stabilization policy a reconsideration i introduction in 1936 keynes s general theory explained how fiscal and monetary policy could be used to end depressions since that time no developed country has ever seen a downturn on the scale of the 1930s the general theory was not just a how to book on the avoidance of depressions it was an argument for stabilization policy itself the years since the general theory have seen a revolt against keynesian economics in a revisionist mode milton friedman argued that countercyclical policy cannot affect the average level of unemployment and output robert lucas and thomas sargent 1979 went further contending that it is not only impossible to increase average output it is also impossible to stabilize it more recently lucas 1987 2003 has argued that policies to stabilize output even if effective would yield negligible welfare gains thus stabilization policy should not be a macroeconomic priority lucas s conclusion notwithstanding stabilization policy has long been an explicit or implicit objective of monetary policy in most industrial countries even including those countries with inflation targets the volatility of output has in fact declined in most major industrial countries since the mid 1980s and monetary policy arguably deserves at least partial credit see bernanke 2004 mirroring practice monetary policy research commonly takes it as given that along with price stability stabilization policy the minimization of squared deviations of output around potential is an appropriate policy objective see for example clarida et al 1999 in this article we explore the economic rationale for stabilization as a policy goal concluding that it does in fact deserve high policy priority we survey a large body of literature that critiques the validity of key assumptions in lucas s argument we also offer suggestive evidence that stabilization policy can significantly reduce average levels of unemployment by providing stimulus to demand in circumstances where unemployment is high but underutilization of labor and capital does little to lower inflation a monetary policy that vigorously fights high unemployment should however also be complemented by a policy that equally vigorously fights inflation when it rises above a modest target level the federal reserve act thus wisely enunciated price stability and maximum employment as twin goals for monetary policy ii the case against stabilization policy macroeconomic analysis typically assumes that social welfare depends negatively on both inflation above a modest target level here assumed zero and unemployment above some minimum socially efficient level for example a standard social welfare function is the discounted sum of period losses l sub t of the form see among others barro and gordon 1983 pp 592 93 1 l sub t a u sub t 1 k u sup 2 b pi sup 2 sub t where u sub t and pi sub t are the unemployment and inflation rates in period t and u sup is the natural rate of unemployment the coefficient k is positive reflecting the desirability of unemployment below the natural rate because real economies deviate in many respects from perfect competition the natural rate of unemployment is likely to exceed the socially optimal unemployment rate for example with monopolistic competition goods are underproduced because they are priced above marginal cost so potential output is inefficiently low and equilibrium unemployment is too high standard macroeconomic analysis additionally assumes that inflation is determined by an expectations augmented accelerationist phillips curve of the form 2 pi sub t pi sup e sub t f u sub t u sup epsilon sub t where pi sup e sub t is the expected inflation rate at time t with expectations formed at t 1 and epsilon sub t captures supply shocks to the phillips curve at t

targeting inflation by constant interest rate forecasts this paper reviews the concept of constant interest rate inflation forecast cir targeting it stresses the time inconsistent nature of cir targeting and provides a new method for constructing cir forecasts consistently in the context of models with forward looking variables a dynamic new keynesian model with forward looking price setting is used as an illustration suggesting that the main reason for choosing a relatively long forecast targeting horizon lies in the monetary authorities objective to smooth interest rate movements as greater nominal and real stabilization is achieved at a relatively short inflation forecast targeting horizon

union retreat and regional economic performance the uk experience monastiriotis v 2007 union retreat and regional economic performance the uk experience regional studies 41 1 14 a panel of regional data is used to investigate the impact the well documented decline in trade unionism in the uk had on the economic performance of its regions the analysis departs from the traditional firm level and cross sectional analyses and looks at the economy wide effects of unionism the findings provide evidence in line with theory that predicts that unions will increase wages and unemployment but they also indicate that unionism is positively related to productivity and incomes although in all cases the effects are non linear it is concluded that unionism is not necessarily a burden for the economy so long that the beneficial wage productivity effects outweigh the negative effects on employment monastiriotis v 2007 le declin syndical et la performance economique regionale etude de cas du r u regional studies 41 1 14 on emploie des donnees regionales provenant d un

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

inference in nonlinear econometric models with structural change this paper extends the classical test for structural change in linear regression models see chow 1960 to a wide variety of nonlinear models estimated by a variety of different procedures wald lagrange multiplier like and likelihood ratio like test statistics are introduced the results allow for heterogeneity and temporal dependence of the observations in the process of developing the above tests the paper also provides a compact presentation of general unifying results for estimation and testing in nonlinear parametric econometric models

reconciling the wage curve and the phillips curve the wage curve is the negative relationship that links wage levels to the unemployment rate it fits accurately with modern non competitive labour market models but goes against a phillips curve modelling because the latter ties wage growth to the unemployment rate in this article we present a comprehensive review of these non competitive models highlighting recent contributions that try to eliminate the possible gap that exists between the concepts of the wage curve on the one hand and the phillips curve on the other copyright blackwell publishers ltd 2005

the new keynesian phillips curve and lagged inflation a case of spurious correlation the new keynesian phillips curve nkpc specifies a relationship between inflation and a forcing variable and the current period s expectation of future inflation most empirical estimates of the nkpc typically based on generalized method of moments gmm estimation have found a significant role for lagged inflation producing a hybrid nkpc using u s quarterly data this article examines whether the role of lagged inflation in the nkpc might be due to the spurious outcome of specification biases like previous investigators we employ gmm estimation and like those investigators we find a significant effect for lagged inflation we also use time varying coefficient tvc estimation a procedure that produces consistency under a variety of sources of misspecification using two separate measures of expected inflation we find strong support for the view that under tvc estimation the coefficient on expected inflation is near unity and that the role of lagged inflation in the nkpc is spurious

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

low inflation targeting and long run unemployment the model of akerlof dickens and perry 2000 adp predicts that low inflation may cause unemployment to persist at high levels when applied to u s data their results strongly rejected the conventional nairu model we apply the adp model to swedish data the fact that our swedish data also reject the nairu model has a number of interesting implications for the swedish economy and potentially for other european countries as well the results indicate that raising the swedish inflation target from 2 to 4 percent would bring longrun unemployment down by several percentage points the possibility of adp type long run phillips curves also across the euro countries may raise some concern about the emu project while detailed studies on other countries are needed there is nothing to suggest that these non vertical phillips curves would not differ considerably across the euro countries any single inflation level targeted by the ecb would then generate excess unemployment in individual member states

hyperbolic discounting and the phillips curve using a standard dynamic general equilibrium model we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long run effects on real variables

sustainability indicators policy and governance issues for ecological economics abstract ecological economics is a major forum for discussion of theoretical and analytical aspects of measuring sustainability the role of sustainability indicators as an evaluation method for sustainability within the emerging context of governance merits further analysis focusing on policy processes surrounding the production of sustainability indicators this paper addresses two questions what is the potential utility of indicators for policy and in what ways can indicators influence governance the former is addressed by exploring three disciplines with long histories of indicator application public administration studies urban studies and environmental sciences the latter is addressed by distilling key perspectives from public policy literature on knowledge utilisation and policy learning which become the foundation for clarifying the notion of policy resonant indicators this clarification is achieved by canvassing the spectrum of the influences on indicators and the mechanisms of their resonance in policy processes the final section of the paper brings these arguments together by exploring two major insights in terms of challenges for ecological economics strengthening indicator theory and practice by addressing four key ingredients and mobilisation of indicators through their active use within the context of governance

securities transaction taxes an overview of costs benefits and unresolved questions many major developed countries including germany japan and the united kingdom have some form of tax on securities transactions the clinton administration recently considered imposing fees of from 14 on transactions in futures contracts past budgets have considered fees of from 6 to 15 proponents of a securities transaction tax in the u s argue that it would tap into a significant source of revenues and would in addition act to reduce excess volatility in securities markets by discouraging speculative and noise trading some have argued that it would also increase investors expected holding periods hence encourage corporate managers to build for the long term opponents argue that any benefits from such a tax would be overwhelmed by its costs they point out that a tax on transactions would increase the cost of capital reduce market liquidity and bring down security values furthermore as the tax would change the relative costs of holding and issuing different classes of securities it might be expected to change capital structures and investment portfolios too at its worst a securities transaction tax could drive trading in some securities to overseas markets not burdened by taxation the economic and societal distortions resulting from taxation and avoidance would likely be large

an empirical analysis of dematerialisation application to metal policies in the netherlands abstract this paper presents a first empirical step in filling the gap between physical and economic models by combining a material flow model and an applied general equilibrium age model the goal of this paper is threefold firstly a new methodology is discussed for the integration of material and economic flow models secondly the new methodology is tested for its empirical applicability by simulation of material policies finally the analysis leads to the identification of major steps for filling the existing gap between physical and economic models further fiscal material policies are imposed to reduce the use of specific materials the material levy and the accompanying labour tax reduction shift the tax burden from labour to the use of materials the empirical illustration shows that the physical and economic flows can be made mutually compatible and that the combined model can be used for empirical analysis of material policies from this analysis of material policies in an economic model it may be concluded that the combination of an age model and a material flow model may produce an appropriate tool for analysing environmental sectoral and distributional effects of dematerialisation policies

the chinese warrants bubble in 2005 2008 over a dozen put warrants traded in china went so deep out of the money that they were almost certain to expire worthless nonetheless each warrant was traded more than three times each day at substantially inflated prices this bubble is unique in that the underlying stock prices make warrant fundamentals publicly observable and that warrants have predetermined finite maturities this sample allows us to examine a set of bubble theories in particular our analysis highlights the joint effects of short sales constraints and heterogeneous beliefs in driving bubbles and confirms several key findings of the experimental bubble literature jel g12 g13 o16 p34

the modern view of macroeconomics some critical reflections david romer has proposed a new basic macroeconomic framework the is mp ia model its proponents claim that it represents the modern view of macroeconomics we show that the new framework remains closely attached to the neoclassical synthesis and in addition does not take account of i the empirical evidence on the output inflation trade off ii the evidence on the interdependence of aggregate demand and supply iii the institutional limits of monetary policy and iv the implications for macroeconomic policy of i ii and iii once these aspects have been incorporated short run stabilisation policy is not neutral in the long run the notion of a natural rate of interest becomes untenable and aggregate demand turns into the crucial exogenous variable copyright 2005 oxford university press

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

economic materials product chain models current status further development and an illustrative example abstract economic materials product m p chain models concentrate on modelling systems of competing final products rendering the same economic service an example of such a product would be window frames made out of different materials such as aluminium wood or plastic existing economic m p chain models make highly simplifying assumptions foreign trade for example is not taken into consideration and final products are seen as perfect substitutes for each other therefore existing approaches do not provide an adequate basis for an integrated economic ecological analysis of complex product systems it is the objective of this paper to discuss the current status of m p chain modelling and to show possibilities for further development it will be argued that the takayama judge price equilibrium activity model presents a good basis for m p chain modelling this quadratic programming qp approach permits the development of dynamic multi stages multi products models a transformation of the qp approach into linear complementarity programming lcp format leads to a flexible and high capacity tool for product system analysis the capability of the proposed approach is shown by an illustrative example the adapted real world m p chain of window frame production in germany

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

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

inflation inertia and credible disinflation abstract we develop a model of optimizing forward looking staggered price setting where even fully credible disinflations display a delayed and gradual inflation response and significant output losses there is a welfare trade off between these output losses and the gains from smaller inflationary distortions for reasonable parameter values disinflation improves welfare and more so if it is phased in gradually the pricing assumption of our model yields dynamics that are similar to models of sticky information but its state space is much simpler thereby allowing for the application of standard linearization methods

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

speed limit policies the output gap and optimal monetary policy in a standard new keynesian model a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal timeless perspective precommitment policy by stabilizing output gap changes the central bank imparts inertia into output and inflation that is absent under pure discretion even a fully optimizing i e non myopic central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting this abstract was borrowed from another version of this item

materials capital direct indirect substitution and mass balance production functions a foundation is provided for a correct and accurate analysis of the relationship between monetary values and physical dimensions in economic production a distinction is proposed between direct and indirect substitution linked to this a classification is offered of various types of substitutability and complementarity relationships between production factors it is argued that the neoclassical production function may be consistent with mass balance but is unsuitable for a detailed and accurate understanding of changes in production that influence materials use for this purpose general production functions satisfying mass balance are formulated drawing upon the proposed classifications

conservation of mass and instability in a dynamic economy environment system abstract this paper considers a variant of the neumann leontief sraffa general equilibrium models in the context of a jointly determined economy environment system subject to a conversation of mass condition it shows that the conservation of mass contradicts the free disposal free gifts and non innovation assumptions of such models that an expanding economy will be associated with continuous disequilibrating change in the material transformations of both economy and environment and that this change is uncontrollable through the price system

transaction taxes and the behavior of the swedish stock market abstract this paper studies the effects of transaction taxes on the behavior of swedish equity returns during the 1980 1987 period sweden provides an excellent laboratory style setting for such a study as taxes were imposed for political purposes rather than to alter the behavior of the stock market volatility did not decline in response to the introduction of taxes although stock price levels and turnover did large proportions of trading activity migrated overseas to london when the tax rate was increased to 2 in 1986

testing steady state implications for the nairu estimates of the nairu are usually derived either from a phillips curve or from a wage curve this paper investigates the correspondence between the operational nairu concepts and the steady state of a dynamic wage price model we derive the parameter restrictions that secure that correspondence the full set of restrictions can be tested by econometric analysis of the wage price system and this method is demonstrated for norwegian data a set of necessary conditions can be tested from estimated wage curves alone existing international evidence from empirical wage equations are reinterpreted in light of these conditions

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

testing the nairu model for the united states this paper tests using u s data the dynamics implied by the nairu view of the relationship between inflation and the unemployment rate the results are somewhat sensitive to the measure of inflation used but they generally reject the dynamics an alternative way of thinking about the relationship between inflation and the unemployment rate is suggested

inferring monetary policy objectives with a partially observed state accounting for the uncertainty inherent in real time perceptions of the state of the economy is believed to be critical for the analysis of historical monetary policy we investigate this claim through the lens of a small scale new keynesian model with optimal discretionary policy and partial information about the state the model is estimated using maximum likelihood on us data over the volcker greenspan bernanke regime a comparison of our estimates to those from a version of the model with complete information reveals that under partial information i the federal reserve demonstrates a significant concern for stabilizing fluctuations in the output gap and ii the discrepancy between optimal and observed policy behavior is smaller

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

the history of the phillips curve consensus and bifurcation while the early history of the phillips curve up to 1975 is well known less well understood is the post 1975 fork in the road the left fork developed a theory of policy responses to supply shocks in the context of price stickiness in the non shocked sector its econometric implementation interacts shocks with backward looking inertia the right fork approach emphasizes forward looking expectations that can jump in response to anticipated policy changes the left fork approach is better suited to explaining the postwar us inflation process while the right fork approach is essential for understanding behaviour in economies with unstable macroeconomic environments the history of the phillips curve pc has evolved in two phases before and after 1975 with a widespread consensus about the pre 1975 evolution which is well understood bifurcation begins in 1975 when the pc literature split down two forks of the road with little communication or interaction between the two forks the major contribution of this paper and hence the source of bifurcation in its subtitle is to examine contrast and test the contributions of the two post 1975 forks the pre 1975 history is straightforward and is covered in section i the initial discovery of the negative inflation unemployment relation by phillips popularized by samuelson and solow was followed by a brief period in which policy makers assumed that they could exploit the trade off to reduce unemployment at a small cost of additional inflation then the natural rate revolution of friedman phelps and lucas overturned the policy exploitable trade off in favour of long run monetary neutrality those who had implemented the econometric version of the trade off pc in the 1960s reeled in disbelief when sargent demonstrated the logical failure of their test of neutrality and finally were condemned to the wreckage of keynesian economics by lucas and sargent following the twist of the inflation unemployment correlation from negative in the 1960s to positive in the 1970s the architects of neutrality and the opponents of the keynesian trade off emerged triumphant with two major caveats that their own models based on information barriers were unconvincing and that their core result that business cycles were driven by monetary or price surprises floundered without supporting evidence after 1975 the evolution of the pc literature split in two directions each of which has largely failed to recognize the other s contributions section ii reviews the left fork of the road the revival of the pc trade off in a coherent and integrated dynamic aggregate supply and demand framework that emerged in the late 1970s in econometric tests in theoretical contributions and in intermediate macro textbooks this approach which i have called mainstream is resolutely keynesian because the inflation rate is dominated by persistence and inertia in the form of long lags on past inflation an important difference between the mainstream approach and other post 1975 developments is that the role of past inflation is not limited to the formation of expectations but also includes a pure persistence effect due to fixed duration wage and price contracts and lags between

in search of the natural rate of unemployment abstract the natural rate of unemployment can be measured as the time varying steady state of a structural vector autoregression for post war us data the natural rate implied by this approach is more volatile than most previous estimates with its movements accounting for the bulk of the variation in the unemployment rate as well as substantial portions of the variation in aggregate output and inflation these movements in turn can be related to variables associated with labor market search theory including unemployment benefits labor productivity real wages and sectoral shifts in the labor market there is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment supporting the existence of a short run phillips curve

material efficiency and economic environmental sustainability results of simulations for germany with the model panta rhei abstract based on empirical evidence the paper discusses the impact of a consulting and information program for the improvement of material productivity with regard to economic and environmental targets for germany the instrument used in the analysis is the integrated economic environmental model panta rhei which is parameterized econometrically the paper presents the model and shows in a baseline forecast that without policy changes sustainability will be violated in both the economic and the environmental dimensions this applies to the latter particularly with regard to land use and material consumption the alternative simulation that introduces a consulting and information program for the improvement of material productivity yields a win win result growth rates of gdp and employment are rising the public debt is reduced and material consumption is much lower than in the baseline and remains at the actual level which means that a decoupling of growth and material consumption is possible

a new test of the inflation real marginal cost relationship ardl bounds approach we test the inflation real marginal cost relationship using data for the united states over the period 1965 2009 we utilize the ardl bounds approach of pesaran et al 2001 we find that higher marginal costs increase inflation

a keynesian macroeconometric framework for the analysis of monetary policy rules abstract in the framework of a keynesian based monetary macro model we study the implications of targeting monetary aggregates or targeting the interest rate as two alternative monetary policy rules whereas the former targets the inflation rate indirectly through the control of the money supply the latter also called the taylor rule implies direct inflation targeting our monetary macro model exhibits asset market clearing disequilibrium in the product and labor markets sluggish price and quantity adjustments two phillips curves for the wage and price dynamics and expectations formation which represents a combination of adaptive and forward looking behavior the parameters of different model variants are estimated partly through single equation and partly through subsystem estimations for us quarterly time series data 1960 1 1995 1 with the estimated parameters system simulations for the two monetary policy rules are performed although the two rules have slightly different stability properties we show that discretionary monetary policy i e policy that responds to the state of macro variables has stabilizing effects we also show that our model with either of the two rules generate in terms of impulse response functions roughly the same responses to shocks as one obtains from standard var studies

material accounting in a macroeconomic framework forecast of waste generated in manufacturing industries in norway this paper analyses the generation of waste inproduction processes using a technique based onthe physical law of conservation of mass according to this law mass going into aproduction process must equal the mass comingout of the same process the paper uses thismass balance perspective to refine a previouslydeveloped technique for forecasting wastequantities a macroeconomic model predicts theuse of intermediate inputs and production inmonetary units and by multiplying thesevariables with weight conversion factors weestimate physical amounts going into and out ofproduction the difference between input andoutput the residual consists of discharges toland water and air we predict a growth in theresiduals from manufacturing industries of 74 from 1993 to 2010 this growth is partly explained by an anticipated growth in material intensity

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

increasing returns to scale and the long run phillips curve abstract a growing body of empirical evidence shows that there exists a long run positive trade off between inflation and real macroeconomic activity within a new keynesian framework we examine how increasing returns generate a positive long run relation between inflation and output

does the nairu have the right dynamics the nairu view of the relationship between inflation and the unemployment rate is that there is a value of the unemployment rate the nairu below which the price level forever accelerates and above which the price level forever decelerates this view imposes two important restrictions on the dynamics of the price process this can be seen by examining a simple version of the nairu equation

phillips curves and unemployment dynamics a critique and a holistic perspective the conventional wisdom that inflation and unemployment are unrelated in the long run implies that these phenomena can be analysed by separate branches of economics the macro literature tries to explain inflation dynamics and estimates the nairu the labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment we show that the orthodox view that the new keynesian phillips curve is vertical in the long run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate in the light of these results we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment

speculation spillovers this paper demonstrates that speculative activities can be contagious and spill over across markets specifically we test the hypothesis that during china s warrants bubble period speculative activities in the warrants market grabbed investors attention and caused them to trade more speculatively in the underlying stocks consistent with this hypothesis we find that turnover and return volatility of the underlying stocks are positively associated with the warrants unexpected turnover and price deviation from their fundamental values during the previous day controlling for information driven trading and hedging motives and that such a spillover effect is more pronounced when warrants attract more investor attention data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1914 this paper was accepted by wei xiong finance

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation