the disaggregated technology production function a new model of university and corporate research abstract technology and the process that produces it research and development r d are typically characterized as homogeneous entities in reality the typical industrial technology is composed of three elements a generic technology base supporting infratechnologies and proprietary market applications innovations the first two have public good characteristics and therefore explicitly modeling them is essential for public policy purposes the fundamental relationships among these elements require a technology production function that captures the supporting roles of the public good elements in creating proprietary applied technology these critical quasi public technology goods are supplied to a significant extent by exogenous external sources central corporate research labs government labs and increasingly universities the expanding university role beyond basic research complicates the structure and functioning of the national r d establishment and increases the need for a more accurate model of technological change to better inform r d policy moreover in assessing the resulting applied technology s impact on economic growth both the general and partial equilibrium literatures enter the technology variable into a production function with the common production assets physical capital and labor such models obscure an important distinction between technology and these production assets namely the fact that technology is primarily a demand shifting asset as such its role is correctly specified only when combined with the other major demand shifting asset marketing allocations to these two assets vary across competing firms implying a spatial model of competition while still providing traceability to the exogenous sources of public good technology elements such as universities

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

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

empirical evidence on inflation expectations in the new keynesian phillips curve abstract we review the main identification strategies and empirical evidence on the role of expectations in the new keynesian phillips curve paying particular attention to the issue of weak identi

robust policymaking in the face of sudden stops abstract this paper considers tax policies to deal with sudden stops declines in aggregate activity that are magnified by a binding collateral constraint that occasionally occur in emerging market economies households and or the government are assumed to face model uncertainty and desire robustness against alternative models welfare gains from optimal taxation are small if the government trusts its model of household expectations whether those expectations are altered by model uncertainty or not in contrast welfare losses are large if the government is uncertain about the household s probability model

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

classifying technology policy from an evolutionary perspective abstract for the classification of technology policy in an evolutionary framework the taxonomy of mission and diffusion oriented policy design introduced by ergas ergas h 1987 the importance of technology policy in dasgupta p stoneman p eds economic policy and technological performance cambridge univ press cambridge is useful however ergas indirect method of identifying the respective policy style is only able to give a first and rough insight in the technology policy of a specific country to improve on that we developed a so called direct method aiming at a sound characterization of single policy measures and giving a more detailed picture about policy orientation to demonstrate the basic procedure of the suggested approach it is applied empirically on the german technology policy of the last 2 decades

seasonal solow residuals and christmas a case for labor hoarding and increasing returns in aggregate unadjusted data measured solow residuals exhibit large seasonal variations total factor productivity grows rapidly in the fourth quarter at an annual rate of 16 percent and regresses sharply in the first quarter at an annual rate of 24 percent how much of the total seasonal variation in the measured solow residual can be explained by christmas the answer to this question is surprising with increasing returns and time varying labor effort christmas is sufficient to explain the seasonal variation in the solow residual consumption average productivity and output in all four quarters our analysis of seasonally unadjusted data uncovers important roles for labor hoarding and increasing returns that are difficult to identify in adjusted data prescott 1986 has argued that the variability of solow s residual is a reasonable estimate of the variability of exogenous technology shocks when solow s residual is measured using seasonally unadjusted data for the postwar u s economy it exhibits large seasonal variations growing rapidly in the fourth quarter at an annual rate of 16 percent and falling sharply in the first quarter at an annual rate of 24 percent this paper starts from the premise that it is implausible to attribute seasonal variation of this magnitude to changes in the state of technology we present a model in which all seasonal fluctuations arise from a single demand shift christmas this demand shift together with misspecification of the traditional production function leads to large seasonal variation in the solow residual we consider two candidates for misspecification labor hoarding and external increasing returns to scale even when technological growth is aseasonal either candidate in isolation can induce spurious seasonality in the solow residual our general equilibrium analysis indicates that 1 the economy s seasonal patterns in all four quarters may be a response simply to a fourth quarter consumption demand shift and 2 a combination of labor hoarding and external increasing returns is important for replicating these patterns in aggregate quantity variables for the postwar u s economy since our analysis identifies important roles for labor hoarding and increasing returns these results have implications for nonseasonal macroeconomic models indeed our analysis im

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

costly information planning complementarities and the phillips curve sticky information models capture the sluggish response of aggregate prices to monetary shocks but fail to match the magnitude and frequency of price changes at the microlevel this paper shows that accounting for the endogenous decision of when to acquire new information about different shocks can help overcome this shortcoming in the calibrated model prices change frequently and by large amounts in response to idiosyncratic shocks but sluggishly to monetary shocks the paper also highlights that many predictions of the sticky information and rational inattention models are the same and thus robust to different specifications of information processing costs

monetary policy trend inflation and the great moderation an alternative interpretation with positive trend inflation the taylor principle does not guarantee a determinate equilibrium we provide new theoretical results on determinacy in new keynesian models with positive trend inflation and new empirical findings on the federal reserve s reaction function before and after the volcker disinflation to find that i while the fed likely satisfied the taylor principle before volcker the us economy was still subject to self fulfilling fluctuations in the 1970s ii the us economy switched to determinacy during the volcker disinflation and iii the switch reflected changes in the fed s response to macroeconomic variables and the decline in trend inflation jel e12 e23 e31 e32 e52

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

discretionary monetary policy and the zero lower bound on nominal interest rates abstract ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in new keynesian models a stochastic forward looking model with an occasionally binding lower bound calibrated to the u s economy suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy the fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound the welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the phillips curve these results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

can fiscal spending stimulate private consumption abstract empirically government expenditure shocks seem to crowd in private consumption while neoclassical and new keynesian models predict crowding out we derive conditions under which a government in utility specification in a sticky price model helps to reconcile theory and evidence

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

fixed and variable rate mortgages business cycles and monetary policy the aim of this paper is twofold first i study how the proportion of xed and variable rate mortgages in an economy can aect the way shocks are propagated second i analyze optimal implementable simple monetary policy rules and the welfare implications of this proportion i develop and solve a new keynesian dynamic stochastic general equilibrium model that features a housing market and a group of constrained individuals who need housing collateral to obtain loans a given proportion of constrained households borrows at a variable rate while the rest borrows at a xed rate the model predicts that in an economy with mostly variable rate mortgages an exogenous interest rate shock has larger eects on borrowers than in a xed rate economy aggregate eects are also larger for the variable rate economy for plausible parametrizations dierences are muted by wealth eects on labor supply and by the presence of savers more persistent shocks such as in ation target and technology shocks cause larger aggregate dierences from a normative perspective i nd that in the presence of collateral constraints the optimal taylor rule is less aggressive against in ation than in the standard sticky price model furthermore for given monetary policy a high proportion of xed rate mortgages is welfare enhancing

sticky inflation and the real effects of exchange rate based stabilization abstract this paper tests the empirical validity of the forward looking pricing hypothesis using data from four exchange rate based stabilization erbs episodes it finds that backward looking components of inflation play an important role in inflation dynamics in some cases exceeding the importance of forward looking components the paper then shows that the presence of empirically relevant degrees of inflation stickiness increases the size of the real exchange rate appreciation predicted by an imperfect credibility model of erbs the 12 real appreciation predicted by the sticky inflation model is a 70 improvement over the predictions of the fully forward looking pricing setup but as in other erbs models still falls short of matching the real appreciations observed in practice

some implications of learning for price stability abstract survey data on expectations of a range of macroeconomic variables exhibit low frequency drift in a new keynesian model consistent with these empirical properties optimal policy in general delivers a positive inflation rate in the long run two special cases deliver classic outcomes under rational expectations as the degree of low frequency variation in beliefs goes to zero the long run inflation rate coincides with the inflation bias under optimal discretion for non zero low frequency drift in beliefs as households become highly patient valuing utility in any period equally the optimal long run inflation rate coincides with optimal commitment price stability is optimal the optimal state contingent response to cost push disturbances similarly reflects properties of optimal discretion and optimal commitment depending on the degree of low frequency variation in beliefs when beliefs exhibit substantial variation in response to short run forecast errors optimal policy is closer to commitment

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

a tale of fat tails abstract we document the extent to which major macroeconomic series used to inform linear dsge models can be characterized by power laws whose indices we estimate via maximum likelihood assuming data follow a linear recursion with multiplicative noise low estimated indices suggest fat tails we then ask whether standard dsge models under constant gain learning can replicate those fat tails by an appropriate increase in the estimated gain and without much change in the transmission mechanism of shocks we find that is largely the case via implementation of a minimum distance estimation method that eschews any allegiance to distributional assumptions

real and nominal propagation of nominal shocks the role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model while neither a real propagation mechanism capital acccumulation with one period nominal contracts nor nominal propagation staggered nominal contracts in the absence of any real propagation can generate plausible impulse responses with strong persistence it is shown that the two mechanisms interact so as to strengthen persistence possibly unit roots and generate more plausible impulse responses

institutional resource regimes towards sustainability through the combination of property rights theory and policy analysis abstract although the concept of sustainable development is gaining increasing political acknowledgement despite the implementation of environmental policies specifically intended to solve problems in this area environmental degradation resulting from the recurrent problems associated with the over exploitation of natural resources remains an important concern for most countries how can this situation be explained this article postulates that a combination of approaches from the political sciences in particular policy analysis and institutional economics would enable the identification of the most relevant regulatory dimensions which can explain the un sustainable uses of resources based on this starting point it develops an innovative theoretical framework i e that of the institutional resource regime irr the adopted approach facilitates the analysis of the regulatory measures and resource management practices associated with complex and competitive heterogeneous use situations from a perspective of sustainability indeed the two dimensions of extent and coherence enable the definition and categorization of the irr of a given resource the extent of an irr refers to the total number of goods and services in use that are actually regulated by the regime at a given time while the coherence measures the degree of coordination of the various user actors within the regime one of the major contributions of the irr framework is its ability to describe the different configurations of regimes both theoretically and empirically and to predict their effect on the sustainability of a resource based on the hypothesis that high levels of regime extent and coherence are necessary preconditions for sustainability by doing this the irr framework also enables the analysis of the actual use rights to the goods and services provided by resources as the result of the political strategies of actors who mobilize different legal provisions which stem either from formal property rights to resources or from policies that regulate the use and protection of these resources having developed the central research hypotheses and the empirical research procedure we present the lessons drawn from the first campaign of field research which was mainly conducted in switzerland from 1999 based on the evidence from these initial findings it is suggested that the scope of the irr framework could be far broader than evidenced by its application in the case of switzerland where it was initially developed

optimal monetary policy under commitment with a zero bound on nominal interest rates we determine optimal monetary policy under commitment in a forwardlooking new keynesian model when nominal interest rates are bounded below by zero the lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear a calibration to the u s economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached while the empirical magnitude of u s mark up shocks seems too small to entail zero nominal interest rates shocks affecting the natural real interest rate plausibly lead to a binding lower bound under optimal policy however this occurs quite infrequently and does not imply positive average inflation rates in equilibrium interestingly the presence of binding real rate shocks alters the policy response to non binding markup shocks

inflation stabilization and welfare the case of a distorted steady state this paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price setting rotemberg and woodford 1997 and woodford 2002 have shown that under certain conditions a local approximation to the expected utility of the representative household in a model of this kind is related inversely to the expected discounted value of a conventional quadratic loss function in which each period s loss is a weighted average of squared deviations of inflation and an output gap measure from their optimal values zero however those derivations rely on an assumption of the existence of an output or employment subsidy that offsets the distortion due to the market power of monopolistically competitive price setters so that the steady state under a zero inflation policy involves an efficient level of output here we show how to dispense with this unappealing assumption so that a valid linear quadratic approximation to the optimal policy problem is possible even when the steady state is distorted to an arbitrary extent allowing for tax distortions as well as market power and when as a consequence it is necessary to take account of the effects of stabilization policy on the average level of output we again obtain a welfare theoretic loss function that involves both inflation and an appropriately defined output gap though the degree of distortion of the steady state affects both the weights on the two stabilization objectives and the definition of the welfare relevant output gap in the light of these results we reconsider the conditions under which complete price stability is optimal and find that they are more restrictive in the case of a distorted steady state we also consider the conditions under which pure randomization of monetary policy can be welfare improving and find that this is possible in the case of a sufficiently distorted steady state though the parameter values required are probably not empirically realistic

three types of robust ramsey problems in a linear quadratic framework abstract this paper studies robust ramsey policy problems in a general discrete time linear quadratic framework when the ramsey planner faces three types of ambiguity this framework includes both exogenous and endogenous state variables in addition the equilibrium system from the private sector contains both backward looking and forward looking dynamics we provide recursive characterizations and algorithms to solve for robust policy we apply our method to a basic new keynesian model of optimal monetary policy with persistent cost push shocks we find that i all three types of ambiguity make optimal monetary policy more history dependent but with different reasons for each type and ii they deliver qualitatively different initial responses of inflation and the output gap following a cost push shock

a catalytic and evolutionary approach to horizontal technology policies htps abstract this paper presents an evolutionary framework for horizontal technology policies htps especially market friendly ones involving project based incentives e g rd and they complement the more specific and well known selective and vertical policies aimed at individual sectors and technologies the analysis is conducted within a learning to innovate framework with emphasis on collective organizational learning search and market building the outcome is a technology policy cycle with distinct infant growth and mature phases proactive generation of a critical mass of projects for efficient learning and diffusion of innovation routines becomes the aim of the infant phase while the mature phase of the policy should focus on policy restructuring including drastic reductions in the support of routi projects and enhanced support of more complex types of innovation the paper also emphasizes the importance of a neutrality component in incentives in the infant phase of increasing selectivity and of building policy capabilities for efficient policy design and implementation

a new comparative approach to macroeconomic modeling and policy analysis in the aftermath of the global financial crisis the state of m acroeconomic modeling and the use of macroeconomic models in policy analysis has come under heavy criticism macroeconomists in academia and policy institutions are blamed for relying too much on a particular class of macroeconomic models that did not sufficiently this paper propose s a comparative approach to macroeconomic policy analysis that is open to competing modeling paradigms macroeconomic model comparison projects have helped produce some very influenti al insights such as the taylor rule however they have been infrequent and costly because they require the input of many teams of researchers and multiple meetings to obtain a limited set of comparative findings this paper provides a new comparative approach to model based research and policy analysis that enables individual researchers to conduct model comparisons easily frequently at low cost and on a large scale using this approach a model archive is built that incl udes many well known empirically estimated models that may be used for quantitative analysis of monetary and fiscal stabilization policies a computational platform is created that allows straightforward comparisons of models implications its application is illustrated by compa ring different monetary and fiscal policies across selected models researchers can easily include new models in the data base and compare the effects of novel extensions to established benchmarks thereby fostering a comparative instead of insular approach to model development

sticky price models and the natural rate hypothesis abstract a major criticism of standard specifications of price adjustment in models for monetary policy analysis is that they violate the natural rate hypothesis by allowing output to differ from potential in steady state in this paper we estimate a dynamic optimizing business cycle model whose price setting behavior satisfies the natural rate hypothesis the price adjustment specifications we consider are the sticky information specification of mankiw and reis sticky information versus sticky prices a proposal to replace the new keynesian phillips curve quarterly journal of economics 117 1295 1328 and the indexed contracts of christiano et al nominal rigidities and the dynamic effects of a shock to monetary policy journal of political economy 113 1 45 our empirical estimates of the real side of the economy are similar whichever price adjustment specification is chosen consequently the alternative model specifications deliver similar estimates of the u s output gap series but the empirical behavior of the gap series differs substantially from standard gap estimates

the functions of technology infrastructure in a competitive economy abstract governments of industrialized nations play varied but important roles in providing the diverse technology infrastructure that supports a modern competitive economy an understanding of the structure and impacts of these roles as well as efficiency differences among alternative implementation schemes is particularly important at this time as competing industrialized nations are revamping their technology infrastructures in response to major shifts in thescope as well as the content of their growth strategies these shifts in scope can be described as evolutionary changes from single stage to multi stage strategies in that several modes of technology based competition are simultaneously pursued that is whereas an economy may have focused on innovation manufacturing high volume or niche markets etc most if not all of these must be pursued together in the future in order to diversify risk and achieve economies of scope effective implementation of the more complex multi stage growth strategy requires a consensus model of the appropriate functions for infrastructure and its institutions such a consensus model is necessary to efficiently guide strategic planning in both industry and government in particular a conceptual basis is needed for defining the critical interfaces between the government and industry roles including effective long range planning communication and cooperation the required technology infrastructure policy model is derived from a microeconomic model of the typical technology based industry existing national strategies have demonstrated the importance of efficiency at the production and market development stages as well as at the r d stage but the trend is towards promoting simultaneous efficiency at all these stages that is the model and the derived infrastructure functions must cover all stages and interfaces in the technology and related product life cycles

technology systems and technology policy in an evolutionary framework the central purpose of this paper is to outline an evolutionary theory of technology policy and to connect it with the emerging literature on national systems of innovation any understanding of technology policy must be based on a clear understanding of the nature of technology and the important differences between science and technology technology can be treated in terms of knowledge skills and artifacts and in each case there are different variety generating mechanisms different selection processes and different institutional structures for policy purposes the degree of connection between these different dimensions of technology is at the core of technology policy c 1995 academic press inc copyright 1995 by oxford university press

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

robustly optimal monetary policy in a microfounded new keynesian model we consider optimal monetary stabilization policy in a new keynesian model with explicit microfoundations when the central bank recognizes that private sector expectations need not be precisely model consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model consistency we show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules we show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have rational expectations

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

robustly optimal monetary policy with near rational expectations the paper considers optimal monetary stabilization policy in a forward look ing model when the central bank recognizes that private sector expectations need not be precisely model consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model consistency it is found that commitment continues to be important for optimal policy that the optimal long run inflation target is unaffected by the degree of potential distortion of beliefs and that optimal policy is even more history dependent than if rational expectations are assumed jel c62 d84 el 3 e31 e32 e52 an extensive literature has considered the optimal conduct of monetary policy under the assumption of rational or model consistent expectations this literature has found that it is quite important to take account of the effects of the systematic and hence predictable compo nent of monetary policy on expectations for example it is found quite generally that an optimal policy commitment differs from the policy that would be chosen through a sequential optimiza tion procedure with no advance commitment of future policy it is also found quite generally that optimal policy is history dependent a function of past conditions that no longer affect the degree to which it would be possible to achieve stabilization aims from the present time onward 1 both of these conclusions depend critically however on the idea that an advance commitment of future policy should change people s expectations at earlier dates this may lead to the fear that analyses that assume rational expectations re exaggerate the degree to which a policy authority can rely upon private sector expectations to be shaped by its policy commitments in precisely the way that it expects them to be what if the relation between what a central bank plans to do and what the public will expect to happen is not quite so predictable might both the case for advance commitment of policy and the case for history dependent policy be considerably weakened under a more skeptical view of the precision with which the public s expectations can be predicted one way of relaxing the assumption of rational expectations is to model agents as forecasting using an econometric model the coefficients of which they must estimate using data observed prior to some date sampling error will then result in forecasts that depart somewhat from pre cise consistency with the analyst s model 2 however selecting a monetary policy rule on the basis of its performance under a specific model of learning runs the risk of exaggerating the degree to which the policy analyst can predict and hence exploit the forecasting errors that result from a particular way of extrapolating from past observations one might even conclude

beyond chayanov a sustainable agroecological farm reproductive analysis of peasant domestic units and rural communities sentmenat catalonia 1860 abstract we present a sustainable agroecological farm reproduction analysis that links two methodologies kept separated so far optimization modelling and social metabolism accounting of the biophysical turnover from a fund flow approach this socio agro ecological model combines two scales at farm gate and municipal levels and formalizes all relevant flows interlinking three living funds that have to be reproduced over time the domestic unit livestock and soil fertility from the requirements and capacities of each fund constraints we run the model under different scenarios objective functions to see the different configurations that the landscape structure and the flow patterns can take variables ensuring the reproducibility of funds by changing the objectives we obtain an intensive optimum that minimizes the land required an extensive optimum that minimizes labour and a monetary optimum that maximizes a prevailing cash crop the model is applied to a past advanced organic farming of a catalan village c 1860 to generate a set of counterfactual scenarios that confronted with historical data help to reveal how institutional settings and landownership inequality played a role in maintaining the real socio agro ecological structure away from these optima and the existing potential of possible eco functional intensification practices aimed at reducing the land cost of agrarian sustainability

property rights regimes and natural resources a conceptual analysis the term common property resource is an example of a term repeatedly used to refer to property owned by a government or by no one it is also used for property owned by a community of resource users such usage leads to confusion in scientific study and policy analysis in this paper we develop a conceptual schema for arraying property rights regimes that distinguishes among diverse bundles of rights ranging from authorized user to claimant to proprietor and to owner we apply this conceptual schema to analyze findings from a variety of empirical settings including the maine lobster industry

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

monetary policy and asset prices a markov switching dsge approach summary this paper estimates a markov switching dynamic stochastic general equilibrium model by incorporating stock prices in monetary policy rules in order to identify the federal reserve s stance toward them based on the data from 1984 q1 to 2009 q2 i find that historical evidence of the policy reaction toward stock prices is weak except for the stock market bubble of the 1990s a counterfactual exercise shows that the rapid growth in stock prices during that period would have been significantly higher if monetary policy had been independent of the stock market however unconditional macroeconomic volatility increases with the degree of policy responsiveness toward stock prices copyright 2017 john wiley sons ltd

on the relation between robust and bayesian decision making abstract this paper compares bayesian decision theory with robust decision theory where the decision maker optimizes with respect to the worst state realization for a class of robust decision problems there exists a sequence of bayesian decision problems whose solution converges towards the robust solution it is shown that the limiting bayesian problem displays infinite risk aversion and that decisions are insensitive robust to the precise assignment of prior probabilities this holds independently of whether the preference for robustness is global or restricted to local perturbations around some reference model

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

unemployment as excess supply of labor implications for wage and price inflation abstract the introduction of both market clearing wages and nominal rigidities on wage setting can be used to rationalize unemployment as excess supply of labor in the new keynesian model as a result wage inflation dynamics are forward looking and depend negatively on the rate of unemployment moreover both price inflation and wage inflation evolve as indicated by equations equivalent to those obtained in erceg et al 2000 though with different slope coefficients in an equal volatility comparison the model with unemployment conveys less price stickiness and more wage stickiness

information variables for monetary policy in an estimated structural model of the euro area a small scale new keynesian model for the euro area is estimated with maximum likelihood under the assumptions of imperfect information and discretionary monetary policy the estimated parametrization of this widely used dynamic stochastic model unveils the monetary authorities objectives and the information content of two indicator variables monetary aggregates and real unit labour costs the results highlight a significant policy concern about interest rate smoothing and inflation almost no concern for output gap stabilization emerges regarding indicator variables unit labour costs provide information on potential output that is helpful for stabilization policy no useful information role emerges for monetary aggregates

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

monetary regime switches and central bank preferences monetary policy objectives and targets are not necessarily constant over time the regime switching literature has typically analyzed and interpreted changes in policymakers behavior through simple interest rate rules this paper analyzes policy regime switches by explicitly modeling policymakers behavior and objectives we show that changes in the parameters of simple rules do not necessarily correspond to changes in policymakers preferences in fact capturing and interpreting regime changes in preferences through interest rate rules can lead to misleading results

smoothed interest rate setting by central banks and staggered loan contracts i investigate a new source of economic stickiness namely staggered loan interest rate contracts under monopolistic competition this study introduces this mechanism into a standard new keynesian model simulations show that a response to a financial shock is greatly amplified by the staggered loan contracts although a response to a productivity cost push or monetary policy shock is not much affected i derive an approximated loss function and analyse optimal monetary policy unlike other models the function includes a quadratic loss of the first order difference in loan rates thus central banks have an incentive to smooth the policy rate

decommodification as a foundation for ecological economics ecological economists have emphasized the study of commodification i e the development of market based exchange and valuation rather than decommodification processes i e the degree of immunization from market dependency this is surprising given the fact that large scale decommodification may be our best option for a post growth transition so dear to many ecological economists based on heinsohn and steiger s theory of ownership we seek to provide an institutional foundation to processes of de commodification these two authors distinguish between property and possession two bundles of rights generating different logics and consequences we illustrate this approach with three cases taken from an advanced capitalist economy switzerland showing how commodification and decommodification processes may appear together or vigorously oppose each other cooperatives forests and municipal land are examples of partial decommodified assets that follow a logic of possession and are therefore more likely to be sustainable it is high time that the study of decommodification becomes central to ecological economics

is there a fiscal free lunch in a liquidity trap this paper uses a dsge model to examine the eects of an expansion in government spending in a liquidity trap the spending multiplier can be much larger than in the normal situation if the liquidity trap is very persistent and scal stimulus can be rapidly implemented moreover the budgetary costs may be minimal as the large response of output boosts tax revenues allowing for something close to a scal free lunch however we caution that the multiplier may be much smaller under plausible implementation lags for many types of public spending and or if the liquidity trap lasts less than two years in addition because the marginal impact of scal expansion decreases in the scale of the outlay it is crucial to distinguish between average and marginal multipliers

what determines aggregate returns to scale abstract this paper develops a unified framework that incorporates four features important in existing models with increasing returns fixed costs decreasing marginal costs product variety and market power when fixed costs are not allowed to vary and profits are imposed to be zero in every period only the degree of returns to variety determines the degree of aggregate increasing returns to scale when fixed costs respond to changes in aggregate activity or the zero profit condition does not hold in the short run aggregate returns depend not only on product variety but also on diminishing marginal costs or market power the degree of market power however does not affect input prices which are critical to determine the uniqueness of equilibrium

relative price distortions and inflation persistence sticky price models often suggest that relative price distortion is a major cost of inflation we provide an intuition for this even at low rates inflation strongly affects price dispersion which in turn has an impact on the economy qualitatively similar to and of the order of magnitude of a negative shift in productivity the utility cost of price dispersion is quantified and its impact on optimal monetary policy discussed price dispersion is incorporated into a linearised model strikingly a contractionary nominal shock has a persistent negative hump shaped impact on inflation but may have a positive hump shaped impact on output

three types of ambiguity for each of three types of ambiguity we compute a robust ramsey plan and an associated worst case probability model ex post ambiguity of type i implies endogenously distorted homogeneous beliefs while ambiguities of types ii and iii imply distorted heterogeneous beliefs martingales characterize alternative probability specications and clarify distinctions among the three types of ambiguity we use recursive formulations of ramsey problems to impose local predictability of commitment multipliers directly to reduce the dimension of the state in a recursive formulation we transform the commitment multiplier to accommodate the heterogeneous beliefs that arise with ambiguity of types ii and iii our formulations facilitate comparisons of the consequences of these alternative types of ambiguity

optimal monetary policy under low trend inflation abstract in the monetary policy literature it is common to assume that trend inflation is zero despite overwhelming evidence that zero inflation is neither empirically relevant nor a practical objective for central bank policy we therefore extend the standard new keynesian model to allow for positive trend inflation showing that even low trend inflation has strong effects on optimal monetary policy and the dynamics of inflation output and interest rates under discretion the efficient policy deteriorates and there is no guarantee of determinacy even with commitment targeting non zero trend inflation leads to substantial welfare losses our results serve as a warning against indiscriminate use of models assuming zero trend inflation

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

identifying the influences of nominal and real rigidities in aggregate price setting behavior we formulate a generalized price setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs real rigidities we estimate this framework using macroeconomic data for germany 1975 1998 and for the u s 1983 2003 in each case we find that the data are well characterized by nominal contracts with an average duration of about two to three quarters we also find that new contracts exhibit very low sensitivity to marginal cost corresponding to a relatively high degree of real rigidity finally our results indicate that backward looking price setting behavior such as indexation to lagged inflation is not needed in explaining the aggregate data at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective