the developmental effect of state alcohol prohibitions at the turn of the twentieth century john p lennon treasurer of the american federation of labor says that seventy percent of the drink bill of the united states is contributed by the american laboring man this means that liquor money is usually bread money meat money shoe money and money that ought to go for clothing american issue maryland edition june 12 1909 as cited in odegard 1928 i introduction work by economists provides considerable evidence consistent with the fetal origins hypothesis that various chronic health outcomes are prompted by an adverse in utero environment e g banerjee et al 2010 deschenes et al 2009 1 while the outcomes and conditions vary across studies the underlying findings emphasize the risks associated with negative exposures during this critical development period most studies in the fetal origins literature exploit the variation afforded by temporary adverse in utero shocks e g famines and focus on early life outcomes e g low birth weight however recent research in this area examines the effects in adulthood of positive in utero and childhood exposures for example hoynes schanzenbach and almond 2012 find that the beneficial effects of food stamp access in utero and during childhood persist into adulthood suggesting the potential for positive and sustained environmental changes during gestation and in early childhood to have long lasting impacts 2 results from bleakley 2007 suggest higher adult incomes among cohorts in the american south with more childhood exposure to hookworm eradication efforts 3 we contribute to this growing literature by exploiting the quasi randomization of alcohol consumption created by state level alcohol prohibition laws passed in the united states in the early part of the twentieth century we argue that such laws represented a positive shock to individuals who were in utero or who were young children around the times of the laws adoption using a large dataset of world war ii enlistees we examine the long term effects of these state prohibition laws on adult educational attainment obesity and height although we do not observe alcohol consumption and hence our results provide intent to treat estimates our design avoids the reporting problems associated with using more recent data on alcohol use we find small but statistically significant effects which do not appear to be the result of pre existing trends for two of the three outcome variables ii background reduced consumption of alcohol could lead to improved outcomes for those individuals in utero or in early childhood during this period through two channels first reduced alcohol consumption by the household members who likely consumed the most alcohol during this period namely men may have shifted resources to other members of the household namely women and children second reduced consumption by pregnant women themselves would reduce fetal exposure to alcohol we provide some historical evidence on the potential relevance of these mechanisms in the context of state level alcohol prohibitions a intrahousehold shift in resources to women and young children liquor traffic as the enemy of the home was a favorite theme of the anti saloon league and other temperance organizations of the time odegard 1928 42 4 the suggestive titles of pamphlets distributed by such organizations included better babies unborn children why babies die and boys worth more than taxes the obvious intention of such propaganda was to convey the message that the saloon culture and the alcohol consumption that came with it resulted in adverse outcomes for children and families that would be reversed under prohibition determining whether or not this reversal materialized is difficult given the lack of historical consumption data state level data on alcohol consumption are not available for this period however national data on consumption and other measures that are likely to be associated with consumption provide some evidence to suggest lower alcohol consumption in the period during which many states adopted alcohol prohibition laws

taylor rules for the ecb using expectations data we estimate taylor rules for the euro area using consensus economics data for expected inflation and output growth and compare these estimates with more conventional specifications in which actual outcomes are used we find that the ecb takes expected inflation and expected output growth into account in setting interest rates while in the more conventional model specification the coefficient of realized inflation is not significantly different from zero

insiders versus outsiders in monetary policymaking this paper looks at the voting patterns of internal and external members of the mpc to investigate how far there are differences between insiders and outsiders we make three contributions first we assess the extent to which the bank of england internally generated forecasts explain the mpc members voting decisions this is important as generating forecasts on a quarterly basis is a key part of the process used by the bank of england the forecast for inflation is made public in the inflation report while the output gap forecast is not second we use a random coefficient method of estimation in which the parameters of the interest rate rule are allowed but not required to be different across members third we find evidence of some heterogeneity in the intercept a measure of experience on the mpc and the interest rate smoothing parameter but no significant differences in the members reaction to the forecasts of inflation and the output gap this abstract was borrowed from another version of this item

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

monetary policy committees individual and collective reputations this paper looks at the incentives of individual members of a monetary policy committee to gain a reputation for inflationary toughness i show a policy maker can have more or less incentive to build a reputation when part of a group but group policy making leads to higher expected social welfare not publishing individuals votes raises the temptation to inflate and lowers expected social welfare if the culture or rules of a central bank puts more weight on senior policy makers the incentive to build a reputation is greater but expected social welfare may be higher or lower

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

what has and has not been learned about monetary policy in a low inflation environment a review of the 2000s as the world economy recovers from the worst financial crisis and most severe global slump in 75 years policymakers regulators and academics are focusing intensely and appropriately on lessons to be learned for monetary policy there are certainly many questions to answer among the most important are are inflation expectations well anchored what if any influence should asset quantities and prices have on monetary policy do we have sufficient confidence in our alternative monetary policy tools to stabilize the economy at the zero lower bound

does a good central banker make a difference the personalities of central bankers moved center stage during the recent financial crisis indeed several central bankers even became superstars in this article we investigate whether superstar central bankers have an impact on economic performance we employ school grades given to central bankers by the financial press defining as superstars those central bankers receiving the top grade first we explain the grades in a probit estimation with measures of economic performance institutional features and personal characteristics second we employ a matching approach to account for the endogeneity of grading with respect to economic performance using entropy balancing we identify credible counterfactuals for top graded central bankers that is nonsuperstar central bankers who face similar situations comparing the economic performance of both groups we find that superstars do indeed matter a top graded central banker faces a significantly more favorable output inflation tradeoff than his peers this effect is driven by outstanding central bankers in both advanced and emerging economies and is especially prevalent in the precrisis subsample jel e52 e58

search with learning understanding asymmetric price adjustments in many retail markets prices rise faster than they fall we develop a model of search with learning to explain this phenomenon of asymmetric price adjustments by extending our static game analysis to the dynamic setting we demonstrate that asymmetric price adjustments arise naturally when a positive cost shock occurs all the searchers immediately learn the true state the search intensity and hence the prices fully adjust in the next period when a negative cost shock occurs it takes longer for nonsearchers to learn the true state and the search intensity increases gradually leading to slow falling of prices

consumer search and dynamic price dispersion an application to gasoline markets this article studies the role of imperfect information in explaining price dispersion we use a new panel data set on the u s retail gasoline industry and propose a new test of temporal price dispersion to establish the importance of consumer search we show that price rankings vary significantly over time however they are more stable among stations at the same street intersection weestablishtheequilibriumrelationshipsbetweenpricedispersionandkeyvariables from consumer search models price dispersion increases with the number of firms in the market decreases with the production cost and increases with search costs

first impressions matter signalling as a source of policy dynamics we provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model first all policymaker types should become less tough on inflation over time and secondly types that weigh output more should have a more pronounced shift voting data from the bank of england s monetary policy committee strongly support both predictions counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle and improves the committee designer s welfare implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes

retail price cycles and the presence of small firms abstract in many canadian cities retail gasoline prices remain unchanged for weeks at a time while in other cities retail prices cycle increasing sharply and declining slowly in maskin and tirole econometrica 56 1988 571 both price cycles and rigid prices can exist in equilibrium in this article i demonstrate that the existence of these equilibria is dependent on the number of retail outlets operated by the firms constant price equilibria are found to exist only when firms are of similar size however cycle equilibria can be constructed for a wide range of relative sizes

monetary policy with uncertain central bank preferences this paper considers monetary policy when policy makers preferences are private information i show that in the first period of a two period term all policy makers but the least inflation averse inflate less but respond more to shocks than if there were no private information moderately inflation averse policy makers may reduce their inflation most a tendency toward increased conservatism in their second period increases inflation in the first with t period terms inflation depends solely on the policy maker s time left in office with unchanging preferences and no discounting inflation is lower the longer he has left

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

rational expectations and policy credibility following a change in regime we examine the dynamic path of an economy after a change in regime when neither the policy to be followed nor the reactions of the public are known the model is an application of kreps and wilson s reputation model to barro and gordon s macroeconomic policy game equilibrium is defined to be the dynamically consistent solution to a game between the government and the private sector it involves mixed strategies and bayesian learning by both sides until the uncertainty about government and public behaviour is resolved the absence of complete credibility of government policy and intransigence of private sector wage demands increase the output loss of disinflation the analysis also sheds light on the strategic nature of economic policymaking and the role of information in macroeconomics

a decade of dissent explaining the dissent voting behavior of bank of england mpc members we examine the dissent voting record of the bank of england monetary policy committee contrary to findings in the fomc literature for example havrilesky and schweitzer in the political economy of american monetary policy pp 197 210 1990 chappell et al in q j econ 108 1 185 218 1993 the effects of members career backgrounds and the political channel of appointment on voting behavior are negligible reflecting the distinct institutional constraints and incentives associated with uk monetary policy our findings also suggest that literature which characterizes voting behavior as being predominantly determined by members internal or external status is overly simplistic this view is supported by econometric results appertaining to the introduction of member specific fixed effects which account for possible unobserved heterogeneity

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

price dispersion in an automobile insurance market from automobile insurance data for alberta over the period 1974 81 we find thatpremiums are highly correlated across driver classes in a given year but that premiums for a given driver class are not correlated over a period of more than 5 years firms relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums in these driver classes the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured from these results we conclude that the price dispersion in automobile insurance in alberta is based on costly consumer search

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

oligopolistic pricing with heterogeneous consumer search abstract a finite number of identical stores sell a homogeneous good to consumers with heterogeneous search costs who search sequentially with perfect recall and without replacement consumers search rules are optimal with respect to the stores pricing strategies and consumers must visit a store to obtain information about its actual price a symmetric nash equilibrium sne always exists the model exhibits a variety of equilibrium behaviors between monopoly pricing and marginal cost pricing the competitiveness of a market depends crucially on the shape of the search cost distribution moreso than on the number of competing firms

the educational and professional background of central bankers and its effect on inflation an empirical analysis we assume that central banks can control inflation so that inflation rates reflect the preferences of the central bank council the hypothesis to be tested is that these preferences depend on the central bankers educational and or professional background in a panel data analysis for the euro area and eleven countries since 1973 we explain inflation either by the weights with which the educational and professional characteristics of the 391 council members were represented in the various central bank councils or by the education or profession of the median council members control variables are added using professional background weights we find that former members of the central bank staff and in some specifications former insurance executives commercial bankers other businessmen and public servants prefer significantly lower inflation rates than former union leaders and politicians do in the median voter analysis former central bankers commercial bankers businessmen and public servants are also significantly more inflation averse than economic scholars as for the education of the council members our results are less robust however if the median member of the central bank council has studied business the inflation rate is significantly lower than if she has studied economics taking educational and professional background together central banks seem to attract or produce primarily economists who are monetary conservatives whereas keynesian economists are more prominent in academia jel classification e42 e58

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

do markets care who chairs the central bank this paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy to measure these effects we assemble a new dataset of appointment announcements from 15 countries and conduct an event study analysis on exchange rates bond yields and stock prices our main findings are threefold first exchange rates and bond yields display a statistically significant response to the announcement of a new governor especially when the appointee s identity was not anticipated in advance second the reactions are especially pronounced for central banks lacking either independence or a clear nominal anchor third new governors are not generally perceived to lack credibility there is no tendency for announcements to be associated with jumps in inflation expectations

the policy preferences of fomc members as revealed by dissenting votes comment the purposes of this comment are to present evidence that casts doubt on several of the conclusions of susan belden s recent paper in this journal 1989 and to suggest directions for future research in this area to begin there is skepticism that dissenting votes at least as belden measures them can be unbiased indicators of policy preferences in addition belden partially recognizes but does not fully specify three influences on federal open market gommittee fomc member voting that are prominently featured in the literature these influences are 1 fomc member training background and career experience 2 state of the economy measures and 3 partisanship measures each of these factors alone may help to explain one of belden s three major findings first the training backgrounds and career experiences of bank presidents may help to explain belden s affirmation of their penchant to dissent from fomc directives on the side of monetary tightness second the state of the economy may help to explain belden s finding of a decline in dissent voting when arthur burns was chairman of the federal reserve third differences between the party of the president and the partisan composition of the board of governors may help to explain belden s discovery of shifts in ease and tightness dissent voting behavior under different chairmen since this comment will indicate how these influences qualify belden s elndings it will at the same time suggest fruitful directions for the research agenda in this area

reliable and unreliable partisan appointees to the board of governors every new appointment to the board of governors in recent years has triggered speculation as to how the new governor will vote in fomc meetings while several studies have hinted at partisan voting behavior by governors no study has yet attempted to identify reliable and unreliable partisan voting behavior and to pinpoint the background characteristics of governors that distinguish between the two this paper indicates that board members with a background in economics consistently voted in line with the economic ideology of the appointing president noneconomists on the board however displayed no such partisan voting behavior and were seen to be influenced by pressures emanating from the administration and by the monetary environment prior to their appointment over the 1951 to 1987 period most presidents have appointed reliable governors earlier in their presidential terms when the returns from being able to influence subsequent monetary policy are great and have chosen unreliable governors later in their terms when election support from the interest groups that these unreliables represent is important the results of the present paper suggest skepticism toward the recent spate of rational expectations game theoretic models which feature a dictatorial policy maker gaming atomistic market participants whose only political activity voting generates monetary surprises followed by convergence to an equilibrium because of their obsession with the ceremonial formalism of their genre these models ignore a vast complementary literature and as a consequence display conspicuously flimsy institutional and historical premises instead the present paper argues for the greater relevance of models of uncoordinated interaction between multiple political and private principals and federal reserve agents

price dispersion and competition with differentiated sellers i measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment significant price dispersion exists even after controlling for differences in station characteristics and price differences between sellers change frequently the extent of price dispersion is related to the density of local competition but this relationship varies significantly depending on the type of seller and the composition of its competitors these findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

optimal central bank transparency should central banks increase their degree of transparency any further we show that there is likely to be an optimal intermediate degree of central bank transparency up to this optimum more transparency is desirable it improves the quality of private sector inflation forecasts but beyond the optimum people might 1 start to attach too much weight to the conditionality of their forecasts and or 2 get confused by the large and increasing amount of information they receive this deteriorates the perceived quality of private sector inflation forecasts as a result inflation is set in a more backward looking manner resulting in higher inflation persistence by using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized our results indicate that while several central banks would benefit from further transparency increases some already have reached the optimal level

do businessmen make good governors this paper evaluates the economic performance of u s state governors with a business background chief executive officer ceo governors applying a matching method i find first that businesspeople tend to take office in times of economic and fiscal strain second the tenures of ceo governors are associated with a 0 5 percentage points pp higher annual income growth rate a 0 4 pp higher growth rate of the private capital stock and a 0 6 pp lower unemployment rate than are the tenures of non ceo governors state level income inequality is not affected by ceo governors holding office indicating that low income households benefit from the economic upswing

partisan monetary policies presidential influence through the power of appointment we investigate the channels through which partisan influence from a presidential administration could affect monetary policy making influence could be a result of direct presidential pressure exerted on members of the federal open market committee fomc or it could be a result of partisan considerations in presidential appointments to the board of governors to investigate these two channels of influence we devise and apply a method for estimating parameters of monetary policy reaction functions that can vary across individual members of the fomc our results suggest that the appointments process is the primary mechanism by which partisan differences in monetary policies arise

reputation in a model of monetary policy with incomplete information abstract previous models of rules versus discretion are extended to include uncertainty about the policymaker s type when people observe low inflation they raise the possibility that the policymaker is committed to low inflation type 1 this enhancement of reputation gives the uncommitted policymaker type 2 an incentive to masquerade as the committed type in the equilibrium the policymaker of type 1 delivers surprisingly low inflation with corresponding costs to the economy over an extended interval the type 2 person mimics this outcome for awhile but shifts eventually to high inflation this high inflation is surprising initially but subsequently becomes anticipated

preferences or private assessments on a monetary policy committee using bank of england voting data we show empirically that members votes are driven by heterogeneous individual assessments of the economy as well as their individual policy preferences estimates indicate that internal committee members form more precise assessments than externals and are also more hawkish the estimates allow the first quantification of the gain due to information aggregation on monetary policy committees the marginal gain from additional committee members tapers quickly after five members there is no evidence of gains through externals moderating internals preferences a relatively small committee of highly informed internal members emerges as a desirable committee structure

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