregates in the ecb strategy has to be doubted in contrast we present a stable long run money demand relationship for m3 for the period 1983 2006 to obtain the result the short run homogeneity restriction between money and prices is relaxed and a break in the income elasticity of money demand after 2001 is taken into account measures of excess liquidity do not show significant inflation pressures

dual technological trees assessing the intensity and strategic significance of technological change abstract the paper addresses the issue of the potential impact of technological innovation on competition it aims at reviewing abernathy and utterhack s dominant technology dosi s technological trajectories clark s design hierarchies abernathy and clark s transilience concepts we recognize that the intensity of innovation falls along a continuum and introduce the concept of micro radical innovation we choose to qualify the strategic significance of technological change through the transilience concept leading to the principle of competence relatedness we introduce dual technological trees dtt as a way to present a hierarchical map of the many technological options that may be searched to fulfil a certain generic function in the market place the complex and unpredictable nature of technology is recognized the paper essentially suggests to map the various technological options and suboptions that one would think plausible at the present time keeping in mind that technology will end up finding its own peculiar ways the dynamic interaction between the dtt and some customer concept tree on the market side is also discussed we finally turn to the use of the dtt to assess the potential strategic significance of innovation several examples are presented

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations