intergenerational equity and sustainability abstract this paper explores the limitations of conventional economic analysis of intergenerational problems and examines some of the alternatives suggested in the literature it is argued that proper consideration of future generations has at least three requirements first when future costs and benefits are considered it should be taken into account that they are to be enjoyed by different generations second the sustainability requirement should be adopted this represents an equity commitment to the future and implies the recognition that future generations have the right to nondeteriorated ecological and economic capacity the paper studies the ways in which the recognition of these rights might be incorporated into economic evaluation and management third an appropriate institutional network to enforce the recognition of these rights in decision making processes should be constituted its design and necessary functions are also analyzed

cost benefit assessment of energy efficiency investments accounting for future resources savings and risks in the australian residential sector this article focuses on the impact of the discount rate on cost benefit assessment of investment options for residential building efficiency an integrated thermal modeling life cycle costing approach is applied to an extensive sample of dominant house designs for australian conditions the relative significance of predicted thermal performance and the applied discount rate on the present value of energy savings from alternative investment scenarios is investigated costs and benefits are also evaluated at the economy wide scale including carbon pricing considerations and for a test case household faced with alternative investment options at the point of construction the influence of the applied discount rate on produced cost benefit calculations is investigated as is the interaction between critical cost benefit input parameters findings support that the discounting framework is the primary driver of difference in estimates about costs and benefits of higher standards of efficiency in the residential sector results demonstrate that agreement on a low discount rate based on sustainability principals would prioritise those projects with significant environmental benefits

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

sticky prices and volatile output abstract we examine the effect of introducing a specific type of price stickiness into a stochastic growth model subject to a cash in advance constraint as in previous studies we find the introduction of price rigidities provides a substantial source of monetary non neutrality which contributes significantly to output volatility we show that the introduction of this form of sticky prices improves the model s performance at explaining inflation but worsens it for output the most dramatic failure of the model is the extremely high frequency fluctuations in output that it generates sticky prices not only fail to produce persistent business cycle fluctuations but they generate extreme volatility at very high frequencies

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

endogenous money or sticky prices comment on monetary non neutrality and inflation dynamics abstract we show that the highly persistent inflation dynamics and its lead lag relationship with output can be explained by a standard flexible price rbc model augmented with endogenous monetary policy endogenous monetary policy acting upon the illusion that prices are sticky and money is effective can create price movements that appear to indicate price stickiness although there is none in the economy

sustainability limited substitutability and non constant social discount rates abstract the paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates it decomposes the discount rates into an absolute growth and a relative growth or substitutability effect the paper relates between good and intertemporal substitutability to the notions of weak and strong sustainability it analyzes under which circumstances low as opposed to high between good substitutability increases the weights given to long run environmental services

reconciling sustainability and discounting in cost benefit analysis a methodological proposal abstract the incorporation of the intergenerational equity objective has rendered the traditional cost benefit analysis cba approach obsolete for the evaluation of projects presenting an important number of environmental externalities and for those whose impacts extend throughout a long period of time based on the assumption that applying a discount rate rewards current consumption and therefore that it is only possible to introduce a certain intergenerational equity in a cost benefit analysis in this work we propose an approach to discounting based on a different rationale for tangible and intangible effects we designed two indicators of environmental profitability a the intergenerational transfer amount ita which quantifies in monetary units what the current generation is willing to pass on future generations when an environmental restoration project is carried out and b the critical environmental rate cer measures the implicit environmental profitability these concepts were tested through an empirical case study pertaining to the assessment of an erosion control project in the southeast of spain the results yield traditional profitability indicators that are higher and probably closer to the real values set by the contemporary society the information provided by the environmental profitability indicators proposed renders more transparency to the quantification of the levels of intergenerational equity applied thereby facilitating the difficult reconciliation of the cba technique with the objective of sustainability

monetary policy and investment dynamics evidence from disaggregate data we use disaggregated data on the components of private fixed investment pfi to estimate industry level responses of real investment and capital prices to unanticipated monetary policy the response functions derive from a restricted large scale var estimated over 1959 2007 our results point to significant cross sector heterogeneity in the behavior of pfi prices and quantities for assets belonging to the equipment category of fixed investment we find that quantities rather than prices absorb most of the fallout from a policy shock by contrast the price effects tend to be higher and the output effects lower for nonresidential structures

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

is the us dollar a suitable anchor for the newly proposed gcc currency responses of inflation and non oil output growth from the gulf cooperation council gcc countries to monetary policy shocks from the united states us were estimated to determine whether there is evidence to support the us dollar as the anchor for the proposed unified currency a structural vector autoregression identified with short run restrictions was employed for each country with fed funds rate as the us monetary policy instrument non oil output growth and inflation the main results suggest that for inflation the gcc countries show synchronised responses to monetary policy shocks from the us which are similar to inflation in the us and for non oil output growth there is no clear indication that us monetary policy can be as effective for the gcc countries as it is domestically consequently importing us monetary policy via a dollar peg may guarantee only stable inflation for the gcc countries not necessarily stable non oil output growth if the non oil output response is made conscientiously and there are concerns over the dollar s ability to perform its role as a store of value a basket peg with both the us dollar and the euro may be a sound alternative as confirmed by the variance decomposition analysis of our augmented svar with a proxy for the european short term interest rate

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

personal traits and individual choices taking action in economic and non economic decisions abstract in a large number of decisions the option that does not require a specific action such as filling in a form is chosen frequently it is a stylized fact that opt in or opt out designs for otherwise identical choices lead to vastly different outcomes choice options are chosen more frequently simply because they are the no action alternative or default option however direct empirical evidence on the reasons for the popularity of defaults is scarce we devised a special survey module for the dutch dnb household survey to study potential explanations for default choices we find that the popularity of the default option is related to different personal traits in economic and non economic decisions financially literate individuals are more likely to take action and opt out the default option in economic decision making in non economic decisions procrastination increases the popularity of the default while individuals who care much about the opinion of others are more inclined to deviate from the default

another look at sticky prices and output persistence abstract price rigidity is the key mechanism for propagating business cycles in traditional keynesian theory yet the new keynesian literature has failed to show that sticky prices by themselves can effectively propagate business cycles we show that price rigidity in fact can by itself give rise to a strong propagation mechanism in standard models provided that investment is also subject to a cash in advance constraint reasonable price stickiness can generate highly persistent hump shaped movements in output under either monetary or non monetary shocks hence whether or not price rigidity is responsible for output persistence is not a theoretical question but an empirical one

can the new open economy macroeconomic model explain exchange rate fluctuations abstract this paper explores the successes and failures of the new open economy macroeconomics more critically by addressing the performance of the model at all frequencies along the line of watson s watson m w 1993 measures of fit for calibrated models journal of political economy 101 1011 1041 measures of fit this paper shows that the noem model with either pcp or ptm is not successful in generating the spectral density of the selected variables calculated from the data in particular the model cannot generate mass spectra of the exchange rates at low frequencies as in the data it shows that the noem model with either separable preference or incomplete asset market cannot generate the typical hump shaped spectra of exchange rates

on the low frequency relationship between public deficits and inflation summary we estimate the low frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time varying vector autoregression model for us data from 1900 to 2011 we find the strongest relationship neither in times of crisis nor in times of high public deficits but from the mid 1960s up to 1980 employing a structural decomposition of the low frequency relationship and further narrative evidence we interpret our results such that the low frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after world war ii copyright 2015 john wiley sons ltd

valuing the future recent advances in social discounting the perplexing issue of discounting prescriptive economics requires that unless there are very good reasons to the contrary economic policy should be based on the principle that individuals preferences should count indeed the entire body of welfare economics centres round the formal identity of the statement x prefers a to b and the statement x has higher welfare in a rather than b this combination of a seemingly innocuous and democratic value judgement preferences should count and a formal definition about the meaning of welfare improvement involves many complications the entire history of policy analysis focuses on those complications whose preferences should count over what time period what constitutes a legitimate attenuation of the basic value judgement one of the problem areas concerns timediscounting the process whereby society places a lower value on a future gain or loss than on the same gain or loss occurring now the rationale for time discounting follows logically from the basic value judgement of welfare economics if people s preferences count and if people prefer now to the future those preferences must be integrated into social policy formulation time discounting is thus universal in economic analysis but it remains as it always has controversial the controversy has a parallel in another form of discounting spatial discounting when translated into economic terms the ethical principle

the energy policy outlets for community acceptance of ecological investment in china abstract policy implication about satisfactions of energy use and housing are much sensitive to social discount rate changes which can increase the dissatisfaction of residential happiness because of an increasing price mechanism when per capita resource faces to decline we thus estimate the private expected rates of return on ecological investment to improve urban and peri urban environmental infrastructures are about to 7 54 and 18 37 respectively the endogeneities of income and saving rise can increase the uncertain part of private discount rate up to a higher estimated subjective social discount rate about 14 46 for urban or 8 86 for peri urban environmental infrastructures improvement the estimated time preference rate can be raised from 1 to 1 72 the prediction of these estimated private discount rate can ease at least 20 of the dissatisfaction to energy use and 10 of the dissatisfaction to housing conditions therefore we suggest opening the landscape rights to individual willingness to invest and providing options to let people pay a part of their pensions for temporal permits to living in some well served villages where are close to the places with advanced environmental amenities and being supported by central planning policy via the crowdfunding operation for improving environmental quality

the dynamic eects of monetary policy a structural factor model approach we use the structural factor model proposed by forni giannone lippi and reichlin 2007 to study the eects of monetary policy the advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set made up of 112 us monthly macroeconomic series monetary policy shocks are identified using a standard recursive scheme in which the impact eects

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

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

biological and economic foundations of renewable resource exploitation abstract a physiologically based population dynamics model of a renewable resource is used as the basis to develop a model of human harvesting the model incorporates developing technology and the effects of market forces on the sustainability of common property resources the bases of the model are analogies between the economics of resource harvesting and allocation by firms and adapted organisms in nature specifically the paper makes the following points 1 it shows how economic and ecological theories may be unified 2 it punctuates the importance of time frame in the two systems evolutionary versus market 3 it shows contrary to prevailing economic wisdom how technological progress may be detrimental to resource preservation 4 it shows how the anticipated effects of high discount rates on resource use can be catastrophic when synergized by progress in harvesting technology 5 it suggests that increases in efficiency of utilization of the harvest encourages higher levels of resource exploitation and 6 it shows the effects of environmental degradation on consumer and resource dynamics the model leads to global implications on the relationship between economic growth and the ability of modern societies to maintain the environment at a sustainable level

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

the impact of inequality on the transmission of monetary policy abstract we consider a model to detect the relation between household debt and the transmission of monetary policy in an eu member state with independent monetary policy and high income inequality romania we find that households response to changes in monetary conditions depends on their income and indebtedness profile the transmission of monetary policy is more effective for middle income households which are more indebted and have adjustable rates as lower policy rates ease the consumption constraints on these households low income households respond mainly to budgetary policies as the increase in disposable income matters most for the bottom quintile top income quintile reacts more to monetary policy than bottom quintile but less than middle income quintiles lower inequality is associated with stronger effectiveness and higher homogeneity of monetary policy transmission in turn higher inequality is associated with less effectiveness and higher heterogeneity of the impact of the monetary policy

preferences in the future environmental economics has been much occupied with the discount rate which is the value of future costs and benefits relative to present costsor benefits but at least as important is the question of whatshould be discounted that is what the value of those future environmentalbenefits is to future generations this paper analyzes the role for futurepreferences and discusses the state of knowledge i argue that theappropriate discount rate is the market one and that the real problemis determining future willingness to pay this approach makes clearerthe connection between discounting and the valuation debate this paper focuses on two features that have been prominent in that debate existence value and reference dependence i argue that thereis a vital connection between the two constructs and that this link yieldsimportant implications for future willingness to pay

discounting in the presence of scarce ecosystem services abstract the discount rate for cost benefit analysis has to take account of future scarcity of ecosystem services in consumption and production previous literature focuses on the first aspect and shows the importance of the relative price effect for given growth rates of consumption and ecosystem services this paper focuses on intermediate ecosystem services in production and shows that for limited substitutability and a low growth rate of these ecosystem services the growth rate of consumption and thus the discount rate declines towards a low value using a ramsey growth model the paper distinguishes three cases if ecosystem services can be easily substituted the discount rate converges to the usual value in the long term secondly if ecosystem services can be easily substituted in production but not in consumption the relative price effect is important finally and most interestingly if ecosystem services cannot be easily substituted in production the discount rate declines towards a low value and the relative price effect is less important another part of the previous literature has shown that a declining discount rate is the result of introducing several forms of uncertainty but this paper reaches that conclusion from an endogenous effect on the growth rate of the economy

overview of the special issue on policy implications of and lessons from the global financial crisis this paper reviews the special issue policy implications of and lessons from the global financial crisis and its themes global liquidity and the use of international reserves real and financial economic patterns before and during the global financial crisis

how well does sticky information explain the dynamics of inflation output and real wages abstract this paper finds that a model with sticky information is less successful than a standard model featuring nominal rigidities inflation indexation and habits in generating the dynamics triggered by technology shocks as estimated by a vector autoregression using u s macroeconomic data the real wage responses after a permanent increase in productivity clearly favor the standard model the sticky information model fails to replicate the observed inertial response in the real wage whereas the standard model relies on inflation indexation in wage setting to achieve a better fit the two models are however statistically equivalent after a shock in monetary policy

the derivation of discount rates with an augmented measure of income abstract most developed economies invest in public goods such as national defense education infrastructure and the environment discount rates used to evaluate such projects should reflect the rate of return on the current mix of investment opportunities rates derived from the productivity of private capital neglect returns beyond the market boundary the present paper derives discount rates using an augmented measure of national income inclusive of non market goods in an empirical application focusing on air pollution and climate damages in the united states economy the paper reports that the difference between augmented and market discount rates averages 0 3 percentage points from 1999 to 2014

dynamic effects of credit shocks in a data rich environment we examine the dynamic effects of credit shocks using a large dataset of u s economic and financial indicators in a structural factor model an identified credit shock resulting in an unanticipate

on the environmental discount rate abstract in this paper i show that environmentalism itself can provide a rigorous foundation for the low and declining discount rates that environmentalists seem to favor in long term cost benefit calculations if indeed it is a stylized fact that we are moving toward a world where environmental spending is increasingly important that scenario per se may significantly lower the social rate of return a formula is derived for the ratio of social to private discount rates as a simple function of two operational environmental parameters the formula is used to explain why the social rate of return ought to be lower than the private rate and why this gap called environmental drag when measured in terms of equivalent evaporation of national income may be expected to increase over time

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

the determinants of uk business cycles this paper considers the causes of post war uk business cycles using an extended stochastic growth model we construct estimates of productivity and preference shocks both of which are highly persistent volatile and potentially capable of explaining uk business cycles we find the productivity term is the dominant explanation of uk output fluctuations but our estimated preference shift is crucial in understanding employment movements a variety of granger causality tests establish whether these productivity and preference terms are unpredictable and so can be potentially considered as the cause of uk business cycles or whether they are themselves granger caused by other variables the aim of business cycle theory is to identify the causes of business cycles and outline the various propagation mechanisms through which these produce cyclical fluctuations the purpose of this paper is to study the former using uk data we investigate the main sources of uk post war business cycles our aim in doing so is to discriminate between competing theories of the business cycle as well as to increase our understanding of particular episodes of uk post war economic history to achieve this aim we focus on two fundamental sources of business cycle fluctuations productivity shocks and a preference shift or more generally a supply and demand shock we choose these because i they can be easily calculated using only published data avoiding the need for any econometric identification assumptions ii they represent the simplest extension to the neoclassical stochastic growth model which can explain observed uk business cycle patterns they therefore form a natural benchmark with which to assess prescott s 1986 claim that this model can account for both growth and business cycles however while our main focus is on these two shocks our methodology is broad enough to allow for a wide range of potential causes of uk business cycles in section 1 of the paper we outline some stylised facts of the uk business cycle and motivate more rigorously our focus on productivity and preference shocks in section 2 we provide estimates of these shocks discuss their univariate properties and examine their correlation with key business cycle variables we find both shocks to be very volatile and persistent with the productivity variable accounting for a large proportion of output fluctuations and preference shifts more important in explaining employment movements simulations show that in combination with a neoclassical growth model these shocks are capable of matching uk business cycles however if

lifecycle consumption plans social learning and external habits experimental evidence abstract we report results from a laboratory experiment exploring the extent to which individuals can solve a deterministic intertemporal lifecycle consumption optimization problem and the effect of revealing social information on past average consumption amounts as all individuals have identical induced preferences and lifetime incomes such social information could be useful in solving for the optimal consumption path instead we find that the provision of social information on past average levels of consumption results in a greater deviation of consumption from both the unconditional and the conditionally optimal paths we find some improvement in consumption planning relative to the conditional optimum when social concerns external habits are explicitly incorporated into subject s period utility functions as in external habit formation preference specifications our results on the effects of social information on consumption behavior may help to explain the phenomenon of over consumption and under saving that has been observed in many developed countries in recent decades as social information on the behavior of others has become more readily available

optimal pricing of environmental and natural resource use with stock externalities abstract underlying some of the most pressing environmental problems are the interlinked resource and environmental stock externalities with threshold effects using a simple dynamic model it is shown how in the face of such externalities the static market based policy instruments such as pigouvian taxes should be modified it is shown that even if for an initial period there is going to be no pollution stock damage the optimal policy still requires that abatement begins immediately and at increasing rates simulation of the model for the case of fossil fuel burning and the consequent global warming shows that the optimal carbon tax and therefore the optimal control strategy is particularly sensitive to changes in the marginal abatement cost and the level of fossil fuel demand policy simulations contrast the optimal control policy with and estimate the welfare losses from alternative policies deriving from arbitrary tax paths the latter include i a no tax policy ii a constant carbon tax rate iii the european community s proposed carbon tax path and iv a delayed optimal tax path

the economics of climate change and the theory of discounting this paper confronts the theory of discounting with climate change economics standard discounting would give long term damages a very low present value on the other hand low discount rates would imply more sacrifices for present generations although future generations may be richer and using multiple rates would lead to economic inefficiencies the paper first shows that arguments favouring a low or zero discount rate in general are weak even from an ethical point of view it goes on by considering different arguments in favour of discount rates decreasing over time and by recalling the argument that non reproducible environmental assets should be given a value growing over time through the example of climate change it finally shows that the latter argument not only implies that the costs of damages associated to climate change should not be underestimated but also reinforce the legitimacy of using decreasing discount rates

learning abatement costs on the dynamics of the optimal regulation of experience goods we study the introduction of new technologies when their costs are subject to idiosyncratic uncertainty and can only be fully learned through individual experience we set up a dynamic model of clean experience goods that replace old polluting consumption options and show how optimal regulation evolves over time in our base setting where social and private learning incentives coincide the optimal tax on the polluting consumption is increasing over time we show however that if social and private learning incentives diverge because the private discount rate exceeds the social discount rate it may be optimal to temporarily increase the tax rate beyond net marginal external damages to induce more learning before reducing the tax rate to the steady state level alternatively one could complement the tax with subsidies for first time users which can be phased out over time similar results apply if consumers have biased expectations we therefore give a rationale for introductory subsidies on new clean technologies and non monotonic tax paths from a perspective of consumer learning

efficiency of conservationist measures an optimist viewpoint abstract we consider an economy with a consumer good capital a natural resource that provides amenity values and heterogeneous overlapping generations we compare a benchmark grandfathering policy that ensures efficiency through privatization with a policy of enforced resource conservation it is shown that i conservationist measures do not cause any pareto inefficiency irrespective of whether they pass a cost benefit test moreover it is shown that ii there exist pareto optimal allocations that can only be reached through resource conservation and not through competitive markets irrespective of compensating income transfers finally iii equivalence is demonstrated between strict resource conservation and non dictatorship of the present generations over future generations as formalized in chichilnisky s sustainable welfare function the results are shown to hold in both a first best and a second best setting

environmental liability law and induced technical change the role of discounting we analyse the incentives of environmental liability law for inducing progress to emission abatement technology we consider three liability rules strict liability a negligence rule with an emission norm as the due care standard and a double negligence rule which combines the emission standard with an abatement technology norm in the case of distortive discounting i e where the private discount rate deviates from the social one we show how the level of distortion influences the ranking of liability rules according to the criterion of generated social cost

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

curtailing the black box german banking groups in the transmission of monetary policy abstract the paper examines the role of portfolio decisions of german banking groups in the transmission of monetary policy a small econometric model is augmented with segregated bank balance sheet variables in order to study potentially different effects of tight money on these variables the results provide evidence for banks playing an active role in the transmission process and are beneficial for two fields of research the findings indicate sectoral differences of monetary policy in line with transmission models based on informational frictions in addition the results lend econometric support to the existence of close bank customer ties for certain banking groups in germany whereas large banks adjust their credit position markedly following a monetary shock the smaller savings banks and credit cooperatives seem to shield their customers from the brunt of a policy tightening

do exchange rate shocks have asymmetric effects on reserve accumulation evidence from emerging markets it is generally argued that central banks in emerging market countries motivated by a desire to defend export competitiveness tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations using panel data from 13 emerging market countries for the period 1998 m1 to 2016 m12 we find that exchange rate shocks play an important role in determining the accumulation of international reserves moreover we find evidence that central banks in emerging markets tend to follow a leaning against the depreciation wind policy rather than the appreciation wind i e we provide evidence of a fear of depreciation

income environmental disamenity and toxic releases the literature argues that income growth leads to increased demand for environmental quality and thus reduction in pollution using a utility theoretic model we hypothesize that the income pollution relationship should depend on the level of disamenity of the pollutant we proxy for disamenity using the toxicity of releases for counties in the united states the functional relationship between income and releases depends on the level of disamenity the form is more concave for more toxic releases we find that environmental improvements occur at lower levels of per capita income for more toxic pollutants jel q25 q28 o13

an estimated canadian dsge model with nominal and real rigidities this paper develops a dynamic stochastic general equilibrium dgse model for the canadian economy and evaluates the real effects of monetary policy shocks to generate high and persistent real effects the model combines nominal frictions in the form of costly price adjustment with real rigidities modelled as convex costs of adjusting capital and employment

on the mechanics of new keynesian models abstract the monetary transmission mechanism in new keynesian models is put to scrutiny we show that contrary to the conventional view the transmission mechanism does not operate through the real interest rate channel instead equilibrium inflation is approximately determined as in a flexible price model output is then pinned down by the new keynesian phillips curve the real rate only reflects the feasibility to keep consumption smooth when income changes contractionary monetary policy shocks reducing output and inflation are consistent with an increase decline or no change in the real rate consistency with the real rate channel is observational not structural

reconsidering monetary policy an empirical examination of the relationship between interest rates and nominal gdp growth in the u s u k germany and japan abstract the rate of interest the price of money is said to be a key policy tool economics has in general emphasised prices this theoretical bias results from the axiomatic deductive methodology centring on equilibrium without equilibrium quantity constraints are more important than prices in determining market outcomes in disequilibrium interest rates should be far less useful as policy variable and economics should be more concerned with quantities including resource constraints to investigate we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth examining the relationship between 3 month and 10 year benchmark rates and nominal gdp growth over half a century in four of the five largest economies we find that interest rates follow gdp growth and are consistently positively correlated with growth if policy makers really aimed at setting rates consistent with a recovery they would need to raise them we conclude that conventional monetary policy as operated by central banks for the past half century is fundamentally flawed policy makers had better focus on the quantity variables that cause growth

the bioeconomics of tritrophic systems applications to invasive species abstract adapted species in nature are assumed to have solved renewable resource management problems and this is examined here using a physiologically based model of energy acquisition and allocation newly established invasive species are merely in an early phase of this process in their new environment analogies between the economies of humans and other species are used to develop an objective function for individual utility of energy allocation the objective function includes the physiologically based population dynamics models of the consumer and resource species in a food chain as constraints the model applies to all trophic levels in a food chain including human harvesting of renewable resources see also regev et al regev u gutierrez a p schreiber s zilberman d 1998 biological and economic foundation of renewable resource exploitation ecological economics 26 3 227 242 specifically the analysis 1 attempts to combine ecological and economic theory 2 points out the importance of time frame in the two economies evolutionary vs market time 3 examines the effects of expected uncertainty due to environmental hazards in defining energy acquisition and allocation strategies in two invasive aphid species at the extremes of so called r and k strategies and the well adapted central american cotton cotton bollweevil system 4 evaluates the effects of changes in behavioral and physiological parameters and environmental degradation on the abundance of resource and consumer species

indeterminacy change points and the price puzzle in an estimated dsge model abstract we extend lubik and schorfheide s 2004 testing for indeterminacy an application to u s monetary policy american economic review 94 190 217 likelihood based estimation of dynamic stochastic general equilibrium dsge models under indeterminacy to encompass a sample period the includes both determinacy and indeterminacy by implementing a change point methodology chib s 1998 estimation and comparison of multiple change point models journal of econometrics 86 221 241 by letting the data provide estimates of the dates of the determinacy regimes and allowing the estimates of structural parameters to be the same across regimes we obtain more precise estimates of the differences in characteristics such as the impulse responses across the regimes the most striking finding about the indeterminacy regime which is estimated to coincide with the great inflation of the 1970s is that it exhibits the price puzzle in that the inflation rate rises immediately and in a sustained manner following a positive interest rate shock thus the price puzzle might have been a genuine phenomenon under indeterminacy rather than a false finding to be excised through specification search and parameter restrictions

cross disciplinary evidence for hyperbolic social discount rates researchers in different disciplines have independently found evidence to suggest that the social discount rate may be hyperbolic rather than exponential in nature both behaviorist research and some empirical economics studies support the hyperbolic discounting hypothesis u s and u k government discounting dispensations for some long run public development projects are explicable in terms of an underlying hyperbolic social discount rate a statistical aggregation argument demonstrates that even if the behaviorist economics and public choice evidence for hyperbolic discounting is not conclusive the social discount rate of a set of people who individually express time preferences best modeled by exponential discounting functions is nonetheless hyperbolic further empirical economics studies of discounting preferences are required comparisons of different national discounting practices would also be useful to see how widespread is the use of unusually low exponential rates of discount for long run projects the application of hyperbolic discounting would have most impact in long run benefit cost analyses however government agencies would require overwhelming evidence before switching from exponential to hyperbolic discounting

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

household financial planning and savings behavior greater personal responsibility toward financial decision making is being advocated on a global basis individuals and households are encouraged to take a more active approach to personal finance in this paper we examine behavioral factors which lead households toward savings and financial planning across a panel of 1253 dutch households in line with the available literature we find that an individual s propensity to save decreases with age and is higher among the financial literate moreover we find that saving behavior varies across generations and is significantly dominant among baby boomers this generation effect however weakens once we account for more individual specifics our results offer evidence for parental influence and for the effects of the psychological and behavioral metrics of numeracy self efficacy locus of control and future orientation a good understanding of these personality variables helps to explain why some take financial responsibility while others do not

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

money prices interest rates and the business cycle the mechanisms governing the relationship of money prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics in this paper we first document key empirical aspects of this relationship we then ask how well three benchmark rational expectations macroeconomic models a real business cycle model a sticky price model and a liquidity effect model account for these central facts while the models have diverse successses and failures none can account for the fact that real and nom inal interest rates are inverted leading indicators of real economic activity that is none of the models captures the post war u s business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future i introduction the positive correlation of monetary aggregates and real economic activity over the course of many business cycles is a key empirical fact about the u s economy indeed the dynamic dimension of this covariation is so strong and stable that a monetary variable has long been included in the commerce department s index of leading economic indica tors while this pattern of cyclical comovement is widely agreed upon its interpretation is not some macroeconomists view money as purely passive with a positive response to varying levels of economic activity producing the positive correlation others view changes in the quantity of money as an important perhaps dominant source of economic fluctua tions frequently the real effects of monetary changes are suggested to arise from frictions in commodity labor or financial markets in economic theories that describe the influence of these frictions the transmission mechanism from monetary changes to real activity is typically viewed as involving interest rates and the price level the primary goal of this paper is to evaluate three models that explain the link between money prices interest rates and the business cycle we do this in three steps first we docu ment the cyclical behavior of these variables in the united states over the postwar period second we construct three quantitative rational expectations models of macroeconomic activity i a real business cycle model with endogenous money ii a model of commodity market frictions with mon etary non neutralities arising from gradual adjustment of goods prices and iii a model of financial market frictions with monetary non neutralities arising from gradual adjust ments of portfolios finally we compare the models predic tion for the business cycle behavior of money prices and interest rates with the data in exploring the predictions of these models we take the stock of money to be one of several exogenous variables in the system all of our models are capable of generating a forecasting role for money relative to real economic activity similar to that found in the u s data in the real business model monetary changes can forecast real activity because productivity is related to many underlying sources of shocks and because these real shocks also affect the money stock in the models with sticky prices and liquidity effects short hand names for the models with frictions in the com modity and financial markets monetary changes have an additional direct positive effect on aggregate output the outline of the paper is as follows section ii describes the data and documents its business cycle characteristics section iii outlines the three macroeconomic models and develops the particular quantitative versions of the models used in our analysis our main empirical results are pre sented in section iv and section v summarizes our results and concludes

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

simple rules for climate policy and integrated assessment a simple integrated assessment framework that gives rules for the optimal carbon price transition to the carbon free era and stranded carbon assets is presented which highlights the ethical economic geophysical and political drivers of optimal climate policy for the ethics we discuss the role of intergenerational inequality aversion and the discount rate where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents the economics depends on the costs and rates of technical progress in production of fossil fuel its substitute renewable energies and sequestration the geophysics depends on the permanent and transient components of atmospheric carbon and the relatively fast temperature response and we allow for positive feedbacks the politics stems from international free rider problems in absence of a global climate deal we show how results change if different assumptions are made about each of the drivers of climate policy our main objective is to offer an easy back on the envelope analysis which can be used for teaching and communication with policy makers

malthus and climate change betting on a stable population abstract a standard assumption in integrated assessment models of climate change is that population and productivity are growing but at a decreasing rate we explore the significance of the assumption of population and productivity growth for greenhouse gas abatement after all there has been no long run slowdown in the growth of productivity over the past few centuries and the rate of population growth has actually been increasing for the past 19 centuries even if either of these growth rates were expected to slow by how much is subject to great uncertainty we show computationally that such continued growth greatly increases the severity of climate change indeed we find that climate change is a problem in large part caused by exogenous population and productivity growth rapid reductions in growth make climate change a small problem smaller reductions in growth imply climate change is a very serious problem indeed analogously reductions in the growth rate of population can be effective in controlling climate change

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

why do cities use supply side strategies to mitigate traffic congestion externalities abstract for traffic congestion arising from sprawl planners prefer supply side strategies over the demand side strategies recommended by economists our model provides a rationale why wealth induced congestion increases a planner s social discount rate which decreases future costs of supply side solutions

impatience pollution and indeterminacy abstract this paper examines an equilibrium growth model in which production activities generate environmental pollution that has a negative welfare effect and in which individual households subjective discount rate is a function of individual consumption which is internal to each household and of total pollution which is an external factor to the individual agents it is shown that there may exist multiple steady states and that the dynamic equilibrium may display indeterminacy depending on the properties of the discount rate function the pollution capital relationship in production technology and the pollution consumption relationship in instantaneous utility the long run effects of tighter environmental policy are subsequently examined and the results are also found to be dependent on the above factors

the price puzzle in the monetary transmission vars with long run restrictions abstract this study addresses the price puzzle a positive response of prices to monetary tightening in var models by using long run instead of the usual short run restrictions on the us data including output prices and interest rate we find that monetary tightening had a negative effect on prices

monetary policy housing rents and inflation dynamics in this paper we study the effect of monetary policy shocks on housing rents our main finding is that in contrast to house prices housing rents increase in response to contractionary monetary policy shocks we also find that after a contractionary monetary policy shock rental vacancies and the homeownership rate decline this combination of results suggests that monetary policy may affect housing tenure decisions own versus rent in addition we show that with the exception of the shelter component all other main components of the consumer price index cpi either decline in response to a contractionary monetary policy shock or are not responsive these findings motivated us to study the statistical properties of alternative measures of inflation that exclude the shelter component we find that measures of inflation that exclude shelter have most of the statistical properties of the widely used measures of inflation such as the cpi and the price index for personal consumption expenditures but have higher standard deviations and react more to monetary policy shocks finally we show that the response of housing rents accounts for a large proportion of the price puzzle found in the literature

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

understanding the heterogeneity of savings and asset allocation a behavioral economics perspective why do saving rates and the proportion of savings invested in stocks substantially increase with income this paper sheds light on this question from the perspective of a new bounded rationality life cycle model it has been shown elsewhere that this model is better than existing ones at predicting how savings and asset allocation choices vary over the life cycle in this paper it is shown that a very simple version of the same model also allows for a better understanding of the variation in savings and asset allocation choices across income groups

an adjustment restriction on fish quota resource rents overcapacity and recovery of fish stock management objectives of the european union for north sea fish stocks are shifting towards considering both biological sustainability and economic benefits as part of multiannual management plans an adjustment restriction on fish quota has been introduced its objective is to obtain an efficient fish stock and to reduce overcapacity for the fishing industry we develop and apply a bi level stochastic dynamic programming model to study the effect of a quota adjustment restriction on the net present value of resource rents overcapacity and fish stock when the system is recovering from a downward environmental shock at level one a policy maker sets the quota considering fishermen behavior stochastic fish stock dynamics capital stock dynamics and a quota adjustment restriction at level two fishermen harvest myopically and make long term investment decisions assuming that fish stock and quota do not change over time the two levels are linked by the quota which is optimized by the policy maker at level one and becomes a restriction for myopic harvest and long term investment decisions of fishermen at level two our analysis suggests that in the long run overcapacity can be reduced by 54 at modest costs namely at a 1 reduction in the net present value of resource rents long and short run sustainability of the fish stock is not affected

environmental policy under a non market discount rate abstract this paper looks at pollution emissions when a non market discount rate is used to evaluate environmental policy and policy is subject to continuous review through time it is shown that a non market rate leads to time inconsistent policy future regulators will want not to follow the current regulator s optimal plans even when the current regulator has perfect foresight and there is no uncertainty therefore the discount rate has different effects depending on whether government can commit to future environmental regulation we then show in a simple linear model that when the environmental discount rate is below the market rate pollution is higher under no commitment than under commitment even under no commitment however a lower discount rate leads to lower emissions we argue that the debate might be better framed over prices i e the value of the environment in the future rather than the discount rate this treatment removes the inconsistency problem yet ensures that future generations interests are represented in policy decisions

monetary shocks in the g 6 countries is there a puzzle les auteurs cherchent a clarifier la dynamique du mecanisme de transmission de la politique monetaire l identification des chocs de politique monetaire est au coeur de ce genre d analyse divers chercheurs ont reussi recemment a isoler de tels chocs en imposant des restrictions de suridentification a des modeles vectoriels autoregressifs var

limits to cba in uk and european environmental policy retrospects and future prospects this paper reviews the contemporary debate and the now long standing role of cba in uk and european environmental policy appraisal epa and looks forward to possible future applications the position taken is that despite its limitations cba still has an important part to play in epa however with the increasingly contested nature of environmental and related public policies and outcomes its role will become less prescriptive and its findings more constrained by social justice and ethical imperatives future cba is more likely to continue to flourish as a component in a wider policy analysis and decision support system whatever decision support system is eventually adopted its value will be judged on how well it aids real policymakers operating iteratively in the non linear real world political economy

the effect of monetary policy shocks on macroeconomic variables evidence from the eurozone this paper investigates how european central bank ecb monetary policy shocks impact industrial production output and inflation prices i gather a novel dataset of macroeconomic forecasts and using a narrative approach i construct a new measure of monetary policy shocks industrial production responds to an unpredictable positive monetary policy shock of 100 basis points with a decline of over 0 5 on the contrary inflation responds weakly with a very modest decrease of 0 05

political factors in international economics an overview abstract the intellectual interaction between politics and economics is not new theolder term to describe what economists do political economy which until recently survived only in french translation and on the masthead of one of the premier professional journals is a case in point a more pertinent example is provided by developments over the past two decades in the field of industrial organization the shift from an exclusively public interest view of economic regulation to one in which regulation is seen as the result of interaction between utility maximizing politicians and various interest groups 1 the extension of such ideas to international economics is i believe both necessary and desirable and as these papers indicate with the right experimental design it can also prove highly illuminating

declining discount rates the long and the short of it the last few years have witnessed important advances in our understanding of time preference and social discounting in particular several rationales for the use of time varying social discount rates have emerged these rationales range from the ad hoc to the formal with some founded solely in economic theory while others reflect principles of intergenerational equity while these advances are to be applauded the practitioner is left with a confusing array of rationales and the sense that almost any discount rate can be justified this paper draws together these different strands and provides a critical review of past and present contributions to this literature in addition to this we highlight some of the problems with employing ddrs in the decision making process the most pressing of which may be time inconsistency we clarify their practical implications and potential pitfalls of the more credible rationales and argue that some approaches popular in environmental economics literature are ill conceived finally we illustrate the impact of different approaches by examining global warming and nuclear power investment this includes an application and extension of newell and pizer discounting the benefits of climate change mitigation how much do uncertain rates increase valuations journal of environmental economics and management 46 2003 52 to uk interest rate data