the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

the development of nominal wage rigidity in the late 19th century wage price and output indexes suitable for comparing cyclical movements across decades show a decrease in nominal wage flexibility the change in wage inflation associated with output fluctuations after the 1880s following an increase in strike frequency linked to the spread of large scale manufacturing cross sectional data show that firms in industries experiencing more strikes in the 1880s were less likely to cut nominal wages in the depression of 1893 this and other evidence suggests that the nineteenth century decrease in wage flexibility was caused by an increase in workers bargaining power in the absence of binding wage contracts copyright 1993 by american economic association

measurement matters recent results from monetary economics reexamined inferences about the effects of money on economic activity may depend importantly on the choice of a monetary index because simple sum aggregates cannot internalize pure substitution effects this hypothesis is investigated by replicating five recent studies that have challenged an aspect of the conventional wisdom about the effects of money on aggregate activity in four of the five cases the qualitative inference in the original study is reversed when a simple sum monetary aggregate is replaced by a divisia index of the same asset collection the results are mixed in the fifth case

real and nominal wage rigidities and the rate of inflation evidence from west german micro data the paper examines real and nominal wage rigidities we estimate a switching regime model in which the observed distribution of individual wage changes computed from west german register data for 1976 1997 is generated by simultaneous processes of real nominal or no wage rigidity and measurement error the fraction of workers facing wage increases that are due to nominal but mostly real wage rigidity is substantial the extent of real rigidity rises with inflation whereas the opposite holds for nominal rigidity overall the incidence of wage rigidity which accelerates unemployment growth is most likely minimized in an environment with moderate inflation

wage rigidity in canadian collective bargaining agreements the authors search information on the provisions of 10 947 wage contracts signed in the canadian unionized sector between 1976 and 1999 for evidence of downward nominal wage rigidity the disinclination of wages to fall in nominal dollars below their established level over the sample period real wage reductions were common but nominal wage reductions were rare the probability of downward nominal wage rigidity increased substantially during low inflation periods during such periods apparently there was no reduction in the incidence of real wage cuts but the magnitude of those cuts was modest suggesting a lesser ability of wages to adjust to labor market conditions than at other times

monetary aggregates and output series title working paper frb title monetary aggregates and output date publication federal reserve bank of cleveland working paper no 9813 author s scott freeman finn kydland type working paper frb topics s us economy

new evidence on canadian wage rates 1900 1930 this paper shows there are serious errors in published canadian nominal wage data and presents hourly wage series developed from firm records for machinists helpers and laborers employed by the canadian pacific railway between 1900 and 1930 this new evidence suggests that real wage growth in canada was faster than previously believed and that there were substantial changes in wage inequality

retail sweep programs and monetary asset substitution abstract this paper examines how retail sweep programs affect monetary asset substitution estimates from the fourier flexible form reveal that sweeping generates systematic and sometimes large distortions in estimated bank depositor substitution elasticities

the incidence of nominal and real wage rigidities in great britain 1978 98 this paper analyzes the extent of rigidities in wage setting in great britain over the 1980s and 1990s our estimation strategy which generalizes the work of altonji and devereux 2000 models the notional wage growth distribution the distribution of nominal wage growth that would occur in the absence of rigidities in pay while allowing for the presence of measurement error in the data the model then allows for the possibility that the nominal wage growth of a fraction of the workforce may be subject to a nominal or real downward rigidity our model suggests that real rigidities in wage setting are more prevalent than nominal rigidities although the incidence of these real wage rigidities has fallen gradually over time if firms cannot cut real wages in response to negative demand shocks they may resort to laying off workers our results support this microfoundation of the wage unemployment phillips curve workers who are more likely to be protected from wage cuts are also more likely to lose their jobs

wage rigidity inflation and institutions we study the possible existence of downward nominal wage rigidity dnwr at wage growth rates different from zero in aggregate data even if dnwr prevails at zero for individual workers compositional effects might lead to falling aggregate wages while changes in relative wages combined with dnwr might lead to positive aggregate wage growth we explore industry data for 19 oecd countries over the 1971 2006 period we find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s at 1 percent in the 1990s and at 0 5 percent in the 2000s furthermore we find that dnwr is stronger in country years with strict employment protection legislation high union density centralized wage setting and high inflation

downward nominal wage rigidity evidence from canada 1901 1950 this paper tests for the presence of downward nominal wage rigidity in canadian wage data for 26 occupations in 38 cities from the first half of the 20th century the sample is of particular interest as it contains periods with average inflation rates that are close to zero as well as two sharp deflations results from a variety of different tests indicate that wage change distributions are consistent with the presence of downward nominal wage rigidity however for two subsamples containing sharp declines in output and prices estimates of the extent of downward nominal wage rigidity are much lower this suggests that downwards adjustments did occur during times of severe depression and deflation

inside money monetary contractions and welfare this paper presents an explicit physical environment in which optimizing agents choose the composition of their money balances because of their choices changes in the nominal sum of inside and outside money precede changes in output nevertheless changes in the supply of fiat money do not affect subsequent out put moreover an equilibrium with a fixed supply of valued fiat money is pareto optimal despite the cyclical fluctuations of output and of the total money stock monnaie interne contractions monetaires et bien etre ce memoire definit un environne ment physique explicite dans lequel les agents economiques recherchent l optimum en choisissant la composition de leurs actifs monetaires en consequence de leurs choix des changements dans la somme nominale de monnaie interne et de monnaie externe prec dent les changements dans le niveau de production neanmoins des changements dans l offre de monnaie fiduciaire n affectent pas le niveau de production subsequent de plus l equilibre quand l offre de monnaie fiduciaire est fixe est un optimum de pareto malgre les fluctuations dans le niveau de production et dans le stock total

wage adjustment under low inflation evidence from u s history data from recent years indicate that employers are especially unlikely to cut the nominal wage rate paid for a job adjustments to real or relative wages that require absolute cuts in money wages are very rare relative to the frequency one might expect to observe based on distributions of wage changes that do not require money wage cuts erica l groshen and mark e schweitzer 1995 1997 david e lebow et al 1999 a worker who remains with the same employer from one year to the next is accordingly unlikely to report an absolute reduction in the nominal wage he receives david card and dean hyslop 1997 shulamit kahn 1997 joseph g altonji and paul j devereux 1999 the existence and causes of downward nominal wage rigidity have implications for macroeconomic outcomes and for practical issues in monetary policy presumably efficient operation of labor markets requires many downward adjustments of relative wages and occasional decreases in the overall wage level relative to product prices if the average rate of wage inflation were close to zero some of these relative or real wage adjustments would be blocked by a floor under current levels of nominal wage rates george a akerlof et al 1996 assert that downward nominal wage rigidity reflects fundamental preferences of workers and argue that it implies a central bank should target a rate of price inflation greater than zero because a target of zero inflation will impose permanent real costs on the economy p 2 the notion that downward nominal wage rigidity is a fundamental constraint so that inflation serves to grease the wheels of the labor market is controversial even among those who accept the possibility of nominal rigidities in general it has been argued that downward nominal wage rigidity as distinct from such phenomena as menu costs which would discourage adjustment of a wage in either direction david romer 1993 may be an artifact of an inflationary monetary regime and would disappear in the absence of persistent inflation nominal wage reductions would no longer be seen as unusual if the average nominal wage was not growing workers would not see them as unfair and firms would not shy away from imposing them robert j gordon 1996 p 62 see also n gregory mankiw 1996 william poole 1998 william b english 2000 to see whether downward nominal wage rigidity would exist in a noninflationary regime it may be useful to examine data from times and places where there was no persistent wage inflation for the united states at least that excludes data from years since the second world war throughout the postwar period price inflation or real wage growth has been sufficient to keep average wage inflation above zero before the second world war on the other hand long run trend rates of price inflation were often close to zero or negative robert b barsky 1987 if wage inflation was correspondingly low u s historical data may offer tests of the proposition that downward nominal wage rigidity exists even in noninflationary

a behavioral explanation for nominal wage rigidity during the great depression nominal wages in manufacturing were left unchanged by the large decline in nominal demand that marked the first two years of the great depression this rigidity in nominal wages is explained using the tools of the behavioral theory of the firm the emphasis is on the reasons firms changed their decision rules linking fluctuations in final sales to changes in nominal wages

admissible monetary aggregates for the euro area we use the fleissig and whitney fleissig a r whitney g a 2003 a new pc based test for varian s weak separability conditions journal of business and economics statistics 21 1 133 144 weak separability test to determine admissible levels of monetary aggregation for the euro area we find that the euro area monetary assets in m2 and m3 are weakly separable and construct admissible divisia monetary aggregates for these assets we show that real growth of the admissible divisia aggregates enters the euro area is curve positively and significantly for the period from 1980 to 2005 out of sample we show that divisia m2 and m3 appear to contain useful information for forecasting euro area inflation

a model of monetary policy shocks for financial crises and normal conditions in their classic 1999 paper monetary policy shocks what have we learned and to what end christiano eichenbaum and evans cee investigate one of the most widely used methods for identifying monetary policy shocks of its time unfortunately their approach is no longer viable at least not in its original form a major problem stems from the recent behavior of two key variables in their model the fed funds rate and non borrowed reserves we develop a new identification scheme that remedies these diculties but maintains the basic cee framework our empirical specification is motivated by a standard new keynesian dsge model augmented by a simple financial structure the model provides theoretical support for variables we use in place of certain variables that were used in the classic var approach outlined in cee one significant innovation is our use of divisia m4 the broadest monetary aggregate currently available for the united states as the policy indicator variable we obtain four major empirical results that support the use of a properly measured broad monetary aggregate as the policy variable first policy shocks have significant eects on output and on the price level even when an interest rate is included in our model contradicting the new keynesian argument that monetary aggregates are redundant second we develop a model that is not subject to the output price or liquidity puzzles common to this literature contradicting the view that using the interest rate as the policy indicator generally yields more reasonable responses than a monetary aggregate third during normal conditions policy shocks from our divisia based model have similar eects on variables to those found in the fed funds model of monetary policy and where there are dierences our model with divisia m4 obtains results that are more consistent with standard economic theory fourth our preferred specification produces plausible responses to a monetary policy shock in samples that include or exclude the recent financial crisis

the own price of money and a new channel of monetary transmission traditionally the effects of monetary policy actions on output are thought to be transmitted via monetary or credit channels real business cycle theory by contrast highlights the role of real price changes as a source of revisions in spending and production decisions motivated by the desire to focus on the effects of price changes in the monetary transmission mechanism this paper incorporates a direct measure of the real own price of money into an estimated vector autoregression and a calibrated real business cycle model consistent with the rbc view of the monetary transmission mechanism both approaches reveal that movements in the own price of money are strongly related to movements in output

inside money output and causality the authors present an explicit general equilibrium model consistent with these observations 1 innovations in the nominal money stock are positively correlated with and precede granger cause innovations in output 2 these innovations in the nominal money stock represent innovations in inside not outside money and 3 when interest rates are included in vector autoregressions their innovations not money s are seen to precede output changes in the money stock represent an endogenous reaction to some third factor and do not cause subsequent changes in output therefore a change in the current fiat money stock will not lead to any change in output copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

downward wage rigidity in italy micro based measures and implications using the 1985 99 whip data we find a sizable amount of downward wage rigidity in italy with a prevalence of real over nominal rigidity the results hold when real rigidity is identified either with reference to collective bargaining dispositions or to price inflation consistently with the labour market reforms of the early 1990s downward rigidities have become less important over time with the reduction in real rigidities more than offsetting the rise in nominal rigidities we also find that downward wage rigidities are positively related to labour reallocation and local unemployment rates hinting at the macroeconomic relevance of our estimates

