state dependent exchange rate pass through behavior abstract we estimate a bayesian threshold vector autoregression tvar to study the relationship between exchange rate pass through and economic activity in canada and mexico both the model comparison and the analysis of impulse response functions provide strong evidence of a nonlinear relationship and suggest that the exchange rate pass through is dependent on the state of the economy in particular the pass through coefficient is higher when the growth rate of output is large and this difference is statistically significant across regimes for both countries furthermore the results show that the degree of pass through is complete in the case of import prices and that it falls along the distribution chain of goods

the efficiency of producing alcohol for energy in brazil brazil is one of the few countries actually producing renewable fuels as a substitute for opec oil there are now 150 distilleries producing five billion liters of ethanol a year from sugar cane with another 100 distilleries in the planning and construction stages the current stability of world oil prices however does not make alcohol substitution economically efficient for brazil and costs foreign exchange the authors analyze the economics of alcohol production in two regions and find it to be socially unprofitable in terms of breaking even although it does serve to dampen any impact from increasing oil prices 5 tables dck

nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

exchange rate pass through and the welfare effects of the euro this article explores the implications of the european single currency within a simple sticky price intertemporal model we focus on the question of how the euro may change the sensitivity of consumer prices in europe to exchangerate changes our central conjecture is that the acceptance of the euro will lead european prices to become more insulated from exchange rate volatility we find that this affects both the volatility and levels of macroeconomic aggregates in both the u s and europe we find that european welfare is enhanced and the u s shares in europe s good fortune

household s preferences and monetary policy inertia abstract interest rates set by central banks puzzlingly move with a certain inertia we show that household s preferences can be important determinants of the optimal interest rate inertia due to their impact on the efficiency of the monetary policy transmission mechanism

international credit supply shocks abstract house prices and exchange rates can potentially amplify the expansionary effect of capital inflows we first set up a model of collateralized borrowing in domestic and foreign currency with international financial intermediation in which a change in leverage of global intermediaries leads to an international credit supply increase in this environment we illustrate how house price increases and exchange rates appreciations contribute to fueling the boom by inflating the value of collateral we then document empirically in a panel var model for 50 advanced and emerging countries estimated with quarterly data from 1985 to 2012 that an increase in the leverage of us broker dealers also leads to an increase in cross border credit flows a house price and consumption boom a real exchange rate appreciation and a current account deterioration consistent with the transmission in the model finally we study the sensitivity of the consumption and asset price response to such a shock and show that country differences are associated with the level of the maximum loan to value ratio and the share of foreign currency denominated credit

conservative central banks and nominal growth exchange rate and inflation targets a framework is developed in which inflation biases with different target variables are compared a nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms of trade stabilization persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion an inflation weight conservative central bank is more likely under an inflation target than under an exchange rate target and less likely under a nominal income growth target

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

openness and optimal monetary policy abstract we show that the composition of international trade has important implications for the optimal volatility of the exchange rate above and beyond the size of trade flows using an analytically tractable small open economy model we characterize the impact of the trade composition on the policy trade off and on the role played by the exchange rate in correcting for price misalignments contrary to models where openness can be summarized by the degree of home bias we find that openness can be a poor proxy of the welfare impact of alternative monetary policies using input output data for 25 countries we document substantial differences in the import and non tradable content of final demand components and in the role played by imported inputs in domestic production the estimates are used in a richer small open economy dsge model to quantify the loss from an exchange rate peg relative to the ramsey policy conditional on the composition of imports we find that the main determinant of the losses is the share of non traded goods in final demand

price level convergence and regional phillips curves in the us and emu abstract we use panel estimates of regional phillips curves of the hybrid new keynesian type to study price level convergence within the us and emu regional inflation rates tend to eliminate ppp deviations in both monetary unions with average half lives around 3 years the start of emu did not greatly affect ppp reversion in the euro area where changes in nominal exchange rates accounted for the bulk of the adjustment process before 1999 this role was largely taken over by regional inflation differences since notwithstanding clear evidence of forward lookingness in the us inflation persistence is substantial in both monetary unions

international spillovers of large scale asset purchases this paper evaluates the international spillover eects of large scale asset purchases lsaps using a two country dynamic stochastic general equilibrium model with nominal and real rigidities and portfolio balance eects portfolio balance eects arise from imperfect substitution between short and long term bond portfolios in each country as well as between domestic and foreign bonds within these portfolios we show that lsaps lower both domestic and foreign long term yields and stimulate economic activity in both countries international spillover eects

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

spurious welfare reversals in international business cycle models several papers have documented spurious welfare reversals incompletemarkets economy produces a higher level of welfare than the completemarkets economy this paper first demonstrates how conventional linearization can generate approximation errors that can result in welfare reversals using a two country production economy we argue that spurious welfare reversals are not only possible but also plausible under reasonable values for model parameters this paper then proposes an approximation method that modifies the conventional linearization by a bias correction this method can be easily implemented and approximates welfare as accurately as a second order perturbation method

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

uncertainty and monetary policy in a wage bargaining model in a wage bargaining model increased uncertainty concerning monetary and real aggregates is shown to give rise to a higher equilibrium unemployment rate moreover the equilibrium unemployment rate is found to depend on the choice of monetary policy regime as this choice affects the uncertainty wage setters face when setting the nominal wage rate it is also shown that the equilibrium inflation rate may depend on uncertainty in such a way that increased uncertainty gives rise to a higher equilibrium unemployment rate as well as a higher equilibrium inflation rate or what has been called stagflation

three sides of harberger triangles prevailing economic wisdom is highly critical of injudicious tax policies or government regulations uncorrected externalities unchecked monopolistic practices and various other market failures when economists are challenged to quantify the economic costs of associated price distortions it is standard practice and has been since the 1960s to use a small number of assumptions and selected elasticities to estimate areas of the relevant harberger triangles this simple and straightforward exercise has numerous applications and the virtue of producing answers rather than conjectures harberger triangles come in many shapes and sizes figure 1 offers an illustration of such a triangle for the simple case of an excise tax point a of figure 1 at which the demand and supply schedules intersect denotes market equilibrium in the absence of the tax with quantity q1 transacted at price p1 introduction of an excise tax at rate t payable by firms selling the commodity shifts the supply schedule upward by t at the new market equilibrium firms sell q2 units of the commodity at a market price of p2 receiving after tax p3 a p2 0 t market equilibrium at point a in figure 1 has the feature that marginal consumption benefits equal marginal production costs the excise tax drives a wedge between marginal benefits and marginal costs at consumption level q2 consumers are willing to pay any amount up to p2 for additional units of the good and suppliers would readily provide additional units of the good for any price of p3 or greater but these additional transactions do not take place due to the effect of the tax wedge the loss associated

country size and exchange rates this paper studies how country size affects the role of the exchange rate in external adjustment first the impact of country size on the sensitivity of relative prices to external imbalances is explored in a two country neoclassical model second at the empirical level a significant effect of external imbalances on relative prices is found in particular a trade surplus is associated with a depreciation of the real exchange rate our estimations reveal a systematic pattern in the sensitivity of the real exchange rate to external imbalances larger countries are characterized by a higher absolute trade elasticity of the exchange rate

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

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

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

the optimal choice of monetary policy instruments in a small open economy this paper studies how the nature of shocks affects the optimal choice of monetary policy instruments in a small open economy three classic rules fixed exchange rates monetary targeting and inflation targeting are studied and ranked by comparing with the optimal monetary policy under commitment we find that the ranking of the simple rules can be mapped to the terms of trade variability that the rule allows relative to what a particular shock optimally calls for it turns out that inflation targeting dominates the other two rules under productivity or velocity shocks whereas monetary targeting is the best performer under fiscal shocks ce memoire etudie comment la nature des chocs affecte le choix des instruments de politique monetaire dans une petite economie ouverte on etudie trois regles classiques taux de change fixes cibles monetaires cibles d inflation et on cherche laquelle semble preferable dans differentes conditions on decouvre que le rang de ces regles simples est reliea la variabilite des termes d echange que la regle permet par rapport a ce qu un choc particulier commanderait optimalement les cibles d inflation dominent les deux autres regles quand il s agit de chocs de productivite et de velocite alors que les cibles monetaires sont preferables quand il s agit de chocs fiscaux

the structure of technology in brazilian sugarcane production 1975 87 an application of a modified symmetric generalized mcfadden cost function sugarcane based ethanol has become a primary automotive fuel in brazil over the past 15 years because sugarcane costs are over two thirds of the costs of ethanol production the economic efficiency of this renewable petroleum substitute hinges on the structure of technology in sugarcane production in this paper a modified symmetric generalized mcfadden sgm cost function for sugarcane is estimated and the presence of technical change and economies of scale are investigated the original sgm proposed by diewert and wales 1987 is modified to allow for fixed factors of production this allows the cost function to be applied to processes which have fixed factors the results suggest that there is no empirical evidence of economies of scale and very little technical change only in the north of brazil the implications for the future economic efficiency of this petroleum substitute are discussed

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

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

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

anticipated versus unanticipated terms of trade shocks and the j curve phenomenon abstract using a dynamic stochastic general equilibrium dsge model we examine the impact of anticipated and unanticipated terms of trade tot shocks on aggregate output inflation and the trade balance tb this allows us to offer an alternative explanation of the j curve phenomenon we find that an unanticipated tot shock increases real output as well as inflation but the j curve phenomenon may not exist under a certain condition however under the same condition an anticipated tot shock leads to the j curve effect we find that our main result concerning the j curve phenomenon continues to hold even if the assumption of rational expectations about the tot is relaxed further analysis reveals that the presence of a cost channel of monetary policy increases the intensity of the j curve effect assuming plausible parameter values while using a more general model calibration results support our theoretical predictions

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

exchange rate pass through openness and the sacrifice ratio abstract considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation output trade off and suggests that the ultimate effect of openness on the output inflation relationship is influenced by a variety of factors in this paper we consider the impact of exchange rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio we develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output inflation relationship next we empirically explore the nature of these two variables and their interaction results indicate that greater pass through increases the sacrifice ratio that there is statistically significant interaction between pass through and openness and once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio such as central bank independence openness fails to exert an empirically robust effect on the sacrifice ratio

solution and estimation of re macromodels with optimal policy macro models of monetary policy typically involve forward looking behavior except in rare circumstances we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium this paper summarizes a few useful methods and shows how they can be combined with a kalman filter to estimate the deep model parameters with maximum likelihood simulations of a macro model with staggered price setting interest rate elastic output and optimal monetary policy illustrate the properties of this estimation approach

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

exchange rate pass through to domestic prices does the inflationary environment matter abstract the paper tests a hypothesis suggested by j taylor 2000 low inflation pass through and the pricing power of firms european economic review 44 7 1389 1408 that a low inflationary environment leads to a low exchange rate pass through to domestic prices to test this hypothesis the paper derives a pass through relation based on new open economy macroeconomic models a large database that includes 1979 2000 data for 71 countries is used to estimate this relation there is strong evidence of a positive and significant association between the pass through and the average inflation rate across countries and periods the inflation rate moreover dominates other macroeconomic variables in explaining cross regime differences in the pass through

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

nominal rigidity and monetary uncertainty abstract a stochastic macromodel with dynamically optimising wage setting households is used to examine the effect on current macroeconomic variables of an anticipated increase in variability of the money stock there is a nominal rigidity in the form of a money wage set one period in advance in whose absence monetary uncertainty has no effect on current variables we show that for plausible parameterisations monetary uncertainty combined with nominal rigidity raises the nominal interest rate depressing aggregate demand and hence current price and output it also causes the wage to be set higher increasing the natural rate of unemployment

the real exchange rate abstract this essay concerns the real value of the u s relative to the g 10 i what are the dynamics of the fundamental determinants of the real exchange rate and its steady state value ii to what extent are the observed movements in the exchange rate from 1973 to 1988 due to the fundamentals iii how integrated are international capital markets iv how does the real exchange rate respond to a changes in the cyclically adjusted government budget deficit and to b changes in the marginal efficiency of investment

inflation targeting and exchange rate pass through this paper analyzes how endogenous imperfect exchange rate pass through affects inflation targeting optimal monetary policies in a new keynesian small open economy the paper shows that an inverse relation exists between the pass through and the insulation of the economy from foreign and monetary policy shocks and that imperfect pass through tends to decrease the variability of the terms of trade furthermore with cpi inflation targeting in the short run delayed pass through constrains monetary policy more than incomplete pass through and interest rate smoothing amplifies this effect when the pass through decreases the variability in economic activity tends to rise and the trade off between the stabilization of cpi inflation and output worsens in direct relation to how strictly the central bank is targeting cpi inflation in contrast with domestic inflation targeting optimal monetary policy is not constrained and opposite results occur consequently imperfect pass through favors the choice of domestic to cpi inflation targeting

measuring consumer surplus with unknown hicksian demands the objective of this paper to introduce the slutsky demand curve as a tool in welfare analysis it is shown that the compensating or equivalent variation can in most cases be measured to within a fraction of a percent of their true value without any numerical integration techniques two well known examples in the literature are explored a theoretical measure of the accuracy of the slutsky based measure relative to the marshallian measure is developed the approach is locally path independent and can be used to measure the money value of a ration finally it application to models of labour supply is explored an an error in the literature is corrected this abstract was borrowed from another version of this item

technology and efficiency in a panel of italian dairy farms an sgm restricted cost function approach this article employs a short term specification of the symmetric generalised mcfadden sgm cost function capable of accommodating quasi fixed factors and variable returns temporary equilibrium and scale economies are investigated while maintaining the consistency of the estimated model with microeconomic theory and approximation properties it also makes use of a two step procedure to estimate first the technology parameters and then time varying efficiency at farm level no distributional assumptions are required on efficiency as we consider a fixed effect model a balanced panel of italian dairy farms during the years from 1980 to 1992 serves as the case study the results suggest a rigid productive structure during the pre and post quota period moreover italian milk producers are found to exhibit considerable excess capacity and rather low input technical efficiency

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

determinants differentiation and development of short term marginal costs in dairy production an empirical analysis for selected regions of the eu this work provides evidence on the determinants cost differentiation and development of short term marginal costs of dairy farms in important production regions of the european union the empirical study is based on the estimation of multi input multi output symmetric generalized mcfadden cost functions using an unbalanced panel data set of the european farm accountancy data network the results show considerable regional differences in the impact of the outputs input prices and fixed factors on marginal costs strong evidence can be found that marginal costs decrease over time and is further underlined by the development of derived regional aggregated short term supply curves marginal cost elasticities and correlation coefficients validate the hypotheses that a high degree of farm specialization large milk output and low milk prices are associated with lower marginal costs furthermore the marginal cost spread in the data sample is analyzed we show that milk output milk yield herd size labor input and fodder production can be attributed to significant marginal cost differentiation of farms whereas for crop and animal output grassland stock of other animals and depreciation only minor differentiation can be found

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

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

biofuels and land use change sugarcane and soybean acreage response in brazil scientists and economists are increasingly worried that biofuels production is leading to land use changes in the form of competition with food crops or loss of natural ecosystems i estimate acreage conversion in response to shocks in sugarcane a biofuels feedstock and soybean thought to be affected by united states corn ethanol production prices in brazil at a national and regional level using county level data from 1973 to 2005 i consider a dynamic panel data model of input demand for agricultural land conditioning on price changes of other commodities the short run crop price elasticity of sugarcane acreage in brazil is estimated to be approximately zero whereas the elasticity of soybean acreage is 0 9 when both spot and futures prices change the regional estimates for soybeans show considerable variation and are highest in areas of ecological importance such as the cerrado sugarcane estimates are more homogeneous these results should be taken into account in impact assessments of biofuels

are smallholder farmers better or worse off from an increase in the international price of cereals citation nakelse t dalton t j hendricks n p hodjo m 2018 are smallholder farmers better or worse off from an increase in the international price of cereals food policy 79 213 223 https doi org 10 1016 j foodpol 2018 07 006

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

price adjustment and exchange rate pass through abstract this paper develops a simple theoretical model that can be used to account for the determinants of exchange rate pass through to consumer prices while recent evidence has found low estimates of pass through in many countries there is little consensus on an explanation for this our paper argues that sticky prices represent a key determinant of exchange rate pass through we make this argument in two stages first holding the frequency of price change constant we show that our model calibrated to data from low inflation countries can reproduce the estimates of very low pass through for these countries the principal determinant of low pass through in this case is the slow adjustment of prices we then extend the model to allow the frequency of price change to be endogenous calibrating to a wider set of countries including both low inflation and high inflation countries we show that our model implies that exchange rate pass through is increasing in average inflation but at a declining rate performing the identical exercise on the data we find a striking correspondence between the predictions of the model and those of the data

comparing shocks and frictions in us and euro area business cycles a bayesian dsge approach this paper estimates a dsge model with many types of shocks and frictions for both the us and the euro area economy over a common sample period 1974 2002 the structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments our main conclusion is that each of these characteristics is remarkably similar across both currency areas copyright 2005 john wiley sons ltd

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

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

macroprudential policy and imbalances in the euro area abstract since its creation the euro area suffered from imbalances between its core and peripheral members this paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region to this end we build a two economy macrofinancial model and simulate the effects of macroprudential policy regulating the loan to value ratio when the core and the periphery are exposed to asymmetric shocks we find that macroprudential policy is able to substantially lower the amplitude of credit and output fluctuations in the periphery however for the policy to be effective it should be decentralized very similar conclusions hold when welfare is considered as the optimality criterion

does exchange rate stability increase trade and welfare we develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare an important feature of the model is deviations from purchasing power parity caused by rigid price setting in buyers currency we find the following first exchange rate stability is not necessarily associated with more trade in a simple benchmark model with separable preferences and only monetary shocks trade is unaffected by the exchange rate system consistent with most evidence second both trade and welfare can be higher under either exchange rate system depending on preferences and on the monetary policy rules followed under each system finally in general there is no one to one relationship between the levels of trade and welfare across exchange rate systems

excess capacity monopolistic competition and international transmission of monetary disturbances analyzes the excess capacity monopolistic competition and international transmission of monetary policy disturbances in the united states sheds light on the international impact of monetary policy emphasis on the spillover effects of monetary disturbances similarity of framework used with open economy macroeconomics

fiscal stimulus with spending reversals abstract the short run effects of fiscal policy depend not only on current tax and spending choices but also on expectations about future policy adjustment while general equilibrium models typically restrict medium term adjustment to taxation we highlight the importance of government spending dynamics first we provide time series evidence for the united states suggesting that an exogenous increase in government spending prompts a rise in public debt followed over time by a reduction in spending below trend second we show how expected spending reversals alter the short run impact of fiscal policy in a new keynesian model bringing it closer in line with the evidence

monetary policy in a low pass through environment in a dynamic new keynesian optimizing model we introduce incomplete exchange rate pass through on import prices three results stand out first unlike canonical models with perfect pass through which emphasize a type of isomorphism incomplete pass through renders the analysis of monetary policy of an open economy fundamentally different from the one of a closed economy second productivity driven deviations from the law of one price assume the interpretation of endogenous cost push shocks third the optimal commitment policy relative to discretion entails a smoothing of the deviations from the law of one price and requires more stable nominal and real exchange rates

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

the effect of discounting on policy choices in inflation targeting regimes very similar for a wide range of preferences of the monetary authority with respect to inflation and output stability we show that when the authority discounts the future outcomes become more sensitive to its preferences and that it is important to take the discount rate into account when examining the question of how the authority s remit should be specified this article addresses a significant result concerning the current uk monetary arrangements derived by bean 1998 he first argues that these arrangements are likely to ensure that the monetary policy committee does not target excess output and so does not face a credibility problem the main result of bean s paper is that if there is no credibility problem the variances of inflation and output obtained by a policy maker are largely independent of its preferences as a result it does not matter that the inflation remit does not specify the relative weight that the bank of england should place on output volatility vis a vis inflation volatility this finding is obtained under the assumption that the authority does not discount the future the purpose of the present article is to show that bean s result is not robust to the relaxation of this assumption with discounting policy outcomes do depend significantly on policy maker preferences the article also shows that this effect of discounting remains true when bean s model is extended to include both forward looking behaviour and effects of exchange rate changes in an open economy in practice current arrangements do little to ensure that planning horizons are long in the uk members of the monetary policy committee are appointed for a term of three years and so the average remaining term of existing members is one and a half years

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

should inflation targeting central banks respond to exchange rate movements abstract this paper examines whether it is optimal for inflation targeting central banks to respond to exchange rate movements the paper finds that exchange rate movements can provide a signal on the developments in the economy that the central bank cannot perfectly observe the results suggest that when the degrees of exchange rate pass through and international financial integration are high it is optimal for the central bank to pay more attentions to exchange rate movements these results however depend on two conditions 1 the ability of the central bank to observe the true exchange rate process and 2 the number of real frictions in the model economy

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association