the output composition puzzle a difference in the monetary transmission mechanism in the euro area and u s we revisit recent evidence on how monetary policy affects output and prices in the u s and in the euro area the response patterns to a shift in monetary policy are similar in most respects but differ noticeably as to the composition of output changes in the euro area investment is the predominant driver of output changes while in the u s consumption shifts are significantly more important we dub this difference the output composition puzzle and explore its implications and several potential explanations for it while the evidence seems to point at differences in consumption responses rather than investment as the proximate cause for this fact the source of the consumption difference remains a puzzle

a simple model of voice we think of voice as a means of information aggregation within groups operating in a variety of settings we explore how the characteristics of groups and their leaders influence voice in relatively homogeneous groups members farthest away from the leader have the best incentives to provide information and their voice tends to moderate policy decisions in large heterogeneous groups where leaders cannot identify individual members the possibilities for informational exchange are severely limited and any communication that exists pushes policies farther to the extreme

housing market heterogeneity in a monetary union this paper studies the implications of cross country housing market heterogeneity in a monetary union for both shock transmission and welfare i develop a two country new keynesian general equilibrium model with housing and collateral constraints to explore this issue the conventional wisdom is that welfare would be higher in a monetary union if mortgage markets were homogeneous this paper shows instead that welfare is higher only when homogenization does not result in higher aggregate volatility because of financial accelerator effects or does not redistribute too much wealth from borrowers to savers

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

new keynesian models durable goods and collateral constraints abstract econometric evidence suggests that in response to monetary policy shocks durable and non durable spending co move positively and durable spending exhibits a much larger sensitivity to the shocks a standard two sector new keynesian model with perfect financial markets is at odds with these facts the introduction of a borrowing constraint where durables play the role of collateral assets helps in reconciling the model with the empirical evidence

monetary policy and the relative price of durable goods abstract in a structural vector autoregressive model of the us the response of the relative price of durables to a monetary policy contraction is either flat or mildly positive it significantly falls only if narrowly defined as the ratio between new house and nondurables prices these findings are rationalized via the estimation of two sector new keynesian nk models durables prices are estimated to be as sticky as those of nondurables leading to a flat relative price response to a monetary policy shock conversely house prices are estimated to be almost flexible such results survive several robustness checks and a three sector extension of the nk model these findings have implications for building nk models with durable and nondurable goods and for the conduct of monetary policy

a rothschild stiglitz approach to bayesian persuasion abstract rothschild and stiglitz 1970 represent random variables as convex functions integrals of the cumulative distribution function combining this representation with blackwell s theorem 1953 we characterize distributions of posterior means that can be induced by a signal this characterization provides a novel way to analyze a class of bayesian persuasion problems

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

political advertising and election results we study the persuasive effects of political advertising our empirical strategy exploits fcc regulations that result in plausibly exogenous variation in the number of impressions across the borders of neighboring counties applying this approach to detailed data on television advertisement broadcasts and viewership patterns during the 2004 12 presidential campaigns our results indicate that total political advertising has almost no impact on aggregate turnout by contrast we find a positive and economically meaningful effect of advertising on candidates vote shares taken at face value our estimates imply that a one standard deviation increase in the partisan difference in advertising raises the partisan difference in vote shares by about 0 5 percentage points evidence from a regression discontinuity design suggests that advertising affects election results by altering the partisan composition of the electorate

sectoral comovement monetary policy shocks and input output structure the comovement of output across the sector producing nondurables i e nondurable goods and services and the sector producing durables is well established in the monetary business cycle literature however standard sticky price models that incorporate sectoral heterogeneity in price stickiness i e sticky nondurables prices and flexible durables prices cannot generate this feature we argue that an input output i o structure provides a solution to this problem here we develop a two sector model with an i o structure which is calibrated to the u s economy in the model each sector s output affects those of the others by acting as an intermediate input this connection between the sectors provides a channel through which sectoral comovement is induced

the war of information we analyse political contests campaigns between two parties with opposing interests parties provide costly information to voters who choose a policy the information flow is continuous and stops when both parties quit parties actions are strategic substitutes increasing one party s cost makes that party provide more and its opponent provide less information for voters parties actions are complements and hence raising the advantaged party s cost may be beneficial asymmetric information adds a signalling component resulting in a belief threshold at which the informed party s decision to continue campaigning offsets other unfavourable information

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

optimal monetary policy with durable consumption goods abstract we document that the durable goods sector is much more interest sensitive than the nondurables sector and then investigate the implications of these sectoral differences for monetary policy we formulate a two sector general equilibrium model that is calibrated both to match the sectoral responses to a monetary shock derived from our empirical var and to imply an empirically realistic degree of sectoral output volatility and comovement while the social welfare function involves sector specific output gaps and inflation rates the performance of the optimal policy rule can be closely approximated by a simple rule that targets a weighted average of aggregate wage and price inflation in contrast a rule that stabilizes a more narrow measure of final goods price inflation performs poorly in terms of social welfare

non competing persuaders abstract i study bayesian persuasion games with multiple persuaders in which the persuaders are non competing all persuaders want the decision maker to take the same action regardless of the state in the case of a single persuader it is known from previous research that the persuader optimal information design leaves the decision maker with no surplus in this paper i show that with two or more non competing persuaders and independent tests there are always equilibria in which the decision maker receives surplus if there is exogenous noise then the decision maker receives surplus in every symmetric equilibrium provided the number of persuaders is sufficiently large asymptotically the decision maker learns the true state in every pareto optimal symmetric equilibrium with infinitely many persuaders moreover with sufficient exogenous noise having more than one persuader not only improves the welfare of the decision maker but also improves the welfare of the persuaders

analysis of a small open economy the case of energy prices in canada the analysis suggests that land rental price decrease in the long run as a consequence of higher energy prices energy demand from agriculture decreases if land and energy are substitute inputs the necessary and sufficient conditions for expecting increasing average farm size decreasing agricultural output and number of farms also have been provided the analysis considers a competitive equilibrium environment with specific proviso that land prices adjust in response to higher domestic energy prices simple expressions for calculating long run agricultural responses to higher domestic energy prices were derived and used in estimating such responses for canadian agriculture

credit frictions and the comovement between durable and non durable consumption frictions in lending between households have been proposed as a solution to the difficulties new keynesian models have in predicting a decline in both durable and non durable consumption following a monetary tightening by revisiting a standard new keynesian framework with collateral constraints it is shown that the presence of such credit frictions in fact makes it more difficult to generate the joint decline the intuitive reasons behind this result are provided which should be helpful in developing models that are more successful in generating a positive comovement between durables and non durables

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

competition and truth in the market for news in this essay we evaluate the case for competition in news markets from the perspective of economics first we consider the simple proposition that when more points of view are heard and defended beliefs will converge to the truth this concept of competition is several steps removed from market competition among actual media firms but it has played a prominent role in the legal arguments for a free press we then explore three mechanisms by which increasing competition or more precisely increasing the number of independently owned firms can limit bias or distortions that originate on the supply side of the media market first when governments attempt to manipulate news competition can increase the likelihood that the media remain independent second when news providers have an interest in manipulating consumers beliefs diversity in such incentives can reduce the risk of information being suppressed or distorted third competition may drive firms to invest in providing timely and accurate coverage overall we argue that there are robust reasons to expect competition to be effective in disciplining supply side bias next we ask how the effect of competition changes when distortions originate on the demand side of the market when consumers themselves demand biased or less socially relevant news we find that increased competition may or may not improve welfare in these cases though we caution against using this as a justification for concentrating media power in the hands of state controlled or regulated firms

cyclical drivers of euro area consumption what can we learn from durable goods abstract we study the cyclical dynamics of consumption in the euro area ea and the large ea countries by distinguishing durable from nondurable expenditures we adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model a time varying parameter structural vector autoregression tvp svar following the main insight from the theoretical model that liquidity constraints induce important interactions between durables and nondurables we distinguish durable specific demand and supply shocks while taking into account monetary and credit conditions our main findings are i durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest ea countries a confirmation of an outcome commonly reported for the us ii there is a large degree of cross country heterogeneity in how different factors including durable specific ones explain consumption iii the strength of spillovers from durable to nondurable consumption as predicted by theory is empirically correlated with how much households across countries are likely to be liquidity constrained

a model of expertise we study a model in which perfectly informed experts offer advice to a decision maker whose actions affect the welfare of all experts are biased and thus may wish to pull the decision maker in different directions and to different degrees when the decision maker consults only a single expert the expert withholds substantial information from the decision maker we ask whether this situation is improved by having the decision maker sequentially consult two experts we first show that there is no perfect bayesian equilibrium in which full revelation occurs when both experts are biased in the same direction it is never beneficial to consult both in contrast when experts are biased in opposite directions it is always beneficial to consult both indeed in this case full revelation may be induced in an extended debate by introducing the possibility of rebuttal

the permanent income hypothesis estimation and testing by instrumental variables the permanent income hypothesis with rational expectation is restated estimated and tested by an instrumental variables technique on the postwar u s aggregate time series data the hypothesis is accepted on a consumption series which includes service flows from consumer durables if the consumption series is the one in the national income and product accounts the hypothesis is decisively rejected an explanation is suggested to reconcile the conflicting test results

capital credit constraints and the comovement between consumer durables and nondurables evidence indicates that consumer durables are more flexibly priced than nondurable goods and services in otherwise standard two sector neoclassical sticky price models with flexible durable prices following monetary tightening nondurables decrease but consumer durables increase friction in lending between households can resolve the comovement problem if durable prices are sticky however if durable prices are flexible friction in lending fails to generate joint decline this paper resolves the co movement problem by adding capital into a model with flexible durable prices and friction in lending when capital is needed in production monetary tightening reduces the relative price of durables which induces investment and decreases firms real profits in the short run due to fewer profits remitted from firms savers have a lower disposable income and cannot increase expenditures on consumer durables as much as otherwise as a consequence aggregate consumer durables decrease and there is a joint decline of nondurables and consumer durables

the theory of the firm in long run equilibrium in a recent series of articles economists have investigated the comparative statics of the neoclassical firm in a competitive environment with the specific proviso that output price adjusts in response to changes in factor prices the older theory of the firm such as is found for example in paul samuelson 1947 is deficient in this regard metaphors such as short run have been used to gloss over the inconsistency of holding output price constant in the face of changing costs through changing factor prices in this paper a simple yet thorough analysis of a firm in a competitive industry i e a firm facing zero entry and adjustment cost conditions is given new results pertaining to restrictions on the behavior of such firms are offered also the length and complexity of established results is substantially reduced

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

disaster risk and preference shifts in a new keynesian model in rbc models disaster risk shocks reproduce countercyclical risk premia but generate an increase in consumption along the recession and asset price fall through their effects on agents preferences gourio 2012 this paper offers a solution to this puzzle by developing a new keynesian model with such a small but time varying probability of disaster we show that price stickiness combined with an eis smaller than unity restores procyclical consumption and wages while preserving countercyclical risk premia in response to disaster risk shocks the mechanism then provides a rationale for discount factor first and second moment uncertainty shocks

how does financial liberalisation affect the influence of monetary policy on the current account abstract does the current account improve or deteriorate following a monetary policy expansion we examine this issue theoretically and empirically we show that a standard open economy dsge model predicts that the current account response to a monetary policy shock depends on the degree of financial regulation in particular financial liberalisation makes it more likely that the current account deteriorates following a monetary expansion we test this theoretical prediction with a varying coefficient bayesian panel var model where the coefficients are allowed to vary as a function of the degree of financial product and labour market regulation on data from 1976q1 2006q4 for 19 oecd countries our empirical results support the theory we therefore conclude that following a monetary policy expansion the current account is more likely to go into deficit in countries with more liberalised financial markets

cross country heterogeneity in intertemporal substitution abstract we collect 2735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods the estimates vary substantially from country to country even after controlling for 30 aspects of study design our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity households in rich countries and countries with high stock market participation substitute a larger fraction of consumption intertemporally in response to changes in expected asset returns micro level studies that focus on sub samples of rich households or asset holders also find systematically larger values of the elasticity

durable goods investment shocks and the comovement problem sticky price models suggest that capital investment shocks are an important driver of business cycle fluctuations despite quantitative importance in explaining business cycles a comovement problem emerges because the shocks generate intertemporal substitution effects away from consumption toward investment this paper resolves the problem by extending the standard sticky price model to a two sector model with consumer durable services when durable goods are used as investment in capital and consumer durables positive capital investment shocks also generate intratemporal substitution effects away from consumer durable services toward nondurable consumption that dominates intertemporal effects consequently consumption increases and the comovement problem is resolved

durable goods inter sectoral linkages and monetary policy barsky house and kimball 2007 show that introducing durable goods into a sticky price model leads to negative sectoral comovement of production following a monetary policy shock and under certain conditions to aggregate neutrality these results appear to undermine sticky price models in this paper we show that these results are not robust to two prominent and realistic features of the data namely input output interactions and limited mobility of productive inputs when extended to allow for both features the sticky price model with durable goods delivers implications in line with var evidence on the effects of monetary policy 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

the transmission of monetary policy through redistributions and durable purchases this paper studies a redistribution channel for the transmission of monetary policy using a tractable olg setting in which the government is a net debtor we show that standard open market operations omo conducted by central banks have signi cant revaluation eects that alter the level and distribution of wealth in the economy and the real interest rate expansionary omo generate a negative wealth eect the private sector as a whole is a net creditor to the government increasing households incen tives to save for retirement and pushing down the real interest rate this in turn leads to a substitution towards durables generating a temporary boom in the durable good sector with search and matching frictions a form of productive investment is added to the model and the fall in interest rates causes an increase in labour demand raising aggregate employment the mechanism can mimic the empirical responses of key macroeconomic variables to monetary policy interventions the model shows that dierent monetary interventions e g omo versus helicopter drops can have sharply dierent eects on activity

long run comparative statics under output and land price uncertainty several authors have noticed that in the uncertain short run the supply function may slope downward and the input demand functions may slope upward these possibilities prevent the setup of unambiguous tests of rational behavior in this article testable hypotheses for the competitive firm operating in a price uncertain environment are derived assuming a long run horizon some of these hypotheses take the form of slutsky type relations involving the relative input demand functions the ratios of input to output quantities homogeneity restrictions involving input and output mean prices in general are absent under uncertainty conditions for restoring this homogeneity are also discussed the main result is the rediscovery of the importance of relative quantities for the analysis of a long run equilibrium

the real effects of banking shocks evidence from oecd countries abstract this paper studies the impact of shocks to banks balance sheets on real economic activity the sample consists of 18 oecd countries observed annually from 1979 to 2003 using the rajan zingales method i find that industries that depend more heavily on external finance respond more strongly to bank income shocks suggesting that banking shocks propagate to the real economy the bank effect lasts for 2 years but it is economically significant mainly for large shocks which are relatively rare similar findings are obtained by comparing durable versus non durable goods and by estimating aggregate bank effects

on the comparative statics of a competitive industry with inframarginal firms recently economists have begun to develop a theory of the perfectly competitive firm and industry in long run equilibrium in contrast to the traditional model2 in which all prices are parametric this new theory takes explicit recognition of the fact that output price must adjust to exogenous changes in input prices before the industry can be said to be in long run competitive equilibrium the focus of this analysis has been to derive implications of competitive theory which can be tested using data generated by observing individual firms in

personal and corporate saving in south africa low domestic saving rates in south africa may perpetuate a low growth trap the decline in government saving a major reason for the overall decline in saving is now being reversed however personal saving rates have fallen since 1993 and corporate rates since 199s and both may decline further with lower real interest rates it is important to understand both personal and corporate saving behavior in order to formulate policies to raise the domestic saving rate in line with the needs of economic growth this article summarizes previous work on the household sector emphasizing the role of financial liberalization assets and income expectations and explains sectoral links and policy implications further it analyzes south africa s corporate saving rate in detail models are developed both for the share of profits in national income including the roles of the terms of trade tax effects and the price to unit labor cost ratio and for the share of corporate saving in profits which is found to depend on inflation the real interest rate dividend taxation and financial liberalization corporate saving is remarkably under researched given its importance in many economies this research thus puts the saving and growth concerns of kaldor into a modern empirical context

contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized taylor economy we develop the generalized taylor economy gte in which there are many sectors with overlapping contracts of different lengths in economies with the same average contract length monetary shocks will be more persistent when longer contracts are present using the bils klenow distribution of contract lengths we find that the corresponding gte tracks the u s data well when we choose a gte with the same distribution of completed contract lengths as the calvo the economies behave in a similar manner

sticky price models and durable goods the inclusion of a durable goods sector in sticky price models has strong and unexpected implications even if most prices are flexible a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky in contrast flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models in a limiting case flexibly priced durables cause monetary policy to have no effect on aggregate output our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity jel e21 e23 e31 e52

energy price impacts modelling in the agriculture sector abstract energy price impacts in the agriculture sector are mainly of economic and non economic types however economic impacts are well researched this paper surveys the various types of energy price impacts and different estimation techniques used in the past the study suggests that the energy price impacts estimation from a systems model of the agriculture sector is the best for several reasons for this purpose a price endogenous sectoral programming model of agriculture can be developed in a partial or general equilibrium framework however data requirements for this are enormous

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

does financial deregulation cause a consumption boom according to a growing number of critics the process of financial liberalisation in the 1980s is to blame for the volatile macroeconomic development in a number of countries including the u k and the nordic economies we examine how financial deregulation affected one important component of aggregate demand private consumption a main finding is that the swedish consumption boom of the late 1980s can be explained along other lines than financial deregulation the mid 1980s also constituted a period when real wage growth picked up and our data are consistent with the simple idea that permanent income dynamics was an important factor

are countries with official international restrictions liquidity constrained abstract in this paper i empirically examine consumption smoothing behavior across a broad group of countries using a unique data set that indicates whether residents in a country face an official government restriction i then ask whether the ex ante consumption movements among restricted countries differ from those of unrestricted countries to gauge the departure from standard consumption smoothing i use the campbell and mankiw consumption income and interest rates reinterpreting the time series evidence in o j blanchard and s fischer eds nber macroeconomics annual 1989 mit press cambridge ma 1989 and the response of consumption to income a cross country investigation european economic review 35 723 756 1991 approach of regressing consumption growth on income growth and instrumenting with lagged variables interestingly i find that consumption growth for residents in countries that impose international restrictions have a significantly higher coefficient on income growth than do residents in countries without those restrictions thus a greater proportion of consumers facing international restrictions appear to act as though they are liquidity constrained according to the campbell and mankiw approach i also discuss alternative interpretations that do not depend upon liquidity constraints

competition in persuasion we study symmetric information games where a number of senders choose what information to communicate we show that the impact of competition on information revelation is ambiguous in general we identify a condition on the information environment i e the set of signals available to each sender that is necessary and sufficient for equilibrium outcomes to be no less informative than the collusive outcome regardless of preferences the same condition also provides an easy way to characterize the equilibrium set and governs whether introducing additional senders or decreasing the alignment of senders preferences necessarily increases the amount of information revealed

forcing firms to talk financial disclosure regulation and externalities we analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation in our model disclosure is costly it has private and social value and its precision is endogenous we show that i a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy ii the nash equilibrium of a voluntary disclosure game is often socially inefficient iii regulation that requires a minimal precision level sometimes but not always improves welfare iii the same is true for subsidies that change the perceived cost of disclosures and iv neither regulation method dominates the other article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

intermediate inputs and sectoral comovement in the business cycle abstract the post war us business cycle is characterized by positive comovement of employment and output across sectors it has been argued that multi sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations we suggest that the input output structure of an economy in particular the pervasive use of intermediate inputs can induce positive comovement in sectoral employment and output following changes in relative productivities we calibrate a model of the us economy for the durable and nondurable goods producing sectors and show that sectoral employment and output move together if intermediate inputs are used in production the model is also consistent with the observation that the relative price of nondurable goods is procyclical

monetary policy with sectoral trade offs we formulate a two sector new keynesian economy that features sectoral heterogeneity along three main dimensions price stickiness consumption goods durability and the inter sectoral trade of input materials the combination of these factors deeply affects inter sectoral and intra sectoral stabilization in this context we examine the welfare properties of simple rules that adjust the policy rate in response to the output gap and alternative measures of final goods price inflation aggregating durable and non durable goods prices depending on the relative frequency of sectoral price setting may induce a severe bias due to factor demand linkages the cost of production in one sector is influenced by price setting in the other sector of the economy as a result measures of aggregate inflation that weigh sectoral price dynamics based on the relative degree of price rigidity do not allow the central bank to keep track of the effective speeds of sectoral price adjustment

monetary policy shocks choleski identification and dnk models abstract a popular identifying assumption in structural var studies is that the monetary policy shock does not affect macroeconomic variables contemporaneously we examine the consequences of using this identification strategy when the data generating process is a basic dynamic new keynesian dnk model but without these assumed time delays the principle conclusion is that the standard choleski assumption can severely distort the impulse response functions producing price puzzles and muted responses of inflation and the output gap to monetary shocks

consumption and credit constraints international evidence abstract if some consumers are liquidity constrained aggregate consumption should be excessively sensitive to credit conditions as well as to income moreover the excess sensitivity may vary over time using data for the united states canada the united kingdom japan and france we find a substantial impact of credit aggregates on consumption in all countries considered moreover the borrowing lending wedge is a significant determinant of consumption in the united states canada and japan using extended kalman filtering techniques we show that the excess sensitivity varies over time with a clear tendency to decline in the united states

the optimal rate of inflation with trending relative prices relative price trends mean that monetary policy cannot stabilize the nominal prices of all consumption categories if prices are sticky monetary policy must then trade off distortions within different categories more weight should be placed on stabilizing prices for which adjustment entails greater distortions with exogenous price stickiness a simple model calibrated to u s data implies that slight deflation is optimal even absent money demand considerations if price stickiness is endogenous because of fixed costs of adjustment small inflation or small deflation can be optimal depending on whether demand conditions or price adjustment costs vary across sectors

variability of durable and nondurable consumption evidence for six o e c d countries the author estimates consumption variability ratios for both durable and nondurable consumption using data for six oecd countries his methodology which relies on a long run restriction implied by the consumer s intertemporal budget constraint overcomes many of the problems inherent to previous approaches some important departures from the permanent income model emerge 1 nondurable consumption shows mild excess smoothness in the united states and italy and mild excess volatility in japan and france and 2 durable consumption shows extreme excess smoothness in all countries alternative factors capable of generating the differences in volatility across types of goods are discussed copyright 1993 by mit press

financial deregulation and consumption in the united kingdom the last decade has seen widespread deregulation of domestic financial markets in the united kingdom this paper uses regional data to investigate the connection between consumption and financial deregulation it is concluded that deregulation has led to a significant increase in the forward looking nature of aggregate consumption copyright 1993 by mit press

measuring the contribution of durable goods to the welfare cost of inflation in this paper we measure the contribution of durable goods to the welfare cost of inflation in the context of an endogenous growth model with durable and nondurable goods where purchases of the latter require only a partial cash payment compared with the former unlike existing measures our proposed welfare measure is computationally efficient and relatively easy to implement we find that durability adds a significant component to the welfare costs of inflation

what measure of inflation should a central bank target this paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability the paper first formalizes this problem and examines its microeconomic foundations it then shows how the weight of a sector in the stability price index depends on the sector s characteristics including size cyclical sensitivity sluggishness of price adjustment and magnitude of sectoral shocks when a numerical illustration of the problem is calibrated to u s data one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives

consumption and capital market imperfections an international comparison the excess sensitivity of consumption to current income fluctuations is higher in countries where consumers borrow less low levels of consumer debt can result either from capital market imperfections or from a low demand for loans the evidence suggests that the former view is more appropriate than the latter and thus supports the hypothesis that excess sensitivity may be attributed to liquidity constraints rather than to other factors copyright 1989 by american economic association

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking