price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

market structure and price adjustment in the u s wholesale gasoline markets abstract the issue of sticky prices in u s wholesale gasoline market is re examined allowing for the effect of market structure due to increased market concentration caused by mergers acquisitions and joint ventures which started in the late 1990s in the u s oil industry i investigate the effects of market structure on the pattern of price adjustment based on the notion that increased market concentration leads to downward price stickiness and asymmetric short run price adjustment in the transmission of crude price changes to wholesale gasoline price i find that market concentration has an insignificant asymmetric effect on the speed of price adjustment but a significant asymmetric effect on short run price adjustments in the response of wholesale gasoline prices to crude price shocks in three u s wholesale markets furthermore the signs on the coefficients of market concentration effects on price dynamics in the models support the assertion that increased market concentration leads to downward price stickiness in only one of the three markets examined overall the results indicate that market structure does not have a strong effect on the dynamics of price adjustment

active learning and optimal climate policy this paper develops a climate economy model with uncertainty irreversibility and active learning whereas previous papers assume learning from one observation per period or experiment with control variables to gain additional information this paper considers active learning from investment in monitoring specifically in improved observations of the global mean temperature we find that the decision maker invests a significant amount of money in climate research far more than the current level in order to increase the rate of learning about climate change this helps the decision maker make improved decisions the level of uncertainty decreases more rapidly in the active learning model than in the passive learning model with only temperature observations as the uncertainty about climate change is smaller active learning reduces the optimal carbon tax the greater the risk the larger is the effect of learning the method proposed here is applicable to any dynamic control problem where the quality of monitoring is a choice variable for instance the precision at which we observe gdp unemployment or the quality of education

learning and control in a changing economic environment abstract in this paper we investigate optimal bayesian learning and control with lagged dependent variables and time varying unknown parameters we assess both the performance of alternative decision rules as in the computationally oriented dual control literature as well as the dynamics of learning and convergence of beliefs as in the more theoretically oriented bayesian learning literature our numerical results indicate that the optimal decision rule involves a noticeable degree of experimentation for moderate to large levels of uncertainty in most situations though the optimal rule will remain less activist than a certainty equivalent rule and induce gradualism exceptions occur when the process to be controlled is near the deterministic steady state in this situation we find that the decision maker will repeatedly undertake costly experiments the extent of optimal experimentation is lower if the unknown parameter is perceived to vary over time in contrast to the fixed parameter case however parameter uncertainty is continually renewed and the incentive to experiment never ceases

expressive vs strategic voters an empirical assessment abstract leading theories of how voters choose between candidates are rooted in two very different paradigms with starkly different behavioral implications exploiting the incentive structure of germany s electoral system i develop a novel set of empirical tests that pit the canonical pivotal voter model against alternative accounts according to which individuals derive expressive utility from supporting their most preferred candidate the results show that neither paradigm can explain the most salient features of the data in addition the evidence suggests that voters cannot be neatly categorized into sincere and strategic types

stabilization theory and policy 50 years after the phillips curve this paper discusses the impact of a w h phillips seminal work in macroeconomic stabilization policy on subsequent developments in that field we begin by reviewing the various stabilization rules adopted by phillips and show how these relate to optimal stabilization rules that emerge from linear quadratic optimization problems most of the early st abilization literature was associated with backward looking variables the development of rational expectations in the 1960 s and 1970 s posed a challenge for stabilization policy this arose from the role of forward looking inflationary expectations in the phillips curve and the effect this had on the design of optimal stabilization rules through issues such as the lucas critique and the time consistency of policy we also briefly comment on a long standing debate pertaining to the merits of fixed policy rules versus discretionary or optimal policy the latter part of the paper discusses some of the more contemporary aspects of stabilization policy thereby serving to illustrate the durability of phillips contributions

why vote for losers voting theory generally concludes that in first past the post elections all votes should go to effective candidates duverger s law and parties should adopt a similar platform median voter theorem however such predictions are not always met in practice we show why divergence and vote dispersion is a natural outcome when a parties are opportunistic b there is uncertainty on the position of the median voter and c elections are repeated voting for losers increases the informational content of elections and may induce mainstream parties to relocate towards extremists as a result to maximize their probability of being elected they do not adopt median

sticky prices inventories and market power in wholesale gasoline markets a model with costly adjustment of production and costly inventories implies that wholesale gasoline prices will respond with a lag to crude oil cost shocks unlike explanations that rely upon menu costs imperfect information or long term buyer seller relationships this model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks that occur close to the expiration date of the futures contract we test and confirm this implication examining wholesale price responses in 188 gasoline markets we also find that firms with market power adjust prices more slowly than do competitive firms consistent with the model

stochastic control for economic models past present and the paths ahead abstract on the 30th anniversary of a meeting between engineers and economists at princeton university to discuss the potential application of stochastic control methods to economics this paper provides a review of past present and paths ahead the events surrounding some of the key developments of the past are described along with a discussion of the present state of the research and of paths for future research the paper is structured around the primary methods for solving quadratic linear economic stochastic control models namely open loop classical control handcrafted feedback rules optimal feedback min max control optimal feedback rules with parameter uncertainty and dual control the paper also includes a discussion of software developments in economic stochastic control modeling

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

caution and probing in a macroeconomic model abstract this paper reports on the application of an adaptive dual control technique to a small macroeconometric model of the u s economy both monetary and fiscal policy variables are used in the model the experiments find that probing and active learning will occur in small macroeconometric models but that unrealistically high terminal period penalties on state deviations are required before it appears

who votes more strategically strategic voting is an important explanation for aggregate political phenomena but we know little about how strategic voting varies across types of voters are richer voters more strategic than poorer voters does strategic behavior vary with age education gender or political leaning the answers may be important for assessing how well an electoral system represents different preferences in society we introduce a new approach to measuring and comparing strategic voting across voters that can be broadly applied given appropriate survey data in recent british elections we find that older voters vote more strategically than younger voters and that richer voters vote more strategically than poorer voters even as strategic behavior varies little across the education level the differences in strategic voting by age and income are smaller than observed differences in turnout by age and income but they tend to exacerbate these better known inequalities in political participation

learning experimentation and monetary policy abstract we present a model of monetary policy where the policymaker faces uncertainty about which he is learning in a bayesian fashion a fixed money supply rule is not optimal since the learning leads to adjustments in the monetary action we present cases in which it is optimal to bear some cost in terms of current output performance in order to gain information that can be used in the formulation of future monetary policy experimentation therefore pays we also show that even passive learning without experimentation still leads to an activist monetary policy i e one that is responsive to new information

bayesian economist bayesian agents i an alternative approach to optimal learning we generalize the results on bayesian learning based on the martingale convergence theorem to the sequential framework we show that the variability in the sequential framework is sufficient under mild conditions to circumvent the incomplete learning results that characterize the optimal learning literature we then give an alternative approach whereby the economist is bayesian with a prior on the space of agent priors we illustrate the usefulness of our approach by applying it to two popular economic examples a monopolist who does not know the demand curve he faces and the stochastic single sector growth model with an unknown production function

trade openness and inflation the role of real and nominal price rigidities the paper revisits the long standing question of the impact of trade openness on the inflation output trade off by accounting for the effects of product market competition on price flexibility the study develops a new keynesian open economy dynamic stochastic general equilibrium model with non constant price elasticity of demand and calvo price setting in which the frequency of price adjustment is endogenously determined it demonstrates that trade openness has two opposing effects on the sensitivity of inflation to output fluctuations on the one hand it raises strategic complementarity in firms pricing decisions and the degree of real price rigidities which makes inflation less responsive to changes in real marginal cost on the other hand it strengthens firms incentives to adjust their prices thereby reducing the degree of nominal price rigidities and increasing the sensitivity of inflation to changes in marginal cost the study explains the positive relationship between competition and the frequency of price adjustment observed in the data it also provides new insights into the effects of global economic integration on the phillips curve

price transmission and local market power empirical evidence from the austrian gasoline market we analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics speed and asymmetry of price transmission using data for a large number of indiv

inflation variability and gradualist monetary policy this paper considers the optimal approach to reducing inflation when the cost of inflation is its conditional variability inflation is stochastically related to money growth with unobservable time varying autonomous and induced components a sharp reduction in money growth provides information about the responsiveness of inflation to money but also induces variability as the economy heads into unknown territory gradual policy is always optimal and the model explains why moderate inflation countries adopt a much more gradual money growth reduction than high inflation countries additionally the analysis sheds light on the more general problem of learning with two unobservable parameters

price setting in the euro area some stylized facts from individual producer price data this paper summarizes the microevidence on the setting of producer prices in the euro area the main findings are i 21 of producer prices are adjusted each month ii producer prices are changed more frequently and by smaller amounts than consumer prices even after controlling for product characteristics iii price decreases are relatively frequent iv inflation correlates positively with the difference between the frequency of price increases and decreases and v there is substantial variation in price flexibility across sectors which can be explained in part by differences in the cost structure the degree of competition and the level of sectoral inflation

quantity adjustment costs and price stickiness abstract price stickiness is often modelled as the consequence of costly price adjustment mechanisms we derive a similar result from costly quantity adjustment mechanisms an interesting property of the model is that the optimal decision of each producer is more sluggish than the optimal behaviour of the industry as a whole

active learning a correction these changes stem from a bug which we discovered recently in the measurement error section of the passive learning part of our adaptive control code dual thus the results for the macrae model in section 2 of the paper are not affected because it does not include measurement error also the mean values in the first table above are not altered for the active learning and certainty equivalence solutions but rather only for the passive learning solution the modified results reported above show that the passive learning solutions to the single control variable abel model performed relatively worse than in our earlier report

asymmetric dynamic pricing in a local gasoline retail market asymmetric price adjustment is a common phenomenon in many markets around the world particularly in retail gasoline markets this paper studies the existence of this phenomenon in the retail gasoline market in the city of santiago chile using a data set of weekly gas station prices that covers a period of almost four years we found that prices adjust asymmetrically and the asymmetry is different for branded gas stations and unbranded stations in addition we found that the asymmetry for high margin stations is statistically equivalent to that for low margin stations this evidence is suggestive of collusion as a rationale for the asymmetric pricing policy observed

the short run volatility of money stock targeting abstract the altered allocations of money market volatility obtained by alternative monetary policy procedures are illustrated by stochastic simulations of a staff monthly model the results indicate the nature of the tradeoff between short run volatility in the money stock and in the funds rate that is available to money stock targeting procedures

voting as communicating this paper develops a model where voters trade off two different motives when deciding how to vote they care about current decision making they are strategic but they also care about communicating their views about their most preferred candidate so as to influence future elections by influencing other voters opinion and or party positioning in effect voters in this model are intermediate between strategic and sincere voters of conventional models in elections with more than 2 candidates this allows us to better investigate the relative efficiency of various electoral systems our main conclusion is that since voting is used as a communication device electoral systems should be designed to facilitate efficient communication e g by opting for 2 round systems rather than 1 round systems

dynamic specifications in optimizing trend deviation macro models abstract as noted in surveys by goodfriend and king in b bernanke j rotemberg eds nber macroeconomics annual mit press cambridge ma 1997 pp 231 283 and walsh monetary theory and policy mit press cambridge ma and exemplified by models analyzed in taylor 1999 there is encouraging progress in developing optimizing trend deviation macro models that provide useful insights into the transmission and design of monetary policy several controversial features of a minimalist trend deviation model with optimizing households firms and bond traders are examined dynamic specifications are suggested to improve the data based realism while preserving the simplicity of the minimalist model

mitigation of the lucas critique with stochastic control methods abstract lucas in brunner k meltzer a h eds the phillips curve and the labor markets supplementary series to the journal of monetary economics 1976 pp 19 46 pointed out that when optimization is performed on a deterministic macro model the resulting policy may not reflect the true optimal solution private agents may react to announced policies and consequently model parameters will start to drift the aim of this paper is to develop a methodology for deriving an optimal policy in the presence of rational expectations and parameter drift this drift is captured by a stochastic optimization framework with time varying parameters the resulting optimal policy is capable of tracking changes in the parameters due to policy changes a numerical example illustrates how the methodology provides a way to mitigate the effects of the lucas critique

optimally derived fixed rules and indicators abstract monetary targets have come to be regarded as inadequate for the conduct of short term monetary policy both among theoreticians and practitioners of policy in this paper two approaches are put forward analysed and evaluated for improving the performance of monetary targets according to the first approach simple rules for monetary targets are derived within an optimisation framework these rules related to ultimate targets are simple so that they can be announced and are flexible so that they are subject to revision when the economy drifts away from its course due to unexpected shocks the second approach is based on indicators and complements monetary targets with exchange rate targets through a simple feedback law for determining interest rate policy the advantage of this feedback law is that it provides the mechanism through which policy is to be revised in response to shocks if such a feedback law is announced private economic agents have the means of distinguishing discretionary and arbitrary changes of policy from those which are needed to bring the economy back to the announced and committed course this approach is used to analyse and extend the suggestions in the house of commons report on international monetary arrangements the common ground between the two approaches is an optimisation framework with respect to the parameters of either the fixed simple rules or the simple feedback laws this is discussed in section 1 the approach of deriving simple fixed rules is illustrated in a monetarist model in which there is a link between private sector expectations and the credible announcement of monetary targets the model is explained in section 2 and simple fixed rules are discussed in section 3 the performance of simple rules for monetary targets is evaluated in terms of a minimax strategy with model uncertainty between the monetarist model and a keynesian model without the assumption of announcement effects this is discussed in section 4 optimal feedback laws are derived and analysed in section 5 the parameter sensitivity of these feedback laws with respect to the model and the objective function as well as their behaviour under shocks is also examined

on the theory of strategic voting many analyses of plurality rule elections predict the complete coor dination of strategic voting and hence support for only two candidates here i suggest that stable multi candidate support will arise in equilibrium a group of voters must partially coordinate behind one of two challenging candidates in order to dislodge a disliked incumbent in a departure from existing models the popular support for each challenger is uncertain this support must be inferred from the private observation of informative signals such as the social communication of pref erences throughout the electorate or the imperfect observation of opinion polls the uniquely stable voting equilibrium entails only limited strategic voting and hence incomplete coordination this is due to the surprising presence of negative feed back an increase in the degree of strategic voting by others reduces the incentives for an individual to vote strategically the incentive to vote strategically is lower in relatively marginal elections after controlling for the distance from contention of a trailing preferred challenger a calibration of the model applied to the uk general election of 1997 is consistent with the impact of strategic voting and the reported accuracy of voters understanding of the electoral situation it suggests that nearly 50 seats may have been lost by the conservative party due to strategic voting 1 plurality rule elections and strategic voting 1 1 strategic voting and duverger s law plurality rule elections where the winner is the candidate who receives the largest number of votes are vulnerable to strategic voting a voter might well switch away from her preferred candidate and toward a perceived leader in the hope of exerting a greater influence over the outcome of the election this phenomenon has long been the focus of both economic and political scientific study in an influential essay riker 1982b cited droop s 1871 eloquent exposition of the strategic voting problem 1 i oer my grateful thanks to the many friends colleagues seminar participants referees and editors who have oered insightful comments during the long gestation of this paper its antecedents and companion work special thanks go to steve fisher whose empirical analysis of strategic voting raised many of the questions that i seek to answer in this paper and to chris wallace this particular paper brings together much of the analysis previously circulated in the papers a new theory of strategic voting strategic voting under the qualified majority rule and idiosyncrasy information and the impact of strategic voting

adaptive control in the presence of time varying parameters in the previous chapters two strands of literature have been brought together the first strand is the research on time varying parameters following a return to normality model viz harvey and phillips 1982 and swamy and tinsley 1980 1 the second strand is the work on adaptive control in the tradition of tse and bar shalom 1973 and kendrick 1981 as indicated in chapter 2 given a time horizon of t periods the goal was to find the values of control variables for period 0 period 1 and so on until period t 1 which minimized the objective functional or cost to go in an adaptive control framework for each period in the time horizon say period t several trial or search values of the controls were tried 2 the optimal cost to go associated with each search control was then calculated following kendrick 1981 ch 10 the computations performed at time t were organized in three steps first the nominal value for the parameters for period t through t was computed using their estimates for time t 1 and their expected law of motion the first search control was also selected then the search for the optimal control was carried out this step included a use the search control and the nominal value for the parameters to get the projected states and covariances in period t 1 b get the nominal path for the states and controls for the period t 1 through t by solving the certainty equivalence ce problem with the projected states as the initial condition c compute the riccati matrices for periods t 1 t d update and project the covariances from period t 1 given t i e the covariance seen at point a above to t 1 e calculate the approximate cost to go for the period t through t f choose a new search control and repeat a f until all search points are evaluated g select the control which yields the minimum cost after the selected control was applied to the system and the process moved one step forward in time the estimates of the states and parameters were updated

unequal participation democracy s unresolved dilemma presidential address american political science association 1996 low voter turnout is a serious democratic problem for five reasons 1 it means unequal turnout that is systematically biased against less well to do citizens 2 unequal turnout spells unequal political influence 3 u s voter turnout is especially low but measured as percent of voting age population it is also relatively low in most other countries 4 turnout in midterm regional local and supranational elections less salient but by no means unimportant elections tends to be especially poor 5 turnout appears to be declining everywhere the problem of inequality can be solved by institutional mechanisms that maximize turnout one option is the combination of voter friendly registration rules proportional representation infrequent elections weekend voting and holding less salient elections concurrently with the most important national elections the other option which can maximize turnout by itself is compulsory voting its advantages far outweigh the normative and practical objections to it

robust permanent income and pricing i suppose there exists an extremely powerful and if i may so speak malignant being whose whole endeavours are directed toward deceiving me rene descartes meditations ii 1

complex nonlinear dynamics and computational methods in the summer of 1997 berc rustem asked us whether we would be interested in editing a special issue of the journal of economic dynamics control on complex nonlinear dynamics and computational methods we were enthusiastic about the idea and soon started soliciting papers on these themes this issue contains 19 contributions by some experts in the eld and should provide the reader with an impression of the current s dechert 1996 goodwin 1990 hommes 1991 lorenz 1993 medio 1992 puu 1997 rosser 1991 and de vilder 1995 for more discussions concerning this controversy is the main source of economic uctuations to be found in exogenous random shocks to an inherently stable linear economic system or can nonlinear economic laws of motion explain a signi cant part of observed uctuations in output growth rates capital stocks inventories stock prices exchange rates and other economic or nancial variables this controversy dates back to the 1930s and the 1940s when frisch slutsky and tinbergen a o proposed their propagation mechanism subject to exterior random impulses as a way of modeling business cycles in contrast e g kaldor goodwin and hicks argued that the

inferring strategic voting we estimate a model of strategic voting and quantify the impact it has on election outcomes because the model exhibits multiplicity of outcomes we adopt a set estimator using japanese general election data we nd a large fraction 75 3 80 3 of strategic voters only a small fraction 2 4 5 5 of whom voted for a candidate other than the one they most preferred misaligned voting existing empirical literature has not distinguished between the two estimating misaligned voting instead of strategic voting accordingly while our estimate of strategic voting is high our estimate of misaligned voting is comparable to previous studies

learning by doing and the value of optimal experimentation abstract recent research on learning by doing has provided the limit properties of beliefs and actions for a class of learning problems in which experimentation is an important aspect of optimal decision making however under these conditions the optimal policy cannot be derived analytically because bayesian learning about unknown parameters introduces a nonlinearity in the dynamic optimization problem this paper utilizes numerical methods to characterize the optimal policy function for a learning by doing problem that is general enough for practical economic applications the optimal policy is found to incorporate a substantial degree of experimentation under a wide range of initial beliefs about the unknown parameters dynamic simulations indicate that optimal experimentation dramatically improves the speed of learning and the stream of future payoffs furthermore these simulations reveal that a policy which separates control and estimation and does not incorporate experimentation frequently induces a long lasting bias in the control and target variables while these sequences tend to converge steadily under the optimal policy they frequently exhibit non stationary behavior when estimation and control are treated separately

pass through of wholesale price to the end user retail price in the norwegian electricity market abstract in this paper we estimate the pass through of wholesale electricity price to the end consumer price with variable price contracts in the norwegian electricity market using weekly data we find substantial asymmetry when retailers pass on the impact of price changes in the wholesale market to the retail prices as price increases are transmitted more quickly than price decreases by examining the cumulative adjustment function of price change we identify that some dominant retailers might be exercising market power in the retail electricity market for an average norwegian household with variable price contract the cost of asymmetric price pass through due to 2 5 ore kwh change in the wholesale price over the complete life of pass through in a year reaches to a high of 2 28 nok this cost sums up to 3 8 million nok for all the norwegian households on variable price contracts for one time price change to deal with this asymmetric price setting behavior end consumers should switch to spot price contracts and make use of smart grid technologies

active learning monte carlo results abstract the revival of interest in learning in stochastic control models invites the examination of some unanswered issues from earlier work following in the tradition of prescott and macrae we consider active learning to examine the question of when these methods are superior to passive learning in the earlier literature it was not possible to address this question because computer speeds were not great enough however modern supercomputers make it possible to reopen this issue in this paper we will examine two well known stochastic control models the macrae model and the abel model although no general conclusions can be drawn the results from the macrae model and the abel model indicate that in certain cases active learning may be superior to passive learning and certainty equivalence in the almost all cases we have analyzed so far active learning is superior to passive learning which in turn is superior to certainty equivalence