the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

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

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

system optimization for eco design by using monetization of environmental impacts a strategy to convert bi objective to single objective problems abstract eco design is an essential way to reduce the environmental impacts and economic cost of processes and systems as well as products until now the majority of eco design approaches have employed multi objective optimization methods to balance between environmental and economic performances however the methods have limitations because multi objective optimization requires decision makers to subjectively assign weighting factors for objectives i e environmental impacts and economic cost this implies that depending on decision makers preference and knowledge different design solutions can be engendered for the same design problem thus this study proposes an eco design method which can generate a single design solution by developing mathematical optimization models with a single objective function for environmental impacts and economic cost for the formulation of the single objective function environmental impacts are monetized to external cost by using the environmental priority strategies this enables the tradeoffs between environmental impacts and economic cost in the same unit i e monetary unit as a case study the proposed method is applied to the eco design of a water reuse system in an industrial plant this study can contribute to improving the eco efficiency of various products processes and systems

environmental resource planning under cap and trade models for optimization abstract under the conditions of a cap and trade c t program manufacturers are restricted in total greenhouse gas emissions but allowed with options to acquire and dispose environmental resource e g certified emission quota ceq or commercialized permit for emission of certain pollutant via a market system or conduct self purification sp to reduce emission level to satisfy their overall emission needs due to production or service activities this paper analyzes the operational decisions of production systems under cap and trade conditions in which the problem is modeled as a multi stage dynamic optimization problem for each planning period the model specifically addresses the decisions on purchasing ceq reducing emission via sp and carrying over surplus emission quota seq to meet the required emission level driven by production demand for the period it also makes sure that the sum of reduced emission over the whole planning horizon meets exactly a goal of emission reduction specified at the manufacturers discretion other important problem characteristics addressed include the unit cost for reducing emission level via sp to reflect the fact that the cost increases as accumulated emission reduction increases i e the more reduced the more difficult to reduce and time related cost associated with green investment for emission reduction e g interest cost of short term loans these characteristics make the model and related analysis useful for both practitioners and researchers in this area numerical experiments were designed and carried out to verify and validate the proposed concepts

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

ἐμπάθɛια empatheia and caritas the role of religion in fair trade consumption there is much still to learn about the nature of fair trade consumers in light of the pope s encyclical caritas in veritate this article sought to advance the current understanding by investigating the role of religion in fair trade consumption in this study fair trade consumers and non consumers across many religions as well as the non religious described their consumption of fair trade products as well as the use of their religious beliefs in their purchase behavior it appears that the non religious are slightly more inclined toward buying fair trade products of the religious observers studied buddhists have a greater propensity to buy fair trade the relationship between religion and fair trade consumption is complex in that religious affiliation group membership alone is not enough to encourage members to buy fair trade rather it is the use of religious beliefs as a criterion in consumption behavior that linked religion to fair trade consumption

log linear approximation versus an exact solution at the zlb in the new keynesian model abstract how accurate is a log linear approximation of the new keynesian model when the nominal interest rate is bounded by zero this paper compares the solution of the exact non linear model to the log linear approximation it finds that the difference is modest for a common economic scenario this applies even for extreme events in numerical experiments that replicate the u s great depression the exact non linear model makes the same predictions as the log linear approximation for key policy questions such as the size and sign of government spending and tax multipliers it also replicates well known paradoxes like the paradox of toil and the paradox of price flexibility the paper also reconciles different findings reported in the literature using calvo versus rotemberg pricing

seasonal solow residuals and christmas a case for labor hoarding and increasing returns in aggregate unadjusted data measured solow residuals exhibit large seasonal variations total factor productivity grows rapidly in the fourth quarter at an annual rate of 16 percent and regresses sharply in the first quarter at an annual rate of 24 percent how much of the total seasonal variation in the measured solow residual can be explained by christmas the answer to this question is surprising with increasing returns and time varying labor effort christmas is sufficient to explain the seasonal variation in the solow residual consumption average productivity and output in all four quarters our analysis of seasonally unadjusted data uncovers important roles for labor hoarding and increasing returns that are difficult to identify in adjusted data prescott 1986 has argued that the variability of solow s residual is a reasonable estimate of the variability of exogenous technology shocks when solow s residual is measured using seasonally unadjusted data for the postwar u s economy it exhibits large seasonal variations growing rapidly in the fourth quarter at an annual rate of 16 percent and falling sharply in the first quarter at an annual rate of 24 percent this paper starts from the premise that it is implausible to attribute seasonal variation of this magnitude to changes in the state of technology we present a model in which all seasonal fluctuations arise from a single demand shift christmas this demand shift together with misspecification of the traditional production function leads to large seasonal variation in the solow residual we consider two candidates for misspecification labor hoarding and external increasing returns to scale even when technological growth is aseasonal either candidate in isolation can induce spurious seasonality in the solow residual our general equilibrium analysis indicates that 1 the economy s seasonal patterns in all four quarters may be a response simply to a fourth quarter consumption demand shift and 2 a combination of labor hoarding and external increasing returns is important for replicating these patterns in aggregate quantity variables for the postwar u s economy since our analysis identifies important roles for labor hoarding and increasing returns these results have implications for nonseasonal macroeconomic models indeed our analysis im

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

costly information planning complementarities and the phillips curve sticky information models capture the sluggish response of aggregate prices to monetary shocks but fail to match the magnitude and frequency of price changes at the microlevel this paper shows that accounting for the endogenous decision of when to acquire new information about different shocks can help overcome this shortcoming in the calibrated model prices change frequently and by large amounts in response to idiosyncratic shocks but sluggishly to monetary shocks the paper also highlights that many predictions of the sticky information and rational inattention models are the same and thus robust to different specifications of information processing costs

the phillips curve under state dependent pricing abstract we derive a phillips curve equation from the dynamic stochastic general equilibrium dsge model with state dependent pricing developed by dotsey et al 1999 state dependent pricing and the general equilibrium dynamics of money and output quarterly journal of economics 114 655 690 this state dependent phillips curve encompasses the new keynesian phillips curve nkpc based on calvo type price setting as a special case we analyze the effect of the state dependent terms that is the variations in the distributions of price vintages on inflation persistence and we examine whether the hybrid nkpc that is the nkpc extended by a lagged inflation term can adequately describe inflation dynamics generated in a calibrated state dependent pricing economy

monetary policy trend inflation and the great moderation an alternative interpretation with positive trend inflation the taylor principle does not guarantee a determinate equilibrium we provide new theoretical results on determinacy in new keynesian models with positive trend inflation and new empirical findings on the federal reserve s reaction function before and after the volcker disinflation to find that i while the fed likely satisfied the taylor principle before volcker the us economy was still subject to self fulfilling fluctuations in the 1970s ii the us economy switched to determinacy during the volcker disinflation and iii the switch reflected changes in the fed s response to macroeconomic variables and the decline in trend inflation jel e12 e23 e31 e32 e52

some unpleasant properties of loglinearized solutions when the nominal rate is zero does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero an emerging consensus in the new keynesian nk literature is that the answer to this question is yes evidence presented here suggests that the nk model s implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it for a range of empirically relevant parameterizations employment increases when the labor tax rate is cut and the government purchase multiplier is less than 1 05

synthesis of environmentally benign energy self sufficient processes under uncertainty abstract this contribution presents a multi objective mixed integer linear programming milp synthesis of a dynamic supply network under uncertainty applied to food industry the previously developed multi objective model for achieving energy self sufficiency by integrating renewables into companies supply networks has now been extended to account for the dynamic consideration of variable supply and demand over the year for uncertainties related to products demand and sun radiation and for multi objective optimisation in order to obtain the most sustainable company s supply network the sustainable synthesis of a company s network is performed regarding the integration of renewables such as biomass and other wastes and solar energy the obtained solutions are those reflecting maximal profit reflecting constantly changing dynamic market conditions accounting for several uncertain parameters and protecting the environment

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

can fiscal spending stimulate private consumption abstract empirically government expenditure shocks seem to crowd in private consumption while neoclassical and new keynesian models predict crowding out we derive conditions under which a government in utility specification in a sticky price model helps to reconcile theory and evidence

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

fixed and variable rate mortgages business cycles and monetary policy the aim of this paper is twofold first i study how the proportion of xed and variable rate mortgages in an economy can aect the way shocks are propagated second i analyze optimal implementable simple monetary policy rules and the welfare implications of this proportion i develop and solve a new keynesian dynamic stochastic general equilibrium model that features a housing market and a group of constrained individuals who need housing collateral to obtain loans a given proportion of constrained households borrows at a variable rate while the rest borrows at a xed rate the model predicts that in an economy with mostly variable rate mortgages an exogenous interest rate shock has larger eects on borrowers than in a xed rate economy aggregate eects are also larger for the variable rate economy for plausible parametrizations dierences are muted by wealth eects on labor supply and by the presence of savers more persistent shocks such as in ation target and technology shocks cause larger aggregate dierences from a normative perspective i nd that in the presence of collateral constraints the optimal taylor rule is less aggressive against in ation than in the standard sticky price model furthermore for given monetary policy a high proportion of xed rate mortgages is welfare enhancing

sticky inflation and the real effects of exchange rate based stabilization abstract this paper tests the empirical validity of the forward looking pricing hypothesis using data from four exchange rate based stabilization erbs episodes it finds that backward looking components of inflation play an important role in inflation dynamics in some cases exceeding the importance of forward looking components the paper then shows that the presence of empirically relevant degrees of inflation stickiness increases the size of the real exchange rate appreciation predicted by an imperfect credibility model of erbs the 12 real appreciation predicted by the sticky inflation model is a 70 improvement over the predictions of the fully forward looking pricing setup but as in other erbs models still falls short of matching the real appreciations observed in practice

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

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

ethics faith and profit exploring the motives of the u s fair trade social entrepreneurs although fair trade has grown exponentially in the u s in recent years we do not have a clear understanding of why small u s firms choose to participate in it to answer this question we use a qualitative case study approach and grounded theory analysis to explore the motivations of 35 small fair trade businesses we find that shared values ethical religious or business and the desire to help others altruism often triggered by a critical incident lead social entrepreneurs to found and sustain fair trade businesses the relationship between shared values and engagement in fair trade and the relationship between altruism and engagement in fair trade are strengthened by four motivating factors direct relationships with producers support for social causes the desire for the preservation of craftsmanship and the desire to share aesthetic products these links are strengthened by four facilitating factors which make fair trade engagement easier the acquisition of business knowledge family member involvement in the firm assistance from faith communities and assistance from the fair trade community additional analysis reveals three types of fair trade social entrepreneurs ethics first or ethical entrepreneurs primarily motivated by human rights and social justice concerns faith first or faithful fair traders motivated primarily by their religious faith and business first or benevolent businesspeople motivated by what they perceive to be an opportunity to build a successful business while simultaneously doing good and helping others

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

real and nominal propagation of nominal shocks the role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model while neither a real propagation mechanism capital acccumulation with one period nominal contracts nor nominal propagation staggered nominal contracts in the absence of any real propagation can generate plausible impulse responses with strong persistence it is shown that the two mechanisms interact so as to strengthen persistence possibly unit roots and generate more plausible impulse responses

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

fair trade managerial practices strategy organisation and engagement the number of distributors selling fair trade products is constantly increasing what are their motivations to distribute fair trade products how do they organise this distribution do they apply and communicate the fair trade values this research based on five case studies in switzerland aims at understanding and structuring the strategies and the managerial practices related to fair trade product distribution as well as analysing if they denote an engagement with fair trade principles the results show a high heterogeneity of strategies and engagement in general strategies implemented by mainstream actors contribute to increase fair trade global sales but do not convey the transformative message of fair trade through their engagement the latter is rather communicated through alternative channels problems and potential solutions to this issue are discussed

the propagation of uncertainty shocks rotemberg versus calvo this article studies the effects of uncertainty shocks on economic activity focusing on inflation using a vector autoregression i show that increased uncertainty has negative demand effects reducing gdp and prices i then consider standard new keynesian models with rotemberg type and calvo type price rigidities despite the belief that the two schemes are equivalent i show that they generate different dynamics in response to uncertainty shocks in the rotemberg model uncertainty shocks decrease output and inflation in line with the empirical results by contrast in the calvo model uncertainty shocks decrease output but raise inflation because of firms precautionary pricing motive

durable goods inter sectoral linkages and monetary policy barsky house and kimball 2007 show that introducing durable goods into a sticky price model leads to negative sectoral comovement of production following a monetary policy shock and under certain conditions to aggregate neutrality these results appear to undermine sticky price models in this paper we show that these results are not robust to two prominent and realistic features of the data namely input output interactions and limited mobility of productive inputs when extended to allow for both features the sticky price model with durable goods delivers implications in line with var evidence on the effects of monetary policy shocks

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

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

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

trend inflation and firms price setting rotemberg versus calvo we compare the calvo and rotemberg price setting mechanisms in a new keynesian model with trend inflation we show that the long run relationship between inflation and output is positive in rotemberg and negative in calvo the dynamics of the two models differ even to a first order approximation positive trend inflation enlarges the determinacy region in the rotemberg model whereas it shrinks it in the calvo model the responses of output and inflation to technology shocks are amplified by trend inflation in calvo whereas they are dampened in rotemberg the two models imply differing non linear adjustments after a disinflation

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

medium term money neutrality and the effective lower bound conventional wisdom suggests that medium term money neutrality imposes strong limitations on the effects of monetary policy the point of this paper is that models with medium and long term money neutrality are prone to generate nonexistence of equilibria at the effective lower bound elb on interest rates nonexistence is suggestive of sharp output contractions so called contractionary black holes at the elb paradoxically the case for expansionary monetary policy at the elb is even stronger in models that feature near money neutrality the results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the elb

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

risky bank lending and countercyclical capital buffers abstract we study the properties of a monetary economy with an essential role for risky bank lending banks issue deposits and lend to entrepreneurs because banks lending rate cannot be made contingent on aggregate shocks and because banks face capital adequacy regulations they require a capital buffer against loan losses capital adequacy regulations are modeled on the basel iii rules including a minimum capital adequacy ratio an endogenous capital conservation buffer and a countercyclical capital buffer we find that a countercyclical capital buffer leads to a significant increase in welfare it also reduces the need for countercyclical adjustments in policy interest rates

financial fragility sovereign default risk and the limits to commercial bank bail outs we show that with intertwined weak banks and weak sovereigns bank recapitalizations become much less effective we construct a dsge model with leverage constrained banks lending to firms and holding domestic government bonds bond prices reflect endogenously generated sovereign risk this introduces a negative amplification cycle after a credit crisis output losses increase more because higher interest rates trigger lower bond prices and subsequent losses at banks this further tightens bank leverage constraints and causes interest rates to rise further also bank recapitalizations are then much less effective recaps involve swaps of newly issued sovereign bonds for bank equity the new debt increases sovereign debt discounts leading to capital losses for the banks on their holdings of sovereign debt that partially offset the impact of the recapitalization the favorable macroeconomic effects of bank recaps on the recovery after a financial crisis are correspondingly lower

monetary policy and asset prices a markov switching dsge approach summary this paper estimates a markov switching dynamic stochastic general equilibrium model by incorporating stock prices in monetary policy rules in order to identify the federal reserve s stance toward them based on the data from 1984 q1 to 2009 q2 i find that historical evidence of the policy reaction toward stock prices is weak except for the stock market bubble of the 1990s a counterfactual exercise shows that the rapid growth in stock prices during that period would have been significantly higher if monetary policy had been independent of the stock market however unconditional macroeconomic volatility increases with the degree of policy responsiveness toward stock prices copyright 2017 john wiley sons ltd

nonlinear adventures at the zero lower bound abstract in this paper we argue for the importance of explicitly considering nonlinearities in analyzing the behavior of the new keynesian model with a zero lower bound zlb of the nominal interest rate to show this we report how the decision rules and the equilibrium dynamics of the model are substantially affected by the nonlinear features brought about by the zlb we also illustrate a tension between the length of a spell at the zlb and the drop in consumption there

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

unemployment as excess supply of labor implications for wage and price inflation abstract the introduction of both market clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the new keynesian model as a result wage inflation dynamics are forward looking and depend negatively on the rate of unemployment moreover both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in erceg et al 2000 though with different slope coefficients in an equal volatility comparison the model with unemployment conveys less price stickiness and more wage stickiness

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

monetary regime switches and central bank preferences monetary policy objectives and targets are not necessarily constant over time the regime switching literature has typically analyzed and interpreted changes in policymakers behavior through simple interest rate rules this paper analyzes policy regime switches by explicitly modeling policymakers behavior and objectives we show that changes in the parameters of simple rules do not necessarily correspond to changes in policymakers preferences in fact capturing and interpreting regime changes in preferences through interest rate rules can lead to misleading results

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

smoothed interest rate setting by central banks and staggered loan contracts i investigate a new source of economic stickiness namely staggered loan interest rate contracts under monopolistic competition this study introduces this mechanism into a standard new keynesian model simulations show that a response to a financial shock is greatly amplified by the staggered loan contracts although a response to a productivity cost push or monetary policy shock is not much affected i derive an approximated loss function and analyse optimal monetary policy unlike other models the function includes a quadratic loss of the first order difference in loan rates thus central banks have an incentive to smooth the policy rate

is there a fiscal free lunch in a liquidity trap this paper uses a dsge model to examine the eects of an expansion in government spending in a liquidity trap the spending multiplier can be much larger than in the normal situation if the liquidity trap is very persistent and scal stimulus can be rapidly implemented moreover the budgetary costs may be minimal as the large response of output boosts tax revenues allowing for something close to a scal free lunch however we caution that the multiplier may be much smaller under plausible implementation lags for many types of public spending and or if the liquidity trap lasts less than two years in addition because the marginal impact of scal expansion decreases in the scale of the outlay it is crucial to distinguish between average and marginal multipliers

what determines aggregate returns to scale abstract this paper develops a unified framework that incorporates four features important in existing models with increasing returns fixed costs decreasing marginal costs product variety and market power when fixed costs are not allowed to vary and profits are imposed to be zero in every period only the degree of returns to variety determines the degree of aggregate increasing returns to scale when fixed costs respond to changes in aggregate activity or the zero profit condition does not hold in the short run aggregate returns depend not only on product variety but also on diminishing marginal costs or market power the degree of market power however does not affect input prices which are critical to determine the uniqueness of equilibrium

fairtrade towns as unconventional networks of ethical activism the growing availability and consumption of fairtrade products is recognised as one of the most widespread ethically inspired market developments and as an example of activist driven change within the wider marketing system the fairtrade towns movement now operating in over 1700 towns and cities globally represents a comparatively recent extension of fairtrade marketing driven by local activists seeking to promote positive change in production and consumption systems this paper briefly explores the conventional framing of the role that ethically related activism plays in the operation of markets and in influencing market participants it then presents key insights gathered from a grounded theory exploration of fairtrade towns as activist driven marketing systems revealing the atypical nature of the activism involved the findings demonstrate how local activists leverage their social networks to exert pressure and generate support to promote ethical consumption the study suggests that fairtrade towns offer a new role for activists as fairtrade itself becomes more mainstream and considers the role they are fulfilling as informal local marketers the marketing dynamics revealed represent a complex and distinctive form of relational activism that seeks to build fairtrade markets and highlight their positive benefits with potential lessons for other local ethical market building efforts in future

relative price distortions and inflation persistence sticky price models often suggest that relative price distortion is a major cost of inflation we provide an intuition for this even at low rates inflation strongly affects price dispersion which in turn has an impact on the economy qualitatively similar to and of the order of magnitude of a negative shift in productivity the utility cost of price dispersion is quantified and its impact on optimal monetary policy discussed price dispersion is incorporated into a linearised model strikingly a contractionary nominal shock has a persistent negative hump shaped impact on inflation but may have a positive hump shaped impact on output

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

stochastic design of biorefinery supply chains considering economic and environmental objectives abstract biomass is a renewable resource that has attractive characteristics for energy production but the corresponding supply chain could be subject of several uncertain factors that can affect drastically the optimal configuration and those have not been properly accounted in previous publications therefore this work presents a new approach for the optimal planning under uncertainty for a biomass conversion system involving simultaneously economic and environmental issues the environmental impact was measured via the eco indicator99 method and the economic aspect was determined through the net annual profit the proposed method considered the uncertainty involved in the raw material price by the stochastic generation of scenarios using the latin hypercube method followed by the implementation of the monte carlo method where a deterministic optimization problem was solved for each single scenario to select the structure of the more robust supply chain relying on statistical data the proposed approach was applied to a case study for a distributed biorefinery system in mexico the results showed that the behavior of the profit values for the stochastic case is not associated to the behavior of the raw material price also it is possible to observe that the supply chain topology could be affected for the uncertainty in the raw material price however the environmental and economic objectives did not present significant changes

optimal monetary policy under low trend inflation abstract in the monetary policy literature it is common to assume that trend inflation is zero despite overwhelming evidence that zero inflation is neither empirically relevant nor a practical objective for central bank policy we therefore extend the standard new keynesian model to allow for positive trend inflation showing that even low trend inflation has strong effects on optimal monetary policy and the dynamics of inflation output and interest rates under discretion the efficient policy deteriorates and there is no guarantee of determinacy even with commitment targeting non zero trend inflation leads to substantial welfare losses our results serve as a warning against indiscriminate use of models assuming zero trend inflation

optimal inflation rates with the trending relative price of investment abstract i study the effect of the trending relative price of investment on the optimal target rate of inflation in an estimated dynamic general equilibrium model of the u s economy the price of investment has a decreasing trend relative to that of consumption because of investment specific technological progress if the prices of investment goods are sticky a benevolent planner puts weight on stabilizing these prices which works to raise the optimal target rate of inflation in terms of the price of consumption the estimated model shows a high degree of price stickiness in an investment sector and the resulting optimal target rate of inflation is significantly positive this result is robust to an extended model in which the prices of some categories of investment goods are flexible

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

identifying the influences of nominal and real rigidities in aggregate price setting behavior we formulate a generalized price setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs real rigidities we estimate this framework using macroeconomic data for germany 1975 1998 and for the u s 1983 2003 in each case we find that the data are well characterized by nominal contracts with an average duration of about two to three quarters we also find that new contracts exhibit very low sensitivity to marginal cost corresponding to a relatively high degree of real rigidity finally our results indicate that backward looking price setting behavior such as indexation to lagged inflation is not needed in explaining the aggregate data at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective

confronting the coffee crisis can fair trade organic and specialty coffees reduce small scale farmer vulnerability in northern nicaragua summary this paper links changing global coffee markets to opportunities and vulnerabilities for sustaining small scale farmer livelihoods in northern nicaragua changing governance structures corporate concentration oversupply interchangeable commodity grade beans and low farm gate prices characterize the crisis in conventional coffee markets in contrast certified fair trade and organic are two alternative forms of specialty coffee trade and production that may offer opportunities for small scale producers a research team surveyed 228 farmers to measure the impact of sales on organic and fair trade markets the results suggest that participation in organic and fair trade networks reduces farmers livelihood vulnerability 2004 elsevier ltd all rights reserved

investor overconfidence and the forward premium puzzle we offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence in the model overconfident individuals overreact to their information about future inflation which causes greater overshooting in the forward rate than in the spot rate thus when agents observe a signal of higher future inflation the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate the model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behaviour of forward and spot exchange rates our approach is also consistent with the availability of profitable carry trade strategies

faith and fair trade the moderating role of contextual religious salience normative and historical arguments support the idea that religion potentially shapes decisions to support fair trade products that said the question of how religion influences organizational decision makers to purchase fair trade products in a business to business context has remained largely unaddressed this research examines the interactive effect of individual religious commitment and contextual religious salience on an individual s willingness to pay a price premium for a fair trade product when buying on behalf of an organization findings from two experimental studies involving 75 and 87 working individuals respectively reveal that the effect of a decision maker s religious commitment on his or her willingness to pay a price premium for the purchase of a fair trade product on behalf of an organization is moderated by the contextual salience of religion specifically when religion is highly salient in the organizational context religious commitment is positively related to the decision maker s willingness to pay a premium for the fair trade product when contextual religious salience is low religious commitment and willingness to pay a premium are unrelated implications for theory and practice are presented