inflation and relative price variability in the euro area evidence from a panel threshold model the impact of inflation on relative price variability rpv generates an important channel for real effects of inflation this article provides first evidence on the empirical relation between inflation and rpv in the euro area stirred by the widespread use of inflation caps or target bands in monetary policy practice we are particularly interested in threshold effects of inflation in line with the predictions of monetary search models our results indicate that expected inflation significantly increases rpv only if inflation is either very low below 0 95 per annum p a or very high above 4 96 p a

rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

the fisher hypothesis and the forecastability and persistence of inflation abstract for the period 1860 to 1939 the simple correlation of the u s commercial paper rate with the contemporaneous inflation rate is 0 17 the corresponding correlation for the period 1950 to 1979 is 0 71 this paper attributes this apparent change in the fisher relation to differences in the stochastic process of inflation rather than a change in any structural relationship between interest rates and expected inflation contrary to recent claims in the literature there is little evidence of inflation non neutrality in data from the pre world war i period

marriage market divorce legislation and household labor supply this paper provides a theoretical framework for analyzing the impact of the marriage market and divorce legislation on household labor supply in our approach the sex ratio in the marriage market and the rules governing divorce are examples of distribution factors these factors are defined as variables that affect the household members bargaining position but not preferences or the joint budget set we extend the collective labor supply model developed by chiappori to allow for distribution factors we show that our model imposes new restrictions on the labor supply functions and eases the identification of individual preferences and the intrahousehold decision process the model is estimated using psid data for the year 1988 our results do not reject the restrictions imposed by the model also the sex ratio and divorce laws deemed favorable to women are found to affect labor supply behavior and the decision process in the directions predicted by the theory and to have sizable effects

collective labor supply and household production this paper emphasises the importance of incorporating household production into the collective model of the household and considers how and to what extent the results of chiappori 1992 can be extended to this case this abstract was borrowed from another version of this item

farmers and the u s congress rethinking basic institutional assumptions about agricultural policy abstract an assumption shared by most agricultural economists is that as farm numbers decline in a democratic government farm policy attention from rule makers will decline as well this assumption despite important work to the contrary in institutional economics is often voiced in federated governing units especially the u s where constituents are locally organized and the commitment of rule makers to nationwide policy is limited while significant theoretical literature challenges that majoritarian view from the perspective of interest group theory this is the first empirical test and explanation of the behavior of rule makers the findings of this analysis indicate that classic majoritarian expectations are not met in the u s congress instead unexpectedly large numbers of legislators seek favorable policy action for farmers as distinct minorities within their districts however these same legislators balance their attention to farmers by also taking policy action in agriculture on behalf of other types of contituents legislators explain these actions as the result of their own electoral needs to satisfy vocal minorities from their political districts plus the ease with which they can marginally adjust a large base of u s farm programs thus a kind of neo majoritarianism emerges these results are especially important given the growing attention to federated governance in the european union east europe in north america through free trade agreements and with the gatt they indicate that farmers will continue despite shrinking numbers to be influential in those governing structures that have historically strong farm programs and the capacity to diversify from that policy base

the predictive content of the output gap for inflation resolving in sample and out of sample evidence this paper evaluates potential explanations for the sometimes poor forecasting performance of the phillips curve one explanation is that out of sample metrics are noisy or equivalently have relatively low power another potential explanation is instability in the coefficients of the model to assess these forces this paper compares sample forecasting results to results from bootstrap simulations of models that either assume stability or allow breaks in the coefficients of the model this analysis indicates that a significant portion of the weakness of the out of sample evidence is attributable to power limitations but instabilities in the coefficients on the output gap also play a role

using ols to estimate and test for structural changes in models with endogenous regressors summary we consider the problem of estimating and testing for multiple breaks in a single equation framework with regressors that are endogenous i e correlated with the errors we show that even in the presence of endogenous regressors it is still preferable in most cases to simply estimate the break dates and test for structural change using the usual ordinary least squares ols framework except for some knife edge cases it delivers estimates of the break dates with higher precision and tests with higher power compared to those obtained using an instrumental variable iv method also the ols method avoids potential weak identification problems caused by weak instruments to illustrate the relevance of our theoretical results we consider the stability of the new keynesian hybrid phillips curve iv based methods only provide weak evidence of instability on the other hand ols based ones strongly indicate a change in 1991 q1 and that after this date the model loses all explanatory power copyright 2013 john wiley sons ltd

how robust are popular models of nominal frictions this paper analyzes three popular models of nominal price and wage frictions to determine which best ts post war u s data we construct a dynamic stochastic general equilibrium dsge model and use maximum likelihood to estimate each model s parameters because previous research nds that the conduct of monetary policy and the behavior of in ation changed in the early 1980s we examine two distinct sample periods using a bayesian pseudo odds measure as a means for comparison a sticky price and wage model with dynamic indexation best ts the data in the early sample period whereas either a sticky price and wage model with static indexation or a sticky information model best ts the data in the late sample period our results suggest that price and wage setting behavior may be sensitive to changes in the monetary policy regime if true the evaluation of alternative monetary policy rules may be even more complicated than previously believed

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

introducing household production in collective models of labor supply in a recent paper chiappori 1992 i proposed a model of labor supply based on a collective representation of household behavior in this framework each household member is characterized by his or her own utility function and decisions are only assumed to result in pareto efficient outcomes i showed that these simple assumptions were sufficient to i generate testable restrictions on labor supply functions and ii recover individual preferences and the outcome of the decision process from observed behavior for the sake of simplicity the results were derived in the simplest possible case namely a static labor supply model with private consumptions such a framework was appropriate only for the purpose of the paper that is a preliminary exploration of the properties of collective models of labor supply the next step is to evaluate the robustness of the results to various extensions of the basic model this opens a general research program and generates a wide range of particular problems that it is hoped will be considered in the future among the most serious shortcomings of the 1992 model is the absence of household production as in most labor supply models agents were assumed to divide their time between market activities and leisure as apps and rees 1997 in this issue very rightly point out in their comment the absence of domestic production is far from innocuous as soon as welfare issues are considered for instance a low level of market labor supply will automatically be interpreted as a large consumption of leisure whereas it may in fact reflect the specialization of one of the members in domestic

predatory versus productive government the case of u s agricultural policies this essay will argue that agricultural policy in the united states has led to both the enhancement of efficiency through productive policies and the transfer of wealth and income to special interests through redistributive or predatory policies these two activities can be labeled as pests and perts pest policies or political economic seeking transfers are meant to redistribute wealth from one social group to another and are not explicitly concerned with efficiency in contrast perts or political economic resource transactions are intended to correct market failures or to provide public goods these policies have neutral distributional effects at least in design a review of the history of public policy in agriculture reveals not only tension between the pert and pest roles of the public sector but also some coordination between these two types of activities as different interest groups pressure the political process the government trades off pests and perts in its attempts to acquire balance and secure political power at times this has led to combinations of programs that appear incoherent in such a world the challenge for economists is to design and advocate policies that are both economically productive and politically sustainable

the asymmetry of the new keynesian phillips curve in the euro area abstract using a two stage quantile regression framework we uncover significant asymmetries across quantiles for all coefficients in an otherwise standard new keynesian phillips curve nkpc for the euro area a pure nkpc specification accurately captures inflation dynamics at high inflation quantiles

decomposing household professional and market forecasts on inflation a dynamic factor model analysis a dynamic factor model with stochastic volatility is used to investigate the relationships between three alternative measures of inflation expectations the results show evidence of both a common time varying trend and a common transitory component between inflation and short term inflation expectations from households professionals and markets while the common time varying trend has declined in both level and volatility since the early 1980s it was found that consumer expectations are disproportionately influenced by the visibility of prices of select few goods roughly speaking a 1 point increase in food and energy prices leads to about 1 3 point increase in consumer forecasts of inflation in terms of policymaking this finding suggests that stability in highly visible prices can moderate inflation in a meaningful way

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

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

improving real time estimates of output and inflation gaps with multiple vintage models real time estimates of output gaps and inflation gaps differ from the values that are obtained using data available long after the event part of the problem is that the data on which the real time estimates are based is subsequently revised we show that vector autoregressive models of data vintages provide forecasts of post revision values of future observations and of already released observations capable of improving estimates of output and inflation gaps in real time our findings indicate that annual revisions to output and inflation data are in part predictable based on their past vintages this article has online supplementary materials

has u s inflation really become harder to forecast recently stock and watson 2007 showed that since the mid 1980s it has been hard for backward looking phillips curve models to improve on simple univariate models in forecasting u s inflation while this indeed is the case when the benchmark is a causal autoregression little change in forecast accuracy is detected when a noncausal autoregression is taken as the benchmark in this note we argue that a noncausal autoregression indeed provides a better characterization of u s inflation dynamics than the conventional causal autoregression and it is therefore the appropriate univariate benchmark model

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

why does the yield curve predict output and inflation the slope of the yield curve has been shown empirically to be a significant predictor of inflation and real economic activity but there is no standard theory as to why the relationship exists this article constructs an analytical rational expectations model to investigate the reasons for the empirical results the model suggests that the relationships are not structural but are instead influenced by the monetary policy regime however the yield curve should have predictive power for output and inflation in most circumstances various implications of the theoretical model are tested and confirmed empirically

real time properties of the federal reserve s output gap abstract we consider the revision properties of federal reserve board staff estimates of the output gap after the mid 1990s and examine the usefulness of these estimates for inflation forecasting over this period we find that the federal reserve s output gap is more reliably estimated in real time than previous studies have documented for earlier periods and alternative estimation techniques in contrast to previous work we also find no deterioration in forecast performance when inflation projections are conditioned on real time rather than on final estimates of the output gap

introducing the bank of canada staff economic projections database we present a new publicly available database of real time data and forecasts from the bank of canada s staff economic projections which will be updated on an annual basis we describe the data construct its variables coverage and frequency we then provide a forecast evaluation for gross domestic product gdp growth consumer price index cpi inflation and the policy rate since 1982 we compare the staff s forecasts with those from commonly used time series models estimated with the real time data and with forecasts from other professional forecasters and provide standard bias tests finally we study changes in predictability of the canadian economy following the announcement of the inflation targeting regime in 1991 our data set is unprecedented outside the usa and our evidence is particularly interesting as it covers over 30 years of staff forecasts two severe recessions and different monetary policy regimes

changes in monetary regimes and the identification of monetary policy shocks narrative evidence from canada abstract using narrative evidence with a novel database of real time data and forecasts from the bank of canada s staff projections 1974 2015 we construct a new measure of monetary policy shocks and estimate the effects of monetary policy in canada we show it is crucial to account for the break in the conduct of monetary policy caused by the announcement of inflation targeting in 1991 a 100 basis point increase in our new shock series leads to a 1 0 percent peak decrease in real gdp and a 0 5 percent fall in the price level while not accounting for the break leads to a persistent decrease in gdp and a price puzzle albeit the change in monetary regime the effects of monetary policy have not changed much before and after it

two sided learning and the ratchet principle i study a class of continuous time games of learning and imperfect monitoring a long run player and a market share a common prior about the initial value of a gaussian hidden state and learn about its subsequent values by observing a noisy public signal the long run player can nevertheless control the evolution of this signal and thus affect the market s belief the public signal has an additive structure and noise is brownian i derive conditions for an ordinary differential equation to characterize equilibrium behavior in which the long run player s actions depend on the history of the game only through the market s correct belief using these conditions i demonstrate the existence of pure strategy equilibria in markov strategies for settings in which the long run player s flow utility is nonlinear the central finding is a learning driven ratchet principle affecting incentives i illustrate the economic implications of this principle in applications to monetary policy earnings management and career concerns

economic theory and farm politics what can economics offer in the explanation of politics the first accomplishment is to reduce the subject to a maximization problem analogous to others encountered in economic theory a second accomplishment is to make this problem interesting to make it really illuminating about politics both steps are difficult and the accomplishments have been only partial viewing politics as maximization may seem unreasonably austere and narrow but it is what distinguishes the contribution of economics from that of political scientists or more general social observers empirical work by economists on farm politics typically brings in these broader concerns but this paper attempts instead to justify the narrower approach and to explore its implications its organization is first to spell out details of the contribution of economic theory to explaining politics second to review work on agricultural policies in relation to this theory and finally to discuss implications for positive versus normative economics in policy analysis

some implications of learning for price stability abstract survey data on expectations of a range of macroeconomic variables exhibit low frequency drift in a new keynesian model consistent with these empirical properties optimal policy in general delivers a positive inflation rate in the long run two special cases deliver classic outcomes under rational expectations as the degree of low frequency variation in beliefs goes to zero the long run inflation rate coincides with the inflation bias under optimal discretion for non zero low frequency drift in beliefs as households become highly patient valuing utility in any period equally the optimal long run inflation rate coincides with optimal commitment price stability is optimal the optimal state contingent response to cost push disturbances similarly reflects properties of optimal discretion and optimal commitment depending on the degree of low frequency variation in beliefs when beliefs exhibit substantial variation in response to short run forecast errors optimal policy is closer to commitment

on the robustness of simple and optimal monetary policy rules abstract this is a discussion of the paper simple versus optimal rules as guides to policy by brock durlauf nason and rondina bdnr presented in november 2006 at carnegie mellon university under the auspices of the carnegie rochester conference series on public policy i review the authors arguments present a few suggestions for extension and outline where i think at least one strand of the literature should be heading

the bargaining family revisited we suggest a family bargaining model where human capital investment decisions are made non cooperatively in a first stage while day to day allocation of time is determined later through nash bargaining but with non cooperative behaviour as the fall back one finding is that overinvestment in education may be even more of a problem in such a semi cooperative model than in a fully non cooperative one even though both the semi cooperative model and the fully non cooperative model predict overinvestment in education policy conclusions that follow from the two models are distinctly different jel classification d13 j24 les auteurs suggerent un modele de famille qui marchande ou les decisions d investissement en capital humain sont prises de maniere non cooperative dans un premier temps alors que l allocation du temps au jour le jour est determinee plus tard par un marchandage a la nash mais avec un comportement noncooperatif comme choix de second ordre on decouvre que le surinvestissement dans l education peut etre encore plus problematique dans un tel modele de semi cooperation que dans un modele de non cooperation meme si les deux modeles prevoient un surinves chtissement dans l education les conclusions au plan de la politique publique qui decoulent de ces deux modeles sont fort differentes

a cournot nash model of family decision making this paper models a two person family each family member is utility maximising yet family members are interdependent because of caring and public goods within the family the two family members interdependent utility maximisation problems are first solved using a non cooperative or cournot nash game theoretic framework the cournot nash equilibrium is then used as a threat point in a bargaining game the paper provides a rigorous derivation of the properties of household demands a full analysis of the determinants of intra household resource allocation including the effect of varying household bargaining power and consideration of policy implications

global factors and trend inflation abstract we develop an empirical model to study the influence of global factors in driving trend inflation and the inflation gap we apply our model to 7 developed economies and 21 emerging market economies our results suggest that while global factors can have a sizeable influence on the inflation gap they play only a marginal role in driving trend inflation much of the influence of global factors in the inflation gap may be reflecting commodity price shocks finally we find the effect of global factors to be greater in our sample of emerging market economies relative to the developed economies there is some evidence which suggest propagation mechanisms which may reflect institutional structures or policy choices can explain the greater role for global factors in driving trend inflation in emerging market economies

time varying structural vector autoregressions and monetary policy a corrigendum this note shows how to apply the procedure of kim et al 1998 to the estimation of var dsge factor and unobserved components models with stochastic volatility in particular it revisits the estimation algorithm of the time varying var model of primiceri 2005 the main difference of the new algorithm is the ordering of the various mcmc steps with each individual step remaining the same

the long run phillips curve a structural var investigation both cointegration methods and non cointegrated structural vars identified based on either long run restrictions or a combination of long run and sign restrictions are used in order to explore the long run trade off between inflation and the unemployment rate in the post wwii u s u k euro area canada and australia overall neither approach produces clear evidence of a non vertical trade off the extent of uncertainty surrounding the estimates is however substantial thus implying that a researcher holding alternative priors about what a reasonable slope of the long run trade off might be will likely not see her views falsified

noncooperative bargaining models of marriage in this paper we discuss some simple noncooperative models of distribution within marriage in which the equilibria are not necessarily pareto optimal in which history and culture can affect which equilibrium is realized and in which distribution may depend on whether resources are controlled by the husband or by the wife recent moves away from single decision maker models of the family have permitted economists to address distribution within marriage and cooperative bargaining models have played the central role in these moves the next step is to permit strategic interaction between family members by modeling distribution within marriage as a noncooperative game noncooperative game theory allows great flexibility in specifying the rules of the game and unlike cooperative game theory imposes few a priori restrictions on the nature of equilibrium outcomes in particular noncooperative models neither assume nor imply that all equilibria are pareto optimal

macroeconomic effects of inflation target uncertainty shocks abstract we study the macroeconomic effects of a time varying inflation target it which stochastic volatility follows an autoregressive process we show that the quantitative economic effects of it uncertainty shocks depend crucially on the taylor rule type adopted by the monetary authority following this kind of disturbance a less severe recession and deflation is observed under a more reactive interest rate rule while an empirical plausible degree of interest rate smoothing leads output unemployment and inflation to react more strongly causing the recession to be more severe and deflationary

an empirical investigation of direct and iterated multistep conditional forecasts when constructing unconditional point forecasts both direct and iterated multistep dms and ims approaches are common however in the context of producing conditional forecasts ims approaches based on vector autoregressions var are far more common than simpler dms models this is despite the fact that there are theoretical reasons to believe that dms models are more robust to misspecification than are ims models in the context of unconditional forecasts marcellino stock and watson msw 2006 investigate the empirical relevance of these theories in this paper we extend that work to conditional forecasts we do so based on linear bivariate and trivariate models estimated using a large dataset of macroeconomic time series over comparable samples our results reinforce those in msw the ims approach is typically a bit better than dms with significant improvements only at longer horizons in contrast when we focus on the great moderation sample we find a marked improvement in the dms approach relative to ims the distinction is particularly clear when we forecast nominal rather than real variables where the relative gains can be substantial

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

explaining the great moderation it is not the shocks this paper shows that the explanation of the decline in the volatility of gdp growth since the mid eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism

estimating statistical properties of political economic decisions revelation of criteria implicit in setting policy is addressed in a political economic framework that includes identification and estimation of unknown parameters in the presence of multiple sources of uncertainty policy formation is viewed as an optimization process under which the government maximizes a criterion function subject to market constraints a method for estimating political criterion function weights and their associated standard errors over multiple time periods is presented the approach is illustrated with an empirical example from japanese rice and wheat trade policy

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

the great moderation in the united kingdom we use a bayesian time varying parameters structural var with stochastic volatility for gdp deflator inflation real gdp growth a 3 month nominal rate and the rate of growth of m4 to investigate the underlying causes of the great moderation in the united kingdom our evidence points toward a dominant role played by good luck in fostering the more stable macroeconomic environment of the last two decades results from counterfactual simulations in particular show that i bringing the monetary policy committee back in time would only have had a limited impact on the great inflation episode at the cost of lower output growth ii imposing the 1970s monetary rule over the entire sample period would have made almost no difference in terms of inflation and output growth outcomes and iii the great inflation was due to a dominant extent to large demand non policy shocks and to a lesser extent especially in 1973 and 1979 to supply shocks

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

disinflation shocks in the eurozone a dsge perspective we investigate the effects of disinflation policies on key macroeconomic variables using euro area data and structural vector autoregressions svars we identify disinflation shocks as the only shocks that drive nominal variables to a lower long run level we find that in the immediate aftermath of a disinflation shock the euro area enters in a persistent recession we use these dynamic responses to estimate a dsge model with imperfect information about the disinflation shock we find that both nominal and real frictions and monetary policy gradualism have played a prominent role in the recessionary effect of disinflation shocks conversely allowing for imperfect credibility does not yield a better fit except when we shut key model s frictions down

public policy and constitutional prescription in public policy analysis much confusion exists about the roles of explanation and prescription to offer a new perspective a paradigm is developed that gives both theoretical and empirical meaning to the constitutional determination of political preference functions or public sector governance structures current policies are viewed as a rational outcome of a political economic process three relevant spaces are specified result policy instrument and constitutional for the policy instrument space the paradigm provides a framework for generating testable propositions on government behavior while for the constitutional space the framework is prescriptive the collective choice rules of the constitutional space structure the tradeoff between public and special interests

identification issues in forward looking models estimated by gmm with an application to the phillips curve limited information methods are commonly used to estimate forward looking models with rational expectations such as the new keynesian phillips curve of gal and gertler 1999 in this paper we address issues of identiflcation that have been overlooked due to the incompleteness of the single equation formulation we show that problems of weak instruments may arise depending on the properties of the exogenous variables and that they are empirically relevant we also uncover a link between identiflcation and dynamic mis speciflcation and examine the lack of power of hansen s 1982 j test to detect invalid over identifying restrictions with regards to the new phillips curve we flnd that problems of identiflcation cannot be ruled out and they deserve further attention

cost pooling in australian grain handling a common property analysis the common property analysis of rausser zusman and foster is expanded and applied t australian grain transportation systems with a conservative decision rule a statically inefficient cost pooling system may lead to optimal investment decisions as benefits become pooled with ramsey pricing in contrast losers may veto many investment decisions so that allocations become equitable but technically inefficient efficiency gains from price policy reform may not be achieved unless accompanied by property right reallocation

housing and the macroeconomy inflation and the financial accelerator three themes connecting housing and the macroeconomy are discussed first evidence is presented for the property market as one of the drivers of u s consumer price inflation second key drivers of house prices are explained to account for the remarkable diversity of international experience finally three potential links between housing credit and the financial accelerator are discussed these are the consumption channel the investment channel and feedback between bad loans and risk spreads via the financial system and how institutional differences between countries can explain the presence absence and magnitudes of these linkages

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

state market civil institutions the case of eastern europe and the soviet republics abstract the transition tasks facing the countries of central and eastern europe are monumental the public sector will play a dominant role during the transition process available evidence suggests that orthodox prescriptions for public sector reform cannot be effectively implemented without an underlying constitution and a legal and regulatory infrastructure lri a well designed constitution and lri instill confidence and policy credibility with perfectly rational expectations and confidence in the constitution and lri the sequence of reforms matters little future reforms are perfectly anticipated today and agents act as though the reforms will occur with certainty short of such confidence reforms need to be simultaneously pursued on many fronts the most important activity is to redefine the role of the state setting a constitution that clearly defines and secures basic political civil and economic freedoms and designing an lri that creates a fertile environment for a vibrant market economy

a theory of rational marriage and divorce abstract despite high rates of cohabitation before marriage and considerable efforts invested in the search for a life partner a high number of marriages end in divorce this paper develops a model of household formation and dissolution in which it may be rational for individuals to marry fully anticipating that they will subsequently divorce economies of scale associated with living as a couple rather than in two separate households provide an incentive to marry problems with free riding in the provision of household collective goods may lead to divorce marriages which involve partners who are similar in tastes or in their productive capacities and in which private goods are equally shared are the most likely to be stable in contrast marriages which involve very disparate partners or which share the fruits of market labor very unequally between the partners are more likely to be shortlived and end in divorce

slack and cyclically sensitive inflation we investigate the flattening phillips relation by making two departures from standard specifications first we measure slack using real activity variables that are bandpass filtered or year over year changes in activity these are similar instead of gaps second we study the components of inflation instead of the standard aggregates we find that some inflation components have strong and stable correlations with the cyclical component of real activity these components tend to be relatively well measured and domestically determined other components typically prices that are poorly measured or internationally determined have weak and or unstable correlations with cyclical activity we construct a new inflation index cyclically sensitive inflation that weights the components by their joint cyclical covariation with real activity the index has strong and stable correlations with cyclical activity and provides a real time measure of cyclical movements in inflation

from polygyny to serial monogamy a unified theory of marriage institutions consider an economy populated by males and females both rich and poor the society has to choose one of the following marriage institutions polygyny strict monogamy and serial monogamy divorce and remarriage after having identified the conditions under which each of these equilibria exists we show that a rise in the share of rich males can explain a change of regime from polygyny to monogamy the introduction of serial monogamy follows from a further rise in either the proportion of rich males or an increase in the proportion of rich females strict monogamy is a prerequisite to serial monogamy as it promotes the upward social mobility of females more than polygyny we also show that polygyny is compatible with democracy

posterior predictive evidence on us inflation using extended new keynesian phillips curve models with non filtered data changing time series properties of us inflation and economic activity measured as marginal costs are modeled within a set of extended new keynesian phillips curve nkpc models it is shown that mechanical removal or modeling of simple low frequency movements in the data may yield poor predictive results which depend on the model specification used basic nkpc models are extended to include structural time series models that describe typical time varying patterns in levels and volatilities forward and backward looking expectation components for inflation are incorporated and their relative importance is evaluated survey data on expected inflation are introduced to strengthen the information in the likelihood use is made of simulation based bayesian techniques for the empirical analysis no credible evidence is found on endogeneity and long run stability between inflation and marginal costs backward looking inflation appears stronger than forward looking inflation levels and volatilities of inflation are estimated more precisely using rich nkpc models the extended nkpc structures compare favorably with existing basic bayesian vector autoregressive and stochastic volatility models in terms of fit and prediction tails of the complete predictive distributions indicate an increase in the probability of deflation in recent years

a theory of partnership dynamics abstract this paper explores the benefits and drawbacks of potential partnership dissolution through an infinite period dynamic game theoretic model of learning and endogenous dissolution as partners learn about the quality of their partnership relative to their outside opportunities the rents associated with the partnership change effecting a related change in the strength of incentives to provide effort mild supermodularity conditions lead to effort levels in the optimal equilibria which rise in the expected quality of the partnership journal of economic literature classification numbers c72 c73 l14

the economics of options implied inflation probability density functions recently a market in options based on cpi in ation in ation caps and oors has emerged in the us this paper uses quotes on these derivatives to construct probability densities for in ation we study how these pdfs respond to news announcements and nd that the implied odds of de ation are sensitive to certain macroeconomic news releases we compare the option implied probability densities with those obtained by time series methods and use this information to construct empirical pricing kernels the options implied densities assign considerably more mass to extreme in ation outcomes either de ation or high in ation than do their time series counterparts this yields a u shaped empirical pricing kernel with investors having high marginal utility in states of the world characterized by either de ation or high in ation

separate spheres bargaining and the marriage market this paper introduces the separate spheres bargaining model a new model of distribution within marriage it differs from divorce threat bargaining models e g manser brown mcelroy horney in that the threat point is not divorce but a noncooperative equilibrium within marriage this noncooperative equilibrium reflects traditional gender roles the predictions of our model thus differ from those of divorce threat bargaining models in the separate spheres model cash transfer payments to the mother and payments to the father can but need not imply different equilibrium distributions in existing marriages in the long run the distributional effects of transfer policies may be substantially altered by changes in the marriage market equilibrium

the real time properties of the bank of canada s staff output gap estimates we study the revision properties of the bank of canada s staff output gap estimates since the mid 1980s our results suggest that the average staff output gap revision has decreased significantly over the past 15 years in line with recent evidence for the u s

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

oil prices and inflation dynamics evidence from advanced and developing economies abstract we study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015 we find that a 10 increase in global oil inflation increases on average domestic inflation by about 0 4 percentage points on impact with the effect vanishing after two years and being similar between advanced and developing economies we also find that the effect is asymmetric with positive oil price shocks having a larger effect than negative ones the impact of oil price shocks however has declined over time due in large part to a more credible monetary policy and less reliance on energy imports we further examine the transmission channels of oil price shocks on domestic inflation during the recent decades by making use of a monthly dataset from 2000 to 2015 the results suggest that the share of transport in the cpi basket and energy subsidies are the most robust factors in explaining cross country variations in the effects of oil price shocks during the period

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection

the role of uncertainty in the term structure of interest rates a garch atsm approach this article examines the roles of uncertainties regarding various macro variables in determining risk premiums of bond yields we develop a multivariate garch var to quantify uncertainties regarding inflation real activities and monetary policy as time varying conditional variances we jointly estimate the multivariate garch and no arbitrage bond pricing equations using a maximum likelihood method the results indicate that the inflation uncertainty is the largest contributor to the dynamics of long term yields since the 1980s while the monetary policy uncertainty also plays noticeable roles