precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

optimal discretionary monetary policy in a model of asymmetric central bank preferences this paper considers optimal monetary policy in the context of the central bank adopting an asymmetric objective function our results show that under asymmetric preferences many of the extant results on the time consistency problem need no longer hold

is the european community an optimal currency area optimal taxation versus the cost of multiple currencies the authors propose a view of optimal currency areas that is based on the principles of public finance inflation taxes are distortionary and an optimal spreading of tax distortions may require high inflation in one region and low inflation in another each region would need its own currency to do this on the other hand multiple currencies imply valuation and currency conversion costs which impede trade between regions this tradeoff is explored in the context of the european community s debate over a common currency using a two country variant of robert lucas and nancy stokey s cash in advance model copyright 1990 by american economic association

measuring the time inconsistency of us monetary policy this paper offers an alternative explanation for the great inflation of the 1970s by measuring a novel source of monetary policy time inconsistency in the presence of asymmetric preferences the monetary authorities generate a systematic inflation bias through the private sector expectations of a larger policy response in recessions than in booms the estimated fed s implicit target for inflation has declined from the pre to the post volcker regime the average inflation bias was about 1 before 1979 but this has disappeared over the last two decades because the preferences on output stabilization were large and asymmetric only in the former period

the risk taking channel of monetary policy transmission in the euro area abstract in this paper we provide evidence for a risk taking channel of monetary policy transmission in the euro area that works through the relaxation of lending standards for borrowers our dataset covers the period 2003q1 2016q2 and includes in addition to the standard variables for real gdp growth inflation and the monetary policy stance indicators of bank lending standards and bank lending margins based on vector autoregressive models with i recursive identification and ii sign restrictions we show that banks react aggressively to an expansionary monetary policy shock by lowering their lending standards the banks efforts to keep their lending margin stable however are not successful as we detect a significant compression we document these findings for the euro area as a whole and for its individual member states in particular banks in the netherlands portugal spain and ireland lowered their lending standards after expansionary monetary policy shocks the compression of the lending margin is most pronounced in the five crisis countries greece ireland italy portugal and spain

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

monetary and macroprudential policies in an estimated model with financial intermediation abstract we estimate the smets wouters model featuring the gertler karadi banking sector on us data using real and financial observables we investigate the gains from coordination between a flexible inflation targeting central bank and a macroprudential regulator charged with safeguarding financial stability the potential gains from coordination depend on how much importance is given to the output gap in the macroprudential mandate coordination conflicts can be avoided by assigning similar importance to this common objective in the respective mandates of both policies when we derive optimal mandates for monetary and macroprudential policy under no coordination we find that both policy makers should place a higher weight than society on the output gap

migration regional equilibrium and the estimation of compensating differentials in this study we have developed an improved model of net migration that encompasses both equilibrium and disequilibrium components instrumental variables fixed effects estimates of the model with time series data for 51 areas in the united states over the period 1971 1988 support the importance of both equilibrium and disequilibrium factors in migration excerpt

are monetary policy reaction functions asymmetric the role of nonlinearity in the phillips curve abstract this paper investigates the implications of a nonlinear phillips curve for the derivation of optimal monetary policy rules combined with a quadratic loss function the optimal policy is also nonlinear with the policy maker increasing interest rates by a larger amount when inflation or output are above target than the amount it will reduce them when they are below target specifically the main prediction of our model is that such a source of nonlinearity leads to the inclusion of the interaction between expected inflation and the output gap in an otherwise linear taylor rule we find empirical support for this type of asymmetries in the interest rate setting behaviour of four european central banks but none for the us fed

outsiders at the bank of england s mpc the monetary policy committee mpc of the bank of england which was established in may 1997 consists of five internal and four external members we study the voting record and show that insiders dissent rarely and typically for higher rather than lower rates whereas outsiders dissent more often prefer lower rates and disagree with the majority when economic growth slows moreover their dissents forecast future interest rate changes we show that a model in which outsiders dislike output below potential more than output above replicates the observed voting pattern well

managing an economy under emu the case of ireland ireland s experience of limited monetary independence within the ems indicated that such independence was bought at the price of significant risk premia on interest rates this experience informed its decision to join emu and membership has resulted in the expected credibility gain since the start of emu inflation in consumer prices in ireland has risen well above the eu average however this need not be a matter of concern within a monetary union instead what should concern the irish administration is a high rate of inflation in wage rates and domestic asset prices chiefly housing while monetary policy is no longer available as an instrument of domestic policy fiscal policy can still be used to effectively target these problems the lessons of the first three years of membership is that the focus of fiscal policy within ireland needs to change and that the eu institutions also need to focus more clearly on the needs of the euro area rather than on those of individual regional economies

capitalization and the theory of local public finance the tiebout literature is incomplete this paper argues because it has not fully accounted for the capitalization of local fiscal variables into house values the paper explains why capitalization arises why it persists in long run equilibrium how it affects both residential location and the outcome of local voting and why it interferes with the efficiency of a system of local governments the analysis which is based on the main tiebout assumptions plus a property tax combines a model of household bids in a housing market with a median voter model of local public service determination

exchange rate policy wage formation and credibility abstract since the collapse of the bretton woods system some european countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector these countries which typically feature centralized wage setting have also tended to experience high nominal wage increases the overall outcome may be described as a devaluation wage spiral this paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union it is shown how a devaluation wage spiral may result from a conflict of interest over the real wage it is also shown how reputational forces may provide a way out of the devaluation wage spiral

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

nairu uncertainty and nonlinear policy rules meyer 1999 has suggested that episodes of heightened uncertainty about the nairu may warrant a nonlinear policy response to changes in the unemployment rate this paper offers a theoretical justification for such a nonlinear policy rule and provides some empirical evidence on the relative performance of linear and nonlinear rules when there is heightened uncertainty about the nairu

does macro prudential regulation leak evidence from a uk policy experiment the regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro prudential regimes internationally for such regulation to be effective in controlling the aggregate supply of credit it must be the case that i changes in capital requirements affect loan supply by regulated banks and ii unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks this paper examines micro evidence lacking to date on both questions using a unique data set in the uk regulators have imposed time varying bank specific minimum capital requirements since basel i it is found that regulated banks uk owned banks and resident foreign subsidiaries reduce lending in response to tighter capital requirements but unregulated banks resident foreign branches increase lending in response to tighter capital requirements on a relevant reference group of regulated banks this leakage is substantial amounting to about one third of the initial impulse from the regulatory change

unveiling the ecb s monetary policy behaviour under different inflation regimes this paper provides clear cut evidence that the ecb follows an asymmetric monetary policy rule concerned more with inflation rather than sustaining economic growth the driving force of interest rate cuts is the fall of the inflation rate below its target level the paper evaluates the implications of the above policy on real activity by simulating a small new keynesian model this clearly indicates that the reaction of the ecb to negative output deviations and or to financial stress conditions in the low inflation regime fails to reduce the adverse effects of negative demand and financial sector shocks on economic activity

loss aversion and the asymmetric transmission of monetary policy there is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity while price responses display no sizeable asymmetry to rationalize these facts we develop a dynamic general equilibrium model where households utility depends on consumption deviations from a reference level below which loss aversion is displayed state dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation contractions face the central bank with higher responsiveness of output to interest rate changes as well as a flatter aggregate supply schedule

inflation targeting under asymmetric preferences this paper develops and estimates a game theoretical model of inflation targeting where the central banker s preferences are asymmetric around the targeted rate specifically positive deviations from the target can be weighted more or less severely than negative ones in the central banker s loss function it is shown that some of the previous results derived under the assumption of symmetry are not robust to this generalization of preferences estimates of the central banker s preference parameters for canada sweden and the uk are statistically different from the one implied by the commonly used quadratic loss function

regional sorting of human capital the choice of location among young adults in sweden berck p tano s and westerlund o regional sorting of human capital the choice of location among young adults in sweden regional studies migration rates are highest among young adults especially students and their location choices affect the regional distribution of human capital growth and local public sector budgets using swedish register data on young adults the choice of whether to enrol in education and the choice of location are estimated jointly the results indicate a systematic selection into investment in further education based on school grades and associated preferences for locations with higher per capita tax bases for students the estimates indicate lower preferences for locations with higher shares of older people the importance of family networks for the choice of location is confirmed

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

optimal monetary policy revisited does considering us real time data change things croushore 2011 and others have noted that monetary policy may be sensitive to inconsistencies between real time data available to policy makers when making their decisions and revised data which more accurately measureeconomic performance this paper extends the asymmetric preferencemodel suggested by ruge murcia 2003 in order to focus on these inconsistencies which arise because of the long lag between the real time data release and the revised data release we focus on two related monetary policy models in both models the central banker targets a weighted average of revised and real time inflation the models differ by what the second variable is in the monetary objective function with the first model using a weighted average of revised and real time output whereas the second model uses a weighted average of revised and real time unemployment our models identify several new potential sources of inflation bias due to data revisions in addition to the ones previously suggested in the literature our empirical results suggest that the federal reserve bank mainly focuses on targeting revised data for all three variables but it does weigh real time data too as a consequence the inflation bias induced by real time data increases by 12 6 basis points on average but this figure becomes roughly twice as large at the start of recessions

optimal monetary policy with asymmetric preferences for output abstract we extend ruge murcia 2003 2004 to weigh inflation and output and show that empirical evidence supports an asymmetric preference hypothesis for output we also find evidence that the monetary authority targets potential output in parallel to barro and gordon 1983

monetary policy bank leverage and financial stability abstract this paper shows that with limited liability banks lever up excessively to finance new loans lower monetary policy rates can worsen or reduce these incentives depending on the size of the shock when equity financing is ruled out when this constrained is relaxed but the bank faces costly dividend adjustment lower monetary policy rates always worsen risk taking incentives and the effect is persistent the reason is that costly dividend adjustment lowers the opportunity cost of lending in this model capital requirements are closer to the source of the distortion and thus work better than loan to value caps in reducing excessive risk taking

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

asymmetric monetary policy rules in australia abstractin this study the hypothesis that the reserve bank of australia rba implements an asymmetric monetary policy rule is tested we estimate both linear and asymmetric monetary policy reaction functions for the period before inflation targeting was adopted for the period when inflation targeting was explicitly adopted and for the full sample period the results of the linear monetary policy rules are consistent with the estimates reported from other studies that estimate linear monetary policy rules for australia on the other hand the results of estimating the asymmetric monetary policy rules for the pre inflation targeting period shows that the rba had reacted symmetrically suggesting that it had acted with the same aggressiveness towards both inflation and output gaps of the same magnitude over both phases of the business cycle however for the inflation targeting period the results show that the rba had reacted asymmetrically in its policy response to the inflation gap output gap or both

income segregation and local progressive taxation empirical evidence from switzerland this study investigates spatial income segregation in fiscally decentralized urban areas the theoretical part proposes the progressivity of local income taxes as a new theoretical explanation for income segregation the empirical part studies how income tax differentials across municipalities affect the households location decisions i use data from the swiss metropolitan area of basel that contains tax information on all moving households in 1997 the location choice of the households is investigated within the framework of the random utility maximization model different econometric specifications of the error term structure such as conditional logit nested logit and multinomial probit are compared the empirical results show that rich households are significantly and substantially more likely to move to low tax municipalities than poor households this result holds after controlling for alternative explanations of segregation social interactions and distance from the central business district are established as other major factors for income segregation households in general tend to choose locations close to other households like themselves

modelling monetary policy inflation targeting in practice this paper estimates a simple structural model of monetary policy in the uk focusing on the policy of inflation targeting introduced in 1992 we find that i the adoption of inflation targeting led to significant changes in monetary policy ii post 1992 monetary policy is asymmetric as policy makers respond more to upward deviation of inflation away from the target iii post 1992 policy makers may be attempting to keep inflation within the 1 4 2 6 range rather than pursuing a point target of 2 5 and iv the response of monetary policy to inflation is nonlinear as interest rates respond more when inflation is further from the target

housing demand and community choice an empirical analysis abstract housing demand reflects the household s simultaneous choice of the neighborhood whether to own or rent the dwelling and the quantity of housing services demanded existing literature emphasizes the final two factors but overlooks the choice of community this paper develops an econometric model that incorporates all three components and then estimates this model using a sample of tampa florida households incorporating community choice increases the price elasticity of demand and reduces the differential between white and comparable nonwhite households the results are robust to the inclusion of permanent income and taxes

the informational content of prices when policy makers react to financial markets abstract when can policy makers use policy relevant information from financial market prices and how does policy affect price informativeness i analyze a novel setting with noise where a policy maker tries to infer information about a state variable from prices to improve policy decisions and policy in turn affects asset values i derive a necessary and sufficient condition for the possibility of information revelation in equilibrium which might not be possible if the policy reaction to prices punishes traders for revealing their information if the policy maker is uninformed then policy objectives do not change price informativeness but they do if the policy maker has independent information about the state i also analyze policy maker transparency and find that policy makers with objectives having a large impact on asset values should publish their information before trading to make prices more informative in other cases intransparency can be optimal

robust monetary policy structural breaks and nonlinearities in the reaction function of the central bank of brazil abstract in this work we seek to investigate the existence of nonlinearities in the reaction function of the central bank of brazil arising from this policymaker s uncertainties about the effects of the output gap on inflation theoretically we follow tillmann 2011 to obtain a nonlinear optimal monetary policy rule that is robust to uncertainty about the output inflation trade off of the phillips curve in addition we perform structural break tests to assess possible changes in the conduct of the brazilian monetary policy during the inflation targeting regime the results indicate that i the uncertainties about the slope in the phillips curve implied nonlinearities in the central bank of brazil s reaction function ii we cannot reject the hypothesis of a structural break in the monetary rule parameters occurring in the third quarter of 2003 iii there was an increase in the response of the selic rate to output gap and a weaker response to the current inflation gap in meirelles tombini s administration and iv the central bank of brazil has also reacted to the exchange rate in meirelles tombini s administration

capital regulation and monetary policy with fragile banks optimizing banks subject to runs are introduced in a macro model to study the transmission of monetary policy and its interplay with bank capital regulation when banks are risky a monetary expansion and a positive productivity shock increase bank leverage and risk risk based capital requirements amplify the cycle and are welfare detrimental within a class of simple policy rules the best combination includes mildly anticyclical capital ratios as in basel iii and a response of monetary policy to asset prices or bank leverage

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

a conditional logit model of the role of local public services in residential choice this study develops and estimates an econometric model of choice among residential communities the econometric method employed is maximum likelihood estimation of a multinomial logit this makes i

distinguished lecture on economics in government what central bankers could learn from academics and vice versa academic writing about monetary policy has been useful to practical central bankers but more of certain aspects of the economists way of thinking could profitably be imported on the other hand academics could improve their analysis and make it more useful to policymakers if they would pay more attention to certain real world aspects of monetary policy the author draws on his experience at the federal reserve board to point out a number of specific lessons for each side

policy regime changes judgment and taylor rules in the greenspan era this paper investigates policy deviations from linear taylor rules motivated by the risk management approach followed by the fed during the greenspan era we estimate a nonlinear monetary policy rule via a logistic smoothing transition regression model where policy makers judgment proxied by economically meaningful variables drives the transition across policy regimes we find that ignoring judgment induced nonlinearities while estimating taylor rules has remarkable costs in terms of fit above 250 bps in 10 quarters although linear taylor rules describe well the broad contours of monetary policy they fail to detect relevant policy decisions driven by policy makers judgment

inflation targeting some extensions previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks consequences of model uncertainty and effects of interest rate smoothing and stabilization model uncertainty output stabilization and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target the conditional inflation forecast is the natural intermediate target during inflation targeting the optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action jel classification e42 e52 e58

asymmetric size dependent effects of the output gap on inflation us evidence from the last half a century this article examines asymmetric size and sign dependent effects of the output gap on the us quarterly inflation rate using data from the last half a century 1959q2 2013q1 consistent with previous studies it is found that the consumer price index is cointegrated with the unit labour cost and the price of oil a short run dynamic model is then estimated in which variations in the output gap are divided into three groups large positive large negative and small medium positive negative the results provide convincing evidence that only sufficiently large positive or negative variations of the output gap can significantly influence inflation put otherwise relatively small to medium changes in the output gap exert no significant impact on inflation and if not separated they can somewhat obscure the significant effects associated with large variations of the output gap this study can lead to greater consensus on the inflation output gap nexus the findings remain robust despite the use of differen

macroprudential and monetary policies implications for financial stability and welfare in this paper we analyze the implications of macroprudential and monetary policies for business cycles welfare and financial stability we consider a dynamic stochastic general equilibrium dsge model with housing and collateral constraints a macroprudential rule for the loan to value ratio ltv which responds to credit growth interacts with a traditional taylor rule for monetary policy we compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non coordinated way we find that both policies acting together unambiguously improves the stability of the system in both cases this interaction is welfare improving for the society especially in the case of the non coordinated game there is though a trade off between borrowers and savers however borrowers can compensate the saver s welfare loss view the mathml sourcela kaldor hicks to achieve a pareto superior outcome

changes in the federal reserve s inflation target causes and consequences this paper estimates a new keynesian model to draw inferences about the behavior of the federal reserve s unobserved inflation target the results indicate that the target rose from 1 1 4 percent in 1959 to over 8 percent in the mid to late 1970s before falling back below 2 1 2 percent in 2004 the results also provide some support for the hypothesis that over the entire postwar period federal reserve policy has systematically translated short run price pressures set off by supply side shocks into more persistent movements in inflation itself although considerable uncertainty remains about the true source of shifts in the inflation target jel e31 e32 e52

does the reserve bank of australia follow a forward looking nonlinear monetary policy rule abstractthe conventional monetary policy rule describes a simple linear relationship between the domestic interest rate inflation rate and output gap an important extension to this rule is to inc

macroeconomic stability and the preferences of the fed a formal analysis 1961 98 the rate of inflation in the u s has declined from an average of 4 5 in the period 1960 79 to an average of 3 6 in 1980 98 between those two periods the standard deviations of inflation and the output gap have also declined these facts can be attributed to the interaction of three possible factors a shift in central bank preferences a reduction in the variability of aggregate supply shocks and a more efficient conduct of monetary policy in this paper we identify the relative roles of these factors our framework is based on the estimation of a small structural macro model for the u s economy jointly with the first order conditions which solve the intertemporal optimization problem faced by the fed overall our results indicate that the policy preferences of the fed and in particular the implicit inflation target have changed drastically with the advent of the volcker greenspan era in addition we find that the variance of supply shocks has been lower and monetary policy has been conducted more efficiently during this period

the advantage of tying one s hands ems discipline and central bank credibility abstract it is often argued that the ems is an effective disciplinary device for inflation prone countries in europe since it forces the respective policy makers to pursue more restrictive monetary policies than they would otherwise it is not clear however why these countries should submit themselves to such discipline this paper argues that to answer this question appropriately one must consider that ems membership brings potentially large credibility gains policy makers in inflation prone countries the reason is that not only it attaches an extra penalty to inflation in terms of real appreciation but makes the public aware that the policy maker is faced with such penalty and thus helps to overcome the inefficiency stemming from the public s mistrust of the authorities

estimating preferences for local public services using migration data using swedish micro data the paper examines the impact of local public services on community choice the choice of community is modelled as a choice between a discrete set of alternatives it is found that given taxes high spending on child care attracts migrants less conclusive results are obtained with respect to the role of spending on education and elderly care high local taxes deter migrants relaxing the independence of the irrelevant alternatives assumption by estimating a mixed logit model has a significant impact on the results

adjustable pegs vs single currencies how valuable is the option to realign abstract one cost involved in going from an adjustable peg exchange rate regime to a system of irrevocably fixed exchange rates by the introduction of a single currency is that the participating members will forego the option to realign that is inherent in any adjustable peg system this issue is of relevance in europe where the introduction of a european monetary union and a single currency is actively contemplated this paper values the option to realign using recently developed methods of optimal regulation of brownian motion as exposited by dixit 1991

figuring out the fed beliefs about policymakers and gains from transparency in this paper i use a markov chain monte carlo algorithm to estimate a model of private sector behavior that does not feature private sector knowledge of the monetary policymaking process and instead leaves firms and households uncertain about how monetary policy is set the private sector entertains two competing views of monetary policymaking which i estimate firms and households use bayes law on a rolling data sample to distinguish between those two models i use this setup to study the evolution of beliefs about the federal reserve and the possible gains from transparency

loss aversion in aggregate macroeconomic time series abstract prospect theory has been the focus of increasing attention in many fields of economics however it has scarcely been addressed in macroeconomic growth models neither on theoretical nor on empirical grounds in this paper we use prospect theory in a stochastic optimal growth model thereafter the focus lies on linking the euler equation obtained from a prospect theory growth model of this kind to real macroeconomic data we will use generalized method of moments gmm estimation to test the implications of such a non linear prospect utility euler equation our results indicate that loss aversion can be traced in aggregate macroeconomic time series

one money for europe lessons from the us currency union currency union barry eichengreen the creation of a monetary union in europe is often justified by the desire to reap the full benefits of economic integration the complete removal of capital controls raises a large number of issues the case for free capital mobility is strong but not overwhelming it hinges on issues of technology transport costs market structure and labour mobility and in the end is an empirical matter for which us experience may provide useful information policy making institutions differ in important respects however the us tradition of fiscal federalism for example has no ec wide counterpart yet its functions seem a desirable feature of a monetary union in particular it is shown to play an important role in absorbing regional disturbances mostly via the tax system us experience also suggests that a currency union creates pressure for fiscal policy harmonization affecting both taxes and spending although a currency union fundamentally alters the balance of payments adjustment process the potential problem of depressed regions remains a serious one given the increased tightness of the external constraint the limited extent of labour mobility and other features of european labour markets solutions based on us experience include extensive swap facilities and a european version of fiscal federalism

the nonlinear phillips curve and inflation forecast targeting symmetric versus asymmetric monetary policy rules we study a simple small dynamic economy that a policymaker is attempting to control via use of a monetary policy rule the model features a convex phillips curve in that positive deviations of aggregate demand from potential are more inflationary than negative deviations are disinflationary using dynamic optimization techniques we find that the form of the optimal monetary policy reaction function is asymmetric we show that in the optimal rule the interest rate is a nonlinear function of the deviation of inflation from its target and of output from potential with asymmetry optimal monetary policy becomes more active as uncertainty about the impact of policy increases we thus provide an important and novel theoretical reason why increased uncertainty can lead to more aggressive rather than toward more cautious optimal policies

capital requirements and bank behavior in the uk are there lessons for international capital standards abstract the financial crisis prompted widespread interest in developing a better understanding of how capital regulation drives bank behavior this paper uses a unique comprehensive database of regulatory capital requirements on all uk banks to examine their effects on capital lending and balance sheet management behavior we find that capital requirements that include firm specific time varying add ons set by supervisors affect banks desired capital ratios and that resulting adjustments to capital and lending depend on the gap between actual and target ratios we use these results to measure the effects of a capital regime that includes features similar to those embedded in the uk framework our results suggest that countercyclical capital requirements may be less effective in slowing credit activity when banks can readily satisfy them with lower quality lower costing capital elements versus higher quality common equity given the size of the uk banking sector and the global nature of many of the largest institutions in the uk banking sector the results have implications for the ongoing debate surrounding the design and calibration of international capital standards

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

household migration and the local public sector evidence from sweden 1981 1984 westerlund o and wyzan m l 1995 household migration and the local public sector evidence from sweden 1981 1984 reg studies 29 145 157 in this paper the relationship between public sector attributes and household characteristics and swedish household migration 1981 4 is studied we report results separately for metropolitan and non metropolitan areas because the per capita levels of the tax base and intergovernmental grants are theoretically important migration determinants where population is sparse whilst the tax rate may be more important where population is dense because fiscal influences are likely to be stronger for short distance migration we apply multinomial logit to a three way choice set staying and migrating short and long distances empirical results support our fiscal hypotheses and are consistent with previous findings on household characteristics westerlund o et wyzan m l 1995 la migration des menages et le secteur public local des preuves provenant de la suede de

what makes cities attractive the determinants of urban labour migration in germany striking disparities characterise the population growth of cities in industrialised countries some cities suffer from ongoing population decline whereas other cities have experienced increasing numbers of inhabitants in recent years whether labour market conditions or amenities via their impact on migration primarily account for differences in cities demographic development is an important issue this paper investigates the determinants of the migration balance of german cities between 2000 and 2007 the focus is on the mobility of workers because labour migration in particular affects the future prospects of cities the findings suggest that not only labour market conditions but also amenities have an impact on the net migration rate moreover large cities seem to be ceteris paribus more attractive than small cities this finding possibly points to the importance of amenities such as cultural infrastructure and matching externalities in urban labour markets that are linked to city size urban policy aimed at enhancing the attractiveness of cities should thus consider both boosting the local economy and improving the quality of life

consumption paths under prospect utility in an optimal growth model this paper studies the cass koopmans ramsey model of optimal economic growth in the presence of loss aversion and habit formation the representative agent s preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution cies case and kahneman and tversky s prospect utility we find that the transitional dynamics of optimal consumption paths differ distinctly from the standard model in particular consumption smoothing is more pronounced we also show that prospect utility can cause the economy to remain in a steady state with low consumption and low capital

forecast uncertainty and the taylor rule abstract in this paper we derive a modification of a forward looking taylor rule by integrating two variables that measure the uncertainty of inflation and gdp growth forecasts into an otherwise standard new keynesian model we show that certainty equivalence in new keynesian models is a consequence of log linearization and that a second order taylor approximation leads to a reaction function that includes the uncertainty of macroeconomic expectations to test the model empirically we use the standard deviation of individual forecasts around the median consensus forecast as a proxy for forecast uncertainty our sample covers the euro area the united kingdom and the united states for the period 1990q1 2016q4 we find that the bank of england and the european central bank have a significantly negative reaction to inflation forecast uncertainty our findings also reveal that the federal reserve bank of england lowers raises its interest rate in response to higher gdp growth forecast uncertainty we conclude by offering some implications for optimal monetary policy rules and central bank watchers

robustness of the estimates of the hybrid new keynesian phillips curve abstract gali and gertler 1999 inflation dynamics a structural econometric approach journal of monetary eonomics 44 2 195 222 developed a hybrid variant of the new keynesian phillips curve that relates inflation to real marginal cost expected future inflation and lagged inflation gmm estimates of the model suggest that forward looking behavior is dominant the coefficient on expected future inflation substantially exceeds the coefficient on lagged inflation while the latter differs significantly from zero it is quantitatively modest several authors have suggested that our results are the product of specification bias or suspect estimation methods here we show that these claims are incorrect and that our results are robust to a variety of estimation procedures including gmm estimation of the closed form and nonlinear instrumental variables also as we discuss many others have obtained very similar results to ours using a systems approach including fiml techniques hence the conclusions of gg and others regarding the importance of forward looking behavior remain robust

policy mandates and institutional architecture abstract the model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability highlighting the role of shocks and policy instruments the paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important instead when society values financial stability internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model s parameter values

the fed s monetary policy rule and u s inflation the case of asymmetric preferences abstract this paper investigates the empirical relevance of a new framework for monetary policy analysis in which the decision makers are allowed but not required to weight differently positive and negative deviations of inflation and output from the target values the estimates of the central bank s euler equation indicate that the preferences of the fed had been asymmetric only before 1979 with the interest rate response to output contractions being larger than the response to output expansions of the same magnitude we show that this asymmetry on output implied an average inflation bias around 1 5 while the implicit inflation target also declined the asymmetric preferences induced inflation bias appears to account for a sizable fraction of the historical decline in the inflation mean

how does credit supply respond to monetary policy and bank minimum capital requirements abstract we use data on uk banks minimum capital requirements to study the interaction of monetary policy and capital requirement regulation uk banks were subject to both time varying capital requirements and changes in interest rate policy tightening of either capital requirements or monetary policy reduces the supply of lending lending by large banks reacts substantially to capital requirement changes but not to monetary policy changes lending by small banks reacts to both there is little evidence of interaction between these two policy instruments the differences in the responses of small and large banks identify important distributional consequences within the financial system of these two policy instruments finally our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macro prudential variation in capital requirements

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

testing asymmetries in central bank preferences in a small open economy a study for brazil abstract in this paper we extend surico s 2007a model to an open economy and test if the brazilian central bank s loss function is asymmetric with regard to positive and negative deviations of the output gap and of the inflation rate from its target furthermore we use tests for structural breaks to investigate changes in the conduct of policy and monetary authority s preferences the results revealed that the central bank reacted more strongly to deviations of inflation from the target and the output gap after 2003 with regard to the monetary authority s preferences estimates indicate only an asymmetric preference over an above target inflation rate until mid 2003 after this period the evidence obtained by estimating the reaction function with inflation expectations showed that the central bank has been more averse to positive deviations of inflation from its target

inflation targeting credibility and non linear taylor rules abstract in this paper we systematically evaluate how central banks respond to deviations from the inflation target we present a stylized new keynesian model in which agents inflation expectations are sensitive to deviations from the inflation target to re establish credibility monetary policy under discretion sets higher interest rates today if average inflation exceeded the target in the past moreover the central bank responds non linearly to past inflation gaps this is reflected in an additional term in the central bank s instrument rule which we refer to as the credibility loss augmenting a standard taylor 1993 rule with the latter term we provide empirical evidence for the interest rate response for a sample of five inflation targeting it economies we find first that past deviations from it feed back into the reaction function and that this influence is economically meaningful deterioration in credibility ceteris paribus forces central bankers to undertake larger interest rate steps second we detect an asymmetric reaction to positive and negative credibility losses with the latter dominating the former