interest rates and money in the measurement of monetary policy over the last 25 years a set of influential studies has placed interest rates at the heart of analyses that interpret and evaluate monetary policies in light of this work the federal reserve s recent policy of quantitative easing with its goal of affecting the supply of liquid assets appears to be a radical break from standard practice alternatively one could posit that the monetary aggregates when measured properly never lost their ability to explain aggregate fluctuations and for this reason represent an important omission from standard models and policy discussions in this context the new policy initiatives can be characterized simply as conventional attempts to increase money growth this view is supported by evidence that superlative divisia measures of money often help in forecasting movements in key macroeconomic variables moreover the statistical fit of a structural vector autoregression deteriorates significantly if such measures of money are excluded when identifying monetary

an appraisal of alternative blueprints for international policy coordination this paper examines two schemes for the international coordination of macroeconomic policy using a world econometric model the national institute global econometric model the first is the extended target zone scheme proposed by j williamson and m miller 1987 which involves targeting fundamental equilibrium exchange rates using monetary policy and using fiscal policy to control domestic demand the second uses fiscal policy to target the current account and monetary policy to stabilize domestic demand both schemes are parameterized using optimal control techniques on the national institute global econometric model and the welfare gains in using these schemes compared to historical experience from 1974 to 1986 are assessed

dumping adjustment costs and uncertainty abstract domestic demand uncertainty in the presence of adjustment costs can cause profit maximizing firms to sell output abroad at a loss firms may dump output at prices below long run marginal and average productions costs with probability arbitrarily close to one the model predicts dumping is particularly likely in process industries such as steel closed form dumping solutions and interesting comparative statics are obtained also the effect of domestic competition on dumping is examined i find domestic competition increases total dumping although a monopolist maximizing output subject to a zero expected profit constraint will dump more than a competitive industry

historical monetary policy analysis and the taylor rule this study examines the usefulness of the taylor rule framework as an organizing device for describing the policy debate and evolution of monetary policy in the united states monetary policy during the 1920s and since the 1951 treasury federal reserve accord can be broadly interpreted in terms of this framework with rather surprising consistency in broad terms during these periods policy has been generally formulated in a forward looking manner with price stability and economic stability serving as implicit or explicit guides as early as the 1920s measures of real economic activity relative to normal or potential supply appear to have influenced policy analysis and deliberations confidence in such measures as guides for activist monetary policy proved counterproductive at times resulting in excessive activism such as during the great inflation and at the brink of the great depression policy during the past two decades is broadly consistent with natural growth targeting variants of the taylor rule that exhibit less activism

financial development and financing constraints international evidence from the structural investment model this article provides evidence that financial development impacts growth by reducing financing constraints that would otherwise distort efficient allocation of investment the financing constraints are inferred from the investment euler equation by assuming that the firm s stochastic discount factor is a function of the firm s financial position specifically the stock of liquid assets the magnitude of the changes in the cost of capital is twice as large in a country with a low level of financial development as in a country with an average level of financial development the size effect business cycles and legal environment effects are also considered copyright 2003 oxford university press

analysis of attendees expenditure patterns to recurring annual events examining the joint effects of repeat attendance and travel distance abstract this study examines the changes in expenditure patterns of attendees to recurring annual events with specific emphasis on the effects of repeat attendance and travel distance this study utilizes a unique dataset accumulated from six consecutive years at a recurring annual event hosted in miami united states by using the almost ideal demand system aids we estimate price elasticities and cross price elasticities among tourist expenditure categories while jointly examining the effects from the trip characteristics of repeat attendance and travel distance from the econometric analysis we find expenditure own price and cross price elasticities that conform to the literature and confirm the strong inter relationship among the respective categories of the overall travel budget in addition our results confirm a significant difference in expenditure patterns between first time and repeat attendees as well as between long haul and short haul travelers

comment on endogenous objectives and the evaluation of targeting rules for monetary policy 1 four mccallum principles itis bothanprivilege andapleasureformetoparticipateinthisconferenceinhonorofbennettt mccallum henceforthbtm thus beforeproceedingtomakespeci c comments regarding carl walsh s elegant paper on endogenous objectivesand targeting rules i would like to begin by providing some context in light ofbtm snumerouscontributionstotheanalysisofmonetarypolicy forthispurpose itishelpfultohighlightfourbasicprinciplesofeffectivemonetarypolicythatbtmhas consistently emphasized over the past several decades given the logicalcoherencyandintuitiveappealofhisworkonthissubject itisonlynaturaltorefertothesefourpointsasthe mccallumprinciples the rstmccallumprincipleisthatmonetarypolicymatters thatis theconductof monetary policy can have important consequences for social welfare btmanalyzedthetheoreticalandempiricalunderpinningsofthisprincipleinaseriesof

monetary policy rules macroeconomic stability and inflation a view from the trenches i estimate a forward looking monetary policy reaction function for the federal reserve for the periods before and after paul volcker s appointment as chairman in 1979 using information that was available to the fomc in real time from 1966 to 1995 the results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods this contradicts the hypothesis based on analysis with ex post constructed data that the instability of the great inflation was the result of weak fomc policy responses to expected inflation a difference is that prior to volcker s appointment policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious drawing on contemporaneous accounts of fomc policy i discuss the implications of the findings for alternative explanations of the great inflation and the improvement in macroeconomic stability since then

evaluating the extended target zone proposal for the g 3 this paper evaluates the extended target zone proposal of williamson and miller using the national institute world economic model gem williamson and miller s proposals envisage that real exchange rates will be controlled by movements in relative interest rates that fiscal policy will be used to steer nominal demand towards a target which depends on capacity utilization inflation and the current balance and that the average level of world interest rates will be used to control global nominal demand we evaluate the performance of these rules for the united states germany and japan over the period 1975 84 using control methods to determine the best choice of parameters in the feedback rules we then consider how history would have differed from actual events had such rules been in place the results suggest that such rules would have led to a significant improvement in economic performance exchange rate variability would have been reduced and the dramatic increase in united states interest rates which took place after 1980 would have been avoided this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

costly external finance corporate investment and the subprime mortgage credit crisis abstract we study the effect of the recent financial crisis on corporate investment the crisis represents an unexplored negative shock to the supply of external finance for non financial firms corporate investment declines significantly following the onset of the crisis controlling for firm fixed effects and time varying measures of investment opportunities consistent with a causal effect of a supply shock the decline is greatest for firms that have low cash reserves or high net short term debt are financially constrained or operate in industries dependent on external finance to address endogeneity concerns we measure firms financial positions as much as four years prior to the crisis and confirm that similar results do not follow placebo crises in the summers of 2003 2006 nor do similar results follow the negative demand shock caused by september 11 2001 the effects weaken considerably beginning in the third quarter of 2008 when the demand side effects of the crisis became apparent additional analysis suggests an important precautionary savings motive for seemingly excess cash that is generally overlooked in the literature

effects of budgetary constraints on international tourism expenditures abstract this paper implements a logistic transition regression model to examine the relationships between gdp per capita and international tourism expenditures across countries in 2001 2010 by types of savings regimes while studies have focused on the effect of income on international tourism expenditures none consider the nonlinear smooth transition status of savings and its impacts on discretionary spending and hence expenditure on tourism the impact of income on tourism expenditures can vary under different savings regimes the results show that in a low savings regime the effect of an increase in the gdp per capita on international tourism expenditures is more pronounced in a high savings regime there is strong motivation for precautionary savings and tourism is considered a luxury therefore such spending is crowded out by an increase in savings as gdp per capita increases although international tourism expenditures also increase with gdp per capita they do so at a slower rate these findings establish an accurate understanding of the effects of savings on international tourism expenditures

a positive theory of discretionary policy the cost of democratic government and the benefits of a constitution we offer an explanation of government s preference for discretionary policy action the main elements are asymmetric information and the ability and desire of governments to maximize reelection prospects discretionary policy imposes a social cost we show that the cost is eliminated if all voters have the same information as the government an optimal state contingent policy rule that precommits government through a constitution eliminates the cost by removing government s opportunities to exploit its informational advantage rules of this kind and constitutional restrictions are difficult to enforce in the presence of uncertainty and different information available to government and the public

the role of financial factors for european corporate investment abstract motivated by the debate about the reasons behind the weak investment dynamics in europe we provide new evidence on the sensitivity of investment to financial factors and fundamentals before and during the financial and sovereign debt crises specifically controlling for firm level fundamentals we evaluate whether european firms cash holdings and indebtedness affected their investment decisions over the 2006 q3 2012 q2 period and whether their influence changed with the onset of the two crises our findings obtained using a correlated random coefficient panel data model suggest that investment was primarily determined by firm level fundamentals over this period contrary to earlier studies we also find that neither cash reserves nor short term debt considered separately were significant determinants of investment prior and during the two crises however there is some evidence of a negative conditional dependence between corporate investment and short term debt net of cash reserves during the financial crisis suggesting that firms simultaneously sought to avoid liquidity problems and preserve debt capacity

the quest for prosperity without inflation abstract in recent years activist monetary policy rules responding to inflation and the level of economic activity have been advanced as a means of achieving effective output stabilization without inflation advocates of such policies suggest that their flexibility may yield substantial stabilization benefits while avoiding the excesses of overzealous discretionary fine tuning such as is thought to characterize the experience of the 1960s and 1970s in this study i present evidence suggesting that these conclusions are misguided using an estimated model i show that when informational limitations are properly accounted for activist policies would not have averted the great inflation but instead would have resulted in worse macroeconomic performance than the actual historical experience the problem can be attributed in large part to the counterproductive reliance of these policies on the output gap the analysis suggests that the dismal economic outcomes of the great inflation may have resulted from an unfortunate pursuit of activist policies in the face of bad measurement specifically overoptimistic assessments of the output gap associated with the productivity slowdown of the late 1960s and early 1970s

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

comment on mckinnons s monetary rule i f the world wishes to return to fixed exchange rates then mckinnon s monetary rule provides the right way to go about the task over the past year he has modified his longstanding proposals in order to accommodate the breakdown of monetarism he no longer urges the participants to follow a fixed rate of aggregate monetary growth consistant with zero inflation but instead to vary their aggregate monetary growth in a way that will achieve zero inflation thus recognizing the variability in velocity similarly he has widened his recommended band to 10 percent at least initially and now calls for interest rate variations to be used to manage rates except when they move to the margins at which point symmetrical unsterilized intervention becomes mandatory i see no reason to quibble with his analysis on the means to fix exchange rates the remaining question is of course whether the end of fixed nominal exchange rates is a sensible one in questioning that i am not challenging his analysis of the costs that floating rates have imposed on the world or his judgment of their vast magnitude i have tried to argue the same myself williamson 1985 pp 38 46 but that does not mean that there are not real social benefits from exchange rate flexibility in this note i shall outline those benefits and then proceed to describe my principal analytical disagreement with mckinnon the alternative which i shall contrast to the mckinnon rule is the extended target zone proposal developed in edison miller and williamson 1987 and sum

comparing the global performance of alternative exchange arrangements abstract this paper presents and applies a methodology useful for studying the operating characteristics of a number of alternative monetary arrangements using a large scale simulation model of the world economy we consider the performance of the regimes when policymakers do or do not observe the shocks and when policymakers infer the shocks using an optimal filtering rule although the results are model specific and at best illustrative of the issues involved the approach does have the advantage of providing a richer framework of analysis than is possible in simple models of international interdependence

an analysis of consumption behaviour of foreign tourists in ireland the objective of this article is to analyse the consumption behaviour of foreign tourists in ireland based on the almost ideal demand system five demand systems are estimated four representing the major source markets of tourists to ireland namely from britain north america mainland europe and rest of the world and one aggregate model based on a pooled sample each system included six commodity aggregates representing the major consumables of tourists estimated models were statistically significant and the derived elasticities are theoretically consistent and empirically plausible while there are some variations in the consumption patterns of tourists from different source markets reflecting differences in consumer preferences and consumption habits in general tourist demand for the various irish tourism goods and services is found to be price inelastic this finding is consistent with a priori expectations as tourists are obliged to consume whatever is available at the destination they visit

the impact of bad writing in economics we find significant style differences between articles written by economists for their professional journals and articles by the same economists in the wall street journal we find no evidence that style influences the professional success of economists which suggests that the private rewards to improving the quality of writing are low indeed each community of scholars has probably adopted a professionally correct writing style from which its members diverge little however scholars do alter their rhetorical style to communicate effectively with audiences other than the professional community this suggests that intra and inter group written communication by economists is efficient

specification of policy rules and performance measures in multicountry simulation studies abstract much recent analysis of international monetary and fiscal policy issues has been conducted by stochastic simulations with multicountry econometric models in these studies it has become standard practice to consider alternative policy rules of a form that calls for departures of a policy instrument from some baseline reference path that are proportional to deviations of a specified target variable from its own baseline path the present paper argues that this standard rule form is seriously defective for such issues because th eimplied rules often fail to be operational and have associated performance measures that can be misleading in important cases jel c50 f30

a comparison study of travel expenditure and consumption choices between first time and repeat visitors abstract this study examines the differences in expenditures and consumers product consumption choices between first time and repeat visitors we applied the data collected from the 2009 annual survey report on visitor expenditure and trends in taiwan to estimate visitors demand of five major travel products accommodation food transportation entertainment and shopping the almost ideal demand system analysis results suggested the consumption of most products followed the law of demand the resulting income elasticity also indicated these products were normal goods in addition we found that previous travel experience does not generate significant differences in preference and consumption patterns

monetary targets as a policy rule lessons from the swiss experience abstract this paper provides a survey and analysis of swiss monetary policy since the shift to a floating exchange rate in 1973 although the swiss national bank snb by international comparison managed to achieve a high degree of price stability it could not prevent temporary bursts of inflation i argue that the problem lay in an inappropriate snb response to such disturbances as unexpected exchange rate shocks and show that in constructing optimum feedback rules the snb must take account of the logs in the effects of monetary policy i also discuss the snb s current strategy resting on a medium term growth target for the monetary base

nominal gdp targeting and the taylor rule on an even playing field some economists advocate nominal gdp targeting as an alternative to the taylor rule these arguments are largely based on the idea that nominal gdp targeting would require less knowledge on the part of policymakers than a traditional taylor rule in particular a nominal gdp targeting rule would not require real time knowledge of the output gap we examine the importance of this claim by amending a standard new keynesian model to assume that the central bank has imperfect information about the output gap and therefore must forecast the output gap based on previous information forecast errors by the central bank can then potentially induce unanticipated changes in the short term nominal interest rate distinct from a standard monetary policy shock we show that forecast errors of the output gap by the federal reserve can account for up to 13 of the fluctuations in the output gap in addition our simulations imply that a nominal gdp targeting rule would produce lower volatility in both inflation and the output gap in comparison with the taylor rule under imperfect information

corporate investment and bank dependent borrowers during the recent financial crisis abstract we use the recent financial crisis period to analyse the effect of bank credit tightening on firm investment we derive a new set of credit tightening indexes from the ecb bank lending survey combining these with annual balance sheet data from germany france italy spain belgium and portugal we exploit the heterogeneity in the dependence on bank finance of different industries to identify real effects of credit tightening we show that in response to tightening investment falls substantially more in bank dependent industries

micro economic determinants of tourist expenditure a quantile regression approach abstract we assess the effect of the main determinants of tourist expenditure by applying both linear and quantile regression models to individual micro data collected by a survey addressed to non resident tourists who spent their holidays in sardinia during the period april october 2012 we find that in addition to income and foreign nationality tourist expenditure is crucially driven by trip related party size stay length accommodation sea and sun typology and transport modality and psychographic characteristics repeated visits and holiday motivations moreover our results indicate that the effects vary with respect to the expenditure component and the level of spending thus confirming the high complexity of the tourism product higher positive effects were found for heavy spenders in the case of foreign nationality previous visits and notoriety motivated holidays while party size and the number of visited sites contribute to reducing the level of expenditure for light spending tourists

exchange rate management the role of target zones the essence of the regime of unmanaged floating that prevailed among the major currencies from march 1973 until the plaza agreement in 1985 was that the exchange rate was treated as a residual in the process of macroeconomic policy determination admittedly there were occasions such as october 1976 in the case of the pound sterling and october 1978 in the cases of both the u s dollar and the swiss franc when particular countries became so concerned with a misalignment of their currency that they were forced to abandon benign or malign neglect but such incidents were episodic views about a proper or desirable level of the exchange rate played no systematic role in policy formulation section i explains why i judge the performance of unmanaged floating to have been unsatisfactory section ii lists the real social benefits that exchange rate flexibility can afford which should be preserved by any reformed system section iii describes the target zone proposal and explains why it would preserve the real benefits of flexibility while overcoming the weaknesses of unmanaged floating section iv sketches a possible set of comprehensive principles for policy coordination of which target zones would be one natural element

size persistence and interrelation of nominal and real shocks some evidence from four countries abstract one of the major themes in karl brunner s work is the comparative size persistence and interaction of real and monetary impulses the paper uses a univariate multi state kalman filter to forecast quarterly values of money prices output velocity and exchange rates during the bretton woods and post bretton woods monetary regimes and to compute shocks or impulses vector autoregression is used to relate the shocks and to compare the two regimes several propositions are tested including the phillips curve currency substitution reverse causation and the role of monetary impulses as a cause of fluctuations in output and prices

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

forecasting tourist arrivals using origin country macroeconomics this study utilizes both disaggregated data and macroeconomic indicators in order to examine the importance of the macroeconomic environment of origin countries for analysing destinations tourist arrivals in particular it is the first study to present strong empirical evidence that both of these features in tandem provide statistically significant information of tourist arrivals in greece the forecasting exercises presented in our analysis show that macroeconomic indicators conducive to better forecasts are mainly origin country specific thus highlighting the importance of considering the apparent sharp national contrasts among origin countries when investigating domestic tourist arrivals given the extent of the dependency of the greek economy on tourism income but also given the perishable nature of the tourist product itself results have important implications for policy makers in greece

solving for optimal simple rules in rational expectations models this paper presents algorithms that solve for optimal simple monetary policy rules in rational expectations models with precommitment and discretion the algorithms are applied to the models in fuhrer j money credit banking 29 1997 214 clarida et al j econ lit 37 1999 1661 and rudebusch econ j 112 2002 402 to examine the efficiency properties of operational policy rules we show that optimized taylor type rules preform well in these models but that aside from the fuhrer moore model this result is sensitive to whether the central bank can respond to current period shocks taylor type rules that are operational in the sense that they do not respond to current period information are found to be highly inefficient in the rudebusch model and in the clarida et al 1999 model