estimating a model of strategic network choice the convenience store industry in okinawa this paper investigates a determinant of location choice for multistore retailing firms the trade off between the business stealing effect and the cost saving effect from clustering their own stores i present an empirical model of network choice by two multistore firms i use lattice theoretical results to address the computational burden of solving for an equilibrium in store networks the framework integrates the static entry game of complete information with post entry outcome data while using simulations to correct for the selection of entrants i present an application of the model to the case of the convenience store industry in okinawa island japan using unique cross sectional data on store networks and revenues i use parameter estimates to examine the impact of a hypothetical horizontal merger on store configurations costs and profits results suggest a retailer s trade off between cost savings and lost revenues from clustering its stores is positive across markets and negative within a market i find an acquirer of a hypothetical merger of two multistore firms would decrease its number of stores in suburbs but increase its number in the city center

career concerns in a simple experimental labour market abstract we experimentally investigate a simple version of holmstrom s career concerns model in which firms compete for agents in two consecutive periods profits of firms are determined by agents unknown ability and the effort they choose before making second period wage offers firms are informed about first period profits in a different treatment firms additionally learn the abilities of agents theory suggests high first period equilibrium effort in the hidden ability treatment but no effort elsewhere however we find that effort tends to be higher in the revealed ability treatment and therefore conclude that transparency does not weaken but strengthen career concerns incentives

building new plants or entering by acquisition firm heterogeneity and entry barriers in the u s cement industry i estimate a model of entry for the cement industry that considers two options of expansion building a plant or acquiring an incumbent the model takes into account that there is a transfer of the buyer firm level characteristics to the acquired plants which affects profits from the acquisition estimates show that a less permissive reagan bush administration s merger policy would decrease the number of acquired plants by 71 greenfield entry would increase by 9 2 and consumer surplus would decrease by 23 5 results suggest that regulators should be concerned about policies that negatively affect the efficient reallocation of assets between incumbents and entrants

remaking macroeconomic policy after the global financial crisis a balance sheet approach this paper describes the origins of the global financial crisis and how the prevailing new keynesian macroeconomic orthodoxy failed to anticipate its severity this failure we argue stemmed from an incomplete understanding of the pivotal role of financial institutions in the amplification of the crisis and its transmission to the wider economy low global interest rates and a consequent search for yield in the pre crisis period encouraged financial institutions to build highly leveraged balance sheets which in turn generated extremely large asset price movements when a small event the downturn in the us sub prime mortgage market triggered the crisis the paper then briefly describes the element of the broadly successful and coordinated macroeconomic policy response to the crisis before turning to the medium term challenges facing policymakers in sustaining global recovery at the national level we focus on the resolution of fiscal imbalances which contributed in part to the crisis and which then worsened because of the policy actions which have been taken to deal with it at the international level we emphasise the need to rectifying the imbalances between savings and investment in many significant countries this will require greater coordination of macroeconomic policy across the world s major economies it will also involve strengthening the role and the governance of the international monetary fund

ownership consolidation and product characteristics a study of the us daily newspaper market this paper develops a structural model of newspaper markets to analyze the effects of ownership consolidation taking into account not only firms price adjustments but also the adjustments in newspaper characteristics a new dataset on newspaper prices and characteristics is used to estimate the model the paper then simulates the effect of a merger in the minneapolis newspaper market and studies how welfare effects of mergers vary with market characteristics it finds that ignoring adjustments of product characteristics causes substantial differences in estimated effects of mergers jel g32 l13 l82 m37 do mergers affect product characteristics standard merger analyses typically study price effects only and ignore changes in product characteristics this paper endogenizes both it is likely that firms would adjust the features of their products after a merger ignoring this aspect of firm decisions in a merger analysis can lead to a bias in estimated welfare effects specifically i study how ownership consolidation affects product characteristics and welfare in the us daily newspaper market the newspaper market provides an ideal environment for analyzing the effect of mergers on product features for both econometric and economic reasons first of all individual newspapers often circulate in local markets there is substantial variation in demographics and ownership structure across these markets this variation is crucial for this study secondly the characteristics of newspapers are obviously important for welfare for example after an ownership consolidation do newspaper publishers improve or diminish the content quality do they enlarge or shrink the local news ratio do they increase or decrease content variety to address these questions i set up a structural model of the us daily newspaper

macroeconomic policy transmission and international interdependence a svar application to brazil and us economic policy transmission between trade partners has been analyzed over different contexts in the literature depending on real or nominal frictions the results indicate possible beggar thy neighbor effects for policies given international trade and need for coordinating policies the baseline model is corsetti and pesenti 2001 of macroeconomic interdependence the theoretical proposition suggests that a no anticipated economic policy of exchange rate depreciation creates a beggar thyself effect yet many economies have engaged in this policy to enhance exports and improve welfare here fiscal policy transmissions over brazilian economic aggregates are investigated considering brazil as home and us as foreign country the problem is specified in a structural var vector autoregression model taking granger causality tests and impulse response analysis as econometric applications the results indicate that expansionary fiscal policy in us has a beggar thy neighbor effect for the brazilian economy in the long run the policy transmission mechanism relies on the terms of trade in addition real money balances are affected by foreign fiscal policy affecting the efficiency of domestic monetary policy 2013 national association of postgraduate centers in economics anpec production and hosting by elsevier b v all rights reserved jel classification f41 f42

competitive outcomes in product differentiated oligopoly structure firms anticipate the competitive effects of market structure when making their entry and product type decisions the market structure variables used to explain the observed outcomes therefore derive from the related entry and product choice stage of the game as a result it is crucial to allow for correlation between unobserved factors that affect the entry and product type decisions of firms and unobservables in the outcome regressions to correct for the potential bias caused by this correlation an econometric model of equilibrium market structure is employed as a selection equation in a two step estimation procedure the second step outcome regressions are modified to reflect the market structure selection this alternative approach emphasizes the logical relationship among firms entry and product choice behavior market structure and price competition following this introduction i provide some background for the analysis of competitive outcomes in motel oligopolies section iii presents the two step estimation procedure developed to measure the effects of concentration and differentiation on outcomes this procedure is used to analyze the observed outcomes of motels located along interstate highways the data are outlined in section iv in section v i present the estimation results evidence from the analysis of these outcomes help demonstrate why motel firms find differentiation a profitable product choice strategy section vi provides some concluding remarks

friedman redux restricting monetary policy rules to support flexible exchange rates abstract when the currency of export pricing is endogenous there is a social benefit to exchange rate volatility that may be ignored by monetary authorities as a result there is a welfare inferior equilibrium with zero exchange rate pass through and fixed exchange rates this paper shows that there is a simple method of ruling out this equilibrium restrict monetary authorities to respond only to domestic economic conditions

the expenditure switching effect welfare and monetary policy in a small open economy abstract this paper analyses the implications of the expenditure switching effect for the role of the exchange rate in monetary policy in a small open economy it is shown that when the elasticity of substitution between home and foreign goods is not equal to unity welfare depends on the variances of producer prices and the terms of trade producer price targeting is compared to consumer price targeting and a fixed exchange rate it is found that a fixed exchange rate yields higher welfare than the other regimes only when the elasticity of substitution between home and foreign goods is very high

sellers local currency pricing or buyers local currency pricing does it matter for international welfare analysis abstract we study international transmissions and welfare implications of monetary shocks in a two country world with multiple stages of production and multiple border crossings of intermediate goods this empirically relevant feature is important as it has opposite implications for two external spillover effects of a unilateral monetary expansion if all production and trade are assumed to occur in a single stage the conflict of interest terms of trade effect tends to dominate the common interest efficiency improvement effect for reasonable parameter values so that the international welfare effects would depend in general on the underlying assumptions about the currencies of price setting the stretch of production and trade across multiple stages of processing magnifies the efficiency improvement effect and dampens the terms of trade effect thus a monetary expansion can be mutually beneficial regardless of its source or the pricing assumptions

on the international dimension of fiscal policy this paper analyses the international dimension of fiscal policy using a small open economy framework in which the government finances its spending by levying distortionary taxation and issuing non state contingent debt the main finding of the paper is that once the open economy aspect of the policy problem is considered it is not optimal to smooth taxes following idiosyncratic shocks even when prices are flexible and inflation can costlessly act as a shock absorber to restore fiscal equilibrium the presence of a terms of trade externality lead to movements in the tax rate also in contrast with the closed economy the introduction of sticky prices can reduce the optimal volatility of taxes

openness imperfect exchange rate pass through and monetary policy abstract this paper analyses the implications of imperfect exchange rate pass through for optimal monetary policy in a linearised open economy dynamic general equilibrium model calibrated to euro area data imperfect exchange rate pass through is modelled by assuming sticky import price behaviour the degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output net trade and the exchange rate it is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

oil price stabilization and global welfare abstract oil price stabilization polices are adopted extensively in developing countries some argue that developed economies especially the us may gain from these policies through trade this paper studies this issue in a two country model with dollar currency pricing we find that the optimal level of oil price stabilization chosen by developing countries and its implications for global welfare depend critically on whether monetary policy can effectively respond to oil shocks in an environment without monetary shocks when optimal monetary policies are considered there is no role for oil price stabilization in developing countries however to make the oil price stabilization policy redundant optimal monetary policy is not necessary some non optimal endogenous monetary policies satisfying certain conditions can also make the developing countries choose zero oil price stabilization the results change when there are monetary shocks even with optimal monetary policies the developing countries will choose a positive level of oil price stabilization however due to dollar currency pricing the us actually loses from the stabilization policy our results are well supported by the quantitative analysis in a full fledged dynamic stochastic general equilibrium model

optimal financial market integration and security design 1 we study 2 period pure exchange capital asset pricing model capm economies with incomplete financial markets and restricted participation we characterize the optimal financial market structure and efficient innovations consisting of both the introduction of new assets and the integration of segmented markets welfare gains from innovations are maximal when the endowments of affected agents are negatively correlated uncoordinated innovations lead to efficient market structures if all assets have identical participation structure or the markets being integrated trade identical assets however coordination failure in the introduction of new assets may result when assets have participation structures that overlap only partially

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

optimal monetary policy with international trade in intermediate inputs abstract this paper examines optimal monetary policy in a two country new keynesian model with international trade in intermediate inputs we derive the loss function of a cooperative monetary policymaker and find that the optimal monetary policy must target intermediate goods price inflation rates final goods price inflation rates final goods output gaps and relative price gaps we use the welfare loss under the optimal monetary policy as a benchmark to evaluate the welfare implications of three taylor type monetary policy rules a main finding is that the degree of price stickiness at the stage of intermediate goods production is a key factor to determine which policy rule should be followed specifically when the degree of price stickiness at the stage of intermediate goods production is high the policymaker should follow intermediate goods ppi based taylor rule whereas cpi based taylor rule should be followed when the degree of price stickiness at the stage of intermediate goods production is intermediate or low

does better information about foreign shocks improve monetary policy abstract this paper examines whether better information about foreign shocks leads to welfare improving monetary policy using a stylised two country new keynesian general equilibrium model we demonstrate that when terms of trade externality exist and national central banks have the incentives to shift terms of trade in their own favour the equilibrium under imperfect information may be welfare superior relative to an equilibrium with perfect information in addition the welfare gains or losses from information sharing between central banks are found to be small for empirically plausible range of parameters for risk aversion and elasticity of labour supply

empirical analysis of markets with free and restricted entry abstract empirical entry models provide a fruitful framework to analyze many interesting questions in industrial organization we show how empirical models of free entry can be extended to allow for various kinds of entry restrictions we first consider a model of regulated entry and a model of monopoly or coordinated entry as alternatives to the free entry model we then introduce a model that combines elements of both free and coordinated entry this model describes how an upstream firm may find it optimal to restrict dowstream entry in some markets while allowing for free entry in other markets the discussion shows how uncovering fixed costs from these alternative entry models is parallel to uncovering marginal costs from alternative oligopoly models of pricing or output behavior to allow for clear comparisons we focus on market level entry models

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

career concerns incentives an experimental test abstract holmstrom s holmstrom b 1982 1999 managerial incentive problems a dynamic perspective review of economic studies 66 169 182 originally published in essays in economics and management in honour of lars wahlbeck helsinki career concerns model has become a workhorse for analyzing agency issues in many fields the underlying signal jamming argument requires players to use information in a bayesian way which is difficult to directly test with field data typically little is known about the information that individuals base their decisions on our laboratory experiment provides prima facie evidence i the signal jamming mechanism successfully creates incentives on the labor supply side ii decision errors take time to decrease iii while subjects average beliefs are remarkably consistent with play a mild winner s curse arises on the labor demand side

international interdependencies in fiscal stabilization policies abstract trade links imply that business cycle fluctuations are transmitted among trade partners to the extent that fiscal policy can mitigate business cycle fluctuations international interdependencies in stabilization policies arise we analyse in a two country general equilibrium model the role of fiscal policy in mitigating risk or providing implicit insurance in the presence of capital market imperfections and adjustment failures rigid wages it is shown that there is a welfare case for an active stabilization policy and that it is larger in the presence of adjustment failures rigid wages non cooperative policy decisions imply inefficiencies in fiscal stabilization policies which in the case of flexible wages may imply too much stabilization whereas stabilization is always insufficient in the case of rigid wages

should the exchange rate be a shock absorber this paper examines the welfare case for the exchange rate as a shock absorber cushioning an economy in face of shocks to world demand for its good we provide an example in which although the exchange rate acts perfectly as a shock absorber stabilizing output around the natural rate and eliminating the impact of nominal rigidities it may in fact be better to prevent the exchange rate from adjusting at all the explanation for this is that with incomplete international financial markets the natural rate is inefficient it does not respond enough to demand shocks while fixing the exchange rate increases the volatility of consumption the pro cyclical nature of monetary policy under a fixed exchange rate allows for a more efficient composition of consumption between home and foreign goods furthermore for the shocks examined a welfare maximizing monetary rule always dampens exchange rate volatility relative to that of a free float and in some cases may imply a fixed exchange rate d 2004 elsevier b v all rigths reserved

mergers with differentiated products the case of the ready to eat cereal industry traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products i discuss an alternative which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger i estimate a brand level demand system for ready to eat cereal using supermarket scanner data and use the estimates to 1 recover marginal costs 2 simulate postmerger price equilibria and 3 compute welfare effects under a variety of assumptions the methodology is applied to five mergers two of which occurred and for which i compare predicted to actual outcomes

exchange rate policy and endogenous price flexibility most theoretical analysis of exible vs flxed exchange rates takes the degree of nominal rigidity to be independent of the exchange rate regime choice itself but informal policy discussion often suggests that a credible exchange rate peg may increase internal price exibility this paper explores the relationship between exchange rate policy and price exibility in a model where price exibility itself is an endogenous choice of proflt maximizing flrms a flxed exchange rate can afiect the optimal degree of price exibility by altering the volatility of nominal demand facing price setting flrms we flnd that a unilateral peg such as a currency board adopted by a single country will increase internal price exibility perhaps by a large amount on the other hand when an exchange rate peg is supported by bilateral participation of all monetary authorities such as in a monetary union price exibility may actually be less than under freely oating exchange rates quantitatively we flnd that the endogenous increase in price exibility following a unilateral peg might be big enough that output volatility is no greater than it would be under a oating exchange rate regime

empirical entry games with complementarities an application to the shopping center industry abstract the author proposes a strategic model of entry that allows for positive and negative spillovers among firms the model is applied to a novel data set containing information about the store configurations of all u s regional shopping centers and is used to quantify the magnitude of interstore spillovers the author addresses the estimation difficulties that arise due to the presence of multiple equilibria by formulating the entry game as a mathematical problem with equilibrium constraints mpec although this study constitutes the first attempt to use this direct optimization approach to address a specific empirical problem the method can be used in a wide range of structural estimation problems the empirical results support the agglomeration and clustering theories that predict that firms may have incentives to colocate despite potential business stealing effects the author shows that the firms negative and positive strategic effects help predict both how many firms can operate profitably i

worldwide macroeconomic stability and monetary policy rules we study the interaction of multiple large economies in dynamic stochastic general equilibrium each economy has a monetary policymaker that attempts to control the economy through the use of a linear nominal interest rate feedback rule we show how the determinacy of worldwide equilibrium depends on the joint behavior of policymakers worldwide we also show how indeterminacy exposes all economies to endogenous volatility even ones where monetary policy may be judged appropriate from a closed economy perspective we construct and discuss two quantitative cases in the 1970s worldwide equilibrium was characterized by a two dimensional indeterminacy despite u s adherence to a version of the taylor principle in the last 15 years worldwide equilibrium was still characterized by a one dimensional indeterminacy leaving all economies exposed to endogenous volatility our analysis provides a rationale for a type of international policy coordination and the gains to coordination in the sense of avoiding indeterminacy may be large

how store format choices and market structure affect agglomeration economies and competition among chain stores in the us supermarket industry this article studies how store format choices and market concentration affect agglomeration economies and competition among chain stores using data on supermarket chains in arizona georgia and il

on the benefits of a monetary union does it pay to be bigger this paper revisits the question of the appropriate domain of a currency area using a new keynesian open economy model in which the world is split into two areas each framed as a continuum of small open regions we show that the adoption of a common currency like the euro can be beneficial for the members of the monetary union since the spill over effects generated by the inflationary policies of the small open economies are likely to outweigh the costs of not tailoring monetary policy to country specific shocks we also show that while the enlargement of the monetary union to another group of small open economies can bring about welfare gains for all countries involved monetary integration of two large economies such as the euro area and the u s will not these findings can help to rationalize the process of the creation and enlargement of multi country currency areas like the eurozone

why genius leads to adversity experimental evidence on the reputational effects of task difficulty choices we use a behavioral laboratory experiment to study how agents with reputation concerns select the difficulty of their tasks drawing upon existing theory we subjected participants in our study to a context in which they had to convince a principal of their capability to reap financial benefits our results show that participants tended to increase the difficulty of their task to enhance their reputation in addition we provide evidence that performance rewards reduce a less capable agent s tendency to choose a more difficult task whereas a highly capable agent s pattern of choices is unaffected by performance rewards although the productivity of agents in our experiment therefore decreased if they had to convince a principal of their capability we show that these detrimental performance implications can to some degree be overcome for less capable agents through performance rewards or by ensuring that the principal can interpret the agent s choice this paper was accepted by christoph loch r d and product development

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

the effect of ownership structure on prices in geographically differentiated industries i analyze how ownership structure and market geography jointly influence fast food prices i estimate a model of demand and supply that accounts for the market geography and run counterfactual experiments that demonstrate how mergers affect prices i find that the impact of mergers can be large that this impact decreases as the merging outlets are farther apart that mergers among market leaders generally increase prices more than mergers among weaker firms and that mergers can increase prices even if the outlets are so far apart that neither outleti s presence affects prices at the other before the merger

currency areas and monetary coordination we integrate a monetary search model into open economy macro to analyze the gains from coordinating on inflation search frictions and local congestion lead to a determinate exchange rate between two currencies relative prices deviate from the law of one price because the deviations depend on the cross country differential in money growth each country is tempted to inflate to exploit the deviations policy coordination reduces inflation and improves welfare for all countries in contrast to traditional models the gains from coordination continue to exist even after each country optimally sets a direct tax on the foreign use of the country s currency

wage or price based inflation alternative targets in optimal monetary policy rules abstract in this paper the optimality of a specific variant of monetary policy rules a la taylor is tested within a general equilibrium monetary model with both nominal and real rigidities the traditional taylor rule is amended by the inclusion of the growth rate of nominal wage or wage inflation nominal rigidities are inserted via quadratic adjustment costs for both prices and wages a la rotemberg 1982 sticky prices in the united states journal of political economy 90 1187 1211 and kim 2000 constructing and estimating a realistic optimizing model of monetary policy journal of monetary economics 45 329 359 cost of capital adjustment together with a positive steady state inflation rate allow the model to match the main empirical facts about us economy the model is solved by using a second order approximation around the non stochastic steady state as in kim et al 2008 calculating and using second order accurate solutions of discrete time dynamic equilibrium models journal of economic dynamics and control 32 11 3397 3414 the welfare metric is offered by the second order expansion of the utility function conditional to the non stochastic steady state the results show that wage inflation targeting is welfare improving when coupled with inflation targeting moreover optimal monetary rules include also a positive coefficient for output targeting as the need to smooth out quantity adjustments induced by real and nominal rigidities similar results occurs when both targets are in expected value one period ahead the model shows good in sample and out of sample properties

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

designing targeting rules for international monetary policy cooperation this study analyzes a two country dynamic general equilibrium model with nominal rigidities monopolistic competition and producer currency pricing a quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers it is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained efficient solution depend on the kind of disturbance that affects the economy it might be the case either for fixed or floating exchange rates despite this result simple targeting rules that involve only targets for the growth of output and for both domestic gdp and cpi inflation rates can replicate the cooperative allocation

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

optimal fiscal transfers in a monetary union abstract we derive the optimal fiscal transfer scheme for countries in a monetary union to offset the welfare losses resulting from asymmetric shocks and nominal rigidities optimal transfers involve a tradeoff between reducing national output gaps and the provision of consumption insurance across countries where the weight of the former increases relative to the latter as consumption home bias rises the welfare gains from optimal transfers increase in wage rigidity and trade elasticities and are particularly large when risk sharing through financial markets breaks down for the average euro area economy the welfare gains from optimal transfers range from 0 50 of permanent consumption under complete markets and low wage rigidity to 6 09 of permanent consumption under financial autarky and high wage rigidity

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

optimal monetary policy cooperation through state independent contracts with targets abstract simple state independent monetary institutions are shown to secure optimal cooperative policies in a stochastic linear quadratic two country world with international policy spill overs and national credibility problems institutions characterize delegation to independent central bankers facing quadratic performance related contracts punishing or rewarding deviations from primary and intermediate policy targets

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

foreign money shocks and the welfare performance of alternative monetary policy regimes the welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two country sticky price model money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak but a fixed rate is superior when the expenditure switching effect is strong however price targeting is superior to both these regimes for all values of the expenditure switching effect a welfare maximising monetary rule yields lower output and exchange rate volatility than price targeting for a wide range of parameter values

an empirical model of firm entry with endogenous product type choices i describe a model of entry with endogenous product type choices these choices are formalized as the outcomes of a game of incomplete information in which rivals differentiated products have nonuniform competitive effects on profits i estimate the model for location choices in the video retail industry using a nested fixed point algorithm solution the results imply significant returns to product differentiation simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with more scope for differentiation support greater entry

strategic monetary policy in interdependent economies gains from coordination reconsidered abstract there is a wide acceptance that gains to international monetary policy coordination are small at best and that the need of policy coordination is questionable this conclusion however follows from the underlying presumption that monetary policy is concerned with the stabilization of macroeconomic fluctuations only this paper presents a general short run monetary policy analysis within a familiar two country new open economy macroeconomics noem framework where national monetary policy involves the choice of a deterministic growth trend of money supply average inflation rate and stochastic state dependent deviations of actual money supply from the deterministic trend stabilization strategic beggar thy neighbor considerations induce the deviation of both policy choices from their socially optimal values the gains from international coordination of the average inflation rate are of first order and hence larger than the gains from the coordination of the stabilization policies which are of second order

product positioning and competition the role of location in the fast food industry this paper examines optimal product positioning strategies of asymmetric firms in the context of retail outlet locations in the fast food industry the relationships between profits and product differentiation reveal that both mcdonald s and burger king are better off avoiding close competition if the market area is large enough however in small market areas mcdonald s would prefer to be located together with burger king rather than have the two outlets be only a slight distance apart in contrast burger king s profits always increase with greater differentiation offsetting these incentives is the desirability of locating centrally to appeal to the most customers the equilibrium depends on the market s size in small markets mcdonald s locates near the center of the market and burger king locates to the side of the market in larger markets mcdonald s and burger king choose locations on opposite sides of the market although mcdonald s locates closer to the optimal central location than burger king i also show that the role of price competition on product positioning is fundamentally different under asymmetric competition than under symmetric competition price competition unambiguously induces symmetric firms toward differentiation in contrast with asymmetric firms price competition shifts burger king s incentives toward locating closer to mcdonald s even while price competition increases mcdonald s desire for differentiation as a result equilibrium locations with asymmetric firms are approximately the same regardless of whether prices adjust with location

the g 20 mutual assessment process a perspective from imf staff in the wake of the financial crisis g 20 leaders launched a framework to mutually assess their policies to help strengthen the global economy this article reflects on the experience so far with the mutual assessment process map it looks at the coordination problem facing g 20 economies with respect to the need for global rebalancing of demand while a classic coordination failure has some appeal a more compelling case for policy cooperation is based on the role of spillovers and interdependence in this context the g 20 map as a coordination vehicle has the potential to build shared understanding enhance mutual trust and galvanize action among members simulated gains from collective action are potentially sizeable however key conditions that engendered remarkable global cooperation at the height of the crisis are now more diffuse posing challenges to what the map might achieve going forward and providing some initial lessons for international policy coordination copyright 2013 oxford university press

dynamic product positioning in differentiated product markets the effect of fees for musical performance rights on the commercial radio industry this article predicts how radio station formats would change if as was recently proposed music stations were made to pay fees for musical performance rights it does so by estimating and solving using parametric approximations to firms value functions a dynamic model that captures important features of the industry such as vertical and horizontal product differentiation demographic variation in programming tastes and multi station ownership the estimated model predicts that high fees would cause the number of music stations to fall significantly and quite quickly for example a fee equal to 10 of revenues would cause a 4 6 drop in the number of music stations within 2 1 2 years and a 9 4 drop in the long run the size of the change is limited however by the fact that many listeners particularly in demographics that are valued by advertisers have strong preferences for music programming publication abstract

the need for international policy coordination what s old what s new what s yet to come the first generation of policy coordination models was introduced some 25 years ago it provided a rationale for policy coordination but the gains from coordination were generally thought to be small now a new generation of policy coordination models is emerging incorporating monopolistic competition and nominal inertia here we examine macroeconomic interdependence and the scope for policy coordination in a tractable second generation model with two countries and multiple sectors initial calibration of the model suggests that second generation models may have more scope for policy coordination than did the first d 2004 elsevier b v all rights reserved

global implications of national unconventional policies abstract financial integration in the markets for banks assets and liabilities makes balance sheet constraints highly correlated across countries resulting in a high degree of financial and macroeconomic interdependence likewise under financial integration unconventional policies aimed at stabilizing domestic financial and credit conditions could entail large international spillovers therefore stabilization by one country will also benefit other countries reducing incentives to implement credit policies in a classic free riding problem especially when these policies entail domestic costs we show that this outcome can emerge in an open economy model featuring financial intermediaries that face endogenously determined balance sheet constraints

spatial price competition a semiparametric approach we investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent we propose an instrumental variables series estimator for the matrix of cross price response coefficients demonstrate that our estimator is consistent and derive its asymptotic distribution our semiparametric approach allows us to discriminate among models of global competition in which all products compete with all others and local competition in which products compete only with their neighbors we apply our semiparametric estimator to data from u s wholesale gasoline markets and find that in this market competition is highly localized

escaping from a liquidity trap and deflation the foolproof way and others existing proposals to escape from a liquidity trap and deflation including my foolproof way are discussed in the light of the optimal way to escape the optimal way involves three elements 1 an explicit central bank commitment to a higher future price level 2 a concrete action that demonstrates the central bank s commitment induces expectations of a higher future price level and jump starts the economy and 3 an exit strategy that specifies when and how to get back to normal a currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations furthermore an intentional currency depreciation and a crawling peg as in the foolproof way can implement the optimal way and in particular induce the desired expectations of a higher future price level i conclude that the foolproof way is likely to work well for japan which is in a liquidity trap now as well as for the euro area and the united states in case either would fall into a liquidity trap in the future

incomplete pass through and the welfare effects of exchange rate variability abstract this paper considers the implications of incomplete exchange rate pass through for optimal monetary and exchange rate policy a two country model is presented which allows an explicit derivation of welfare functions in terms of a weighted sum of the second moments of producer prices and the nominal exchange rate from a single country perspective the optimal exchange rate variance depends on the degree of pass through the size and openness of the economy the elasticity of labour supply and the volatility of foreign producer prices welfare may be decreasing or increasing in the volatility of the exchange rate

identification and estimation of dynamic games when players beliefs are not in equilibrium this article deals with the identification and estimation of dynamic games when players beliefs about other players actions are biased that is beliefs do not represent the probability distribution of the actual behaviour of other players conditional on the information available first we show that an exclusion restriction typically used to identify empirical games provides testable non parametric restrictions of the null hypothesis of equilibrium beliefs in dynamic games with either finite or infinite horizon we use this result to construct a simple likelihood ratio test of equilibrium beliefs second we prove that this exclusion restriction together with consistent estimates of beliefs at two points in the support of the variable involved in the exclusion restriction is sufficient for non parametric point identification of players belief functions as well as useful functions of payoffs third we propose a simple two step estimation method we illustrate our model and methods using both monte carlo experiments and an empirical application of a dynamic game of store location by retail chains the key conditions for the identification of beliefs and payoffs in our application are the following 1 the previous year s network of stores of the competitor does not have a direct effect on the profit of a firm but the firm s own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs and 2 firms beliefs are unbiased in those markets that are close in a geographic sense to the opponent s network of stores though beliefs are unrestricted and potentially biased for unexplored markets which are farther away from the competitors network our estimates show significant evidence of biased beliefs furthermore imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

policy instrument choice and non coordinated monetary policy in interdependent economies abstract non coordinated monetary policy is analyzed in a stochastic two country general equilibrium model non coordinated equilibria are compared in two cases one where policy is set in terms of state contingent money supply rules and one where policy is set in terms of state contingent nominal interest rate rules in general the non coordinated equilibrium differs between the two types of policy rule but a number of special cases are identified where the equilibria are identical the endogenous choice of policy instrument is analyzed and the nash equilibrium in the choice of policy instrument is shown to depend on the interest elasticity of money demand

the role of intermediate goods in international monetary cooperation abstract this paper investigates the implications of intermediate goods for optimal monetary policy in open economies and particularly focuses on the welfare gains that result from monetary cooperation in a relatively standard two country dynamic stochastic general equilibrium model with input output relations this paper demonstrates that introducing intermediate goods can amplify the welfare gains caused by cost push shocks by an order of magnitude larger a detailed analysis of equilibrium dynamics highlights a new channel that is absent in the previous literature non cooperative central banks respond differently to shocks in the intermediate goods market versus shocks in the final goods market even if these shocks generate the same distortions when the two central banks cooperate furthermore it is demonstrated that increasing the degree of openness in the intermediate goods market can reduce the welfare gains from monetary cooperation this casts doubt on whether the recent trend in international economic integration justifies the potential need for international monetary cooperation

oil currency and the dollar standard a simple analytical model of an international trade currency the u s dollar is the central reference currency for international trade pricing and the main invoicing currency for primary commodities this paper links these two observations within a stylized theoretical framework and shows how to obtain a quantitative estimate of the gain to the u s economy when the dollar is a reference currency with dollar invoicing of primary commodities u s firms bear less exchange rate risk than foreign firms this asymmetry leads to a dollar standard in international goods pricing we then derive a simple analytical formula to calculate the gains and find that they are extremely small

on constraining fiscal policy discretion in emu we review the theoretical and empirical literature on the benefits and costs of imposing restrictions on fiscal policy we emphasize that the arguments in favour of restricting discretion of fiscal policy go beyond the notion of avoiding unsustainable budgetary plans that can lead to pressure on the central bank restrictions on fiscal policy can also be justified on the grounds that discretionary changes in spending or taxes can lead to unnecessary volatility in output and lower economic growth empirically there is evidence that implicit constraints on governments can be as effective as explicit constraints i e rules from the analysis in emu countries in the last 10 years we conclude that there has been a significant change in the conduct of fiscal policy in terms of increased discipline and less use of discretion however since 1999 there are clear signs of fatigue in this process as previous trends have either stopped or even reversed copyright 2003 oxford university press

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

transmission of nominal exchange rate changes to export prices and trade flows and implications for exchange rate policy we discuss how the welfare ranking of fixed and flexible exchange rate regimes in a new open economy macroeconomics model depends on the interplay between the degree of exchange rate pass through and the elasticity of substitution between home and foreign goods we identify combinations of these two parameters for which flexible and fixed exchange rates are superior with respect to welfare as measured by a representative household s utility level we estimate the two parameters for six non emu european countries czech republic hungary poland slovakia sweden and the uk using a heterogeneous dynamic panel approach

endogenous product choice a progress report empirical models of differentiated product demand are widely used by both academics and practitioners while these methods treat carefully the potential endogeneity of price until recently they have assumed the number and characteristics of the products offered by firms are exogenous this paper presents a progress report on an ongoing research agenda to address this issue first it summarizes how the appropriate choice of orthogonal instruments can yield consistent estimates of own and cross price elasticities in the presence of endogenous product characteristics second it summarizes how to measure quality markups and the welfare consequences of endogenous product quality in u s cable television markets related papers and extensions to consider multiple product characteristics and dynamics are also discussed

unconventional policies and exchange rate dynamics abstract we study exchange rate dynamics under cooperative and self oriented policies in a two country dsge model with unconventional monetary and exchange rate policies the cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments self oriented policies nash equilibrium however entail limited exchange rate movements and an aggressive use of unconventional policies in both countries our results suggest that sizable exchange rate depreciations are not always a symptom of beggar thy neighbor policies they could also reflect a desirable process of external adjustment that improves global welfare

first mover advantage through distribution a decomposition approach whereas the extant literature on entry order effects establishes that first entrants often earn higher market shares market share advantage the literature on distribution suggests that increased distribution has a positive effect on sales can distribution help us better understand entry order effects on market shares this paper examines how the first entrant in a geographical market achieves a market share advantage through distribution for this purpose i propose a simple method of decomposing sales into physical distribution and sales performance the data come from a manually collected panel on six major japanese convenience store chains from 47 geographical markets between 1991 and 2007 using an instrumental variable approach to address the potential endogeneity of entry order i find first entrants have a positive market share advantage over later entrants specifically the physical distribution measured by the number of outlets in a market drives most of the advantage meanwhile the pos