money and output a test of reverse causation this paper attempts to explain the correlation between money and output at various leads and lags with a model in which money is largely neutral and endogenously responds to output money is endogenous because both monetary policy and deposit creation are endogenous parameters are selected according to the simulated moments estimation technique while the estimated model succeeds along some dimensions in matching properties of postwar u s data its failure to match key patterns of lead lag correlations seems to cast doubt on the ability of endogenous money determination by itself to quantitatively account for the observed money output correlations copyright 1996 by american economic association

cost of living real wages and real incomes in thirteen canadian cities 1900 1950 price indices for thirteen canadian cities for 1900 to 1950 demonstrate large regional differences in cost of living until 1914 after 1914 regional price levels converged before the war western canadian cities had the highest cost of living after 1920 cities in ontario had the highest cost of living accounting for these trends in regional costs of living reveals that regional real wage and real income structures have been present and stable since at least 1901 thus regional wage and income disparities are long standing and persistent features of the canadian economy cout de la vie salaires reels et revenus reels dans treize villes canadiennes les indices de prix pour treize villes canadiennes entre 1900 et 1950 montrent qu il y avait de fortes differences dans le cout de la vie jusqu en 1914 apres 1914 il y a convergence des niveaux de prix regionaux avant la guerre les villes de l ouest canadien avaient le cout de la vie le plus eleve apres 1920 des villes de l ontario vont avoir le plus haut cout de la vie si l on tient compte de ces tendances regionales dans les niveaux du cout de la vie il appert que des structures de salaires et de revenus reels ont ete en place et stables depuis 1901 donc les disparites regionales de salaires et de revenus sont des caracteristiques deja anciennes et persistantes de l economie canadienne

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

how money affects real output this paper decomposes the money stock into constituent parts to examine the relationship between monetary variables and real economic activity using vector autoregression for 1954 to 1979 the first decomposition reveals that innovations in money multiplier growth rates are approximately three times more influential in determining real output growth than are monetary base growth innovations the second decomposition includes components of the money multiplier to identify the importance of actions of the public the banking community and the monetary authority the results suggest that the public and the fed had a significant impact on influencing real output growth copyright 1989 by ohio state university press

nonparametric tests of utility maximization and weak separability for consumption leisure and money some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer s utility function this paper contains results from nonparametric tests of these assumptions about consumer behavior the authors find that quarterly per capita data on consumption goods le isure and monetary assets are consistent with utility maximization further consumption goods and leisure meet necessary and sufficient conditions for weak separability additionally one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability they also test and find no evidence of homothetic prefe rences copyright 1987 by mit press

consumer theory and the demand for money the following sections are included introductionthe definition of moneythe microeconomic theory of a monetary economythe aggregation theoretic approach to money demandindex number theorythe links between aggregation theory index number theory and monetary theoryunderstanding the new divisia aggregatesthe optimal level of monetary subaggregationeconometric considerationsapproximating the monetary services subutility functionan exampleempirical dimensionsempirical comparisons of index numbersempirical results for the demand system approachextensionsconclusions this abstract was borrowed from another version of this item

the disintegrating canadian labour market the extent of the market then and now analysis of real wages for three occupations in 13 canadian cities for 1901 50 suggests canada had a national labour market at least until 1950 however analysis of real wages for 10 canadian cities for 1971 2000 yields little evidence favouring integration of canada s regional labour markets the apparent lack of labour market integration reflects a weakness of an approach that assumes markets are in equilibrium unemployment rates after 1970 suggest that some regional markets may be characterized by excess labour supply analysis of relative provincial unemployment rates yields evidence consistent with local labour force adjustment to changing labour market conditions jel classification e24 j61 le marche du travail en desintegration au canada l etendue du marche alors et maintenant les auteurs analysent les salaires reels pour trois occupations dans 13 villes canadiennes au cours de la periode 1901 50 et suggerent que le canada a joui d un marche du travail qui etait national tout au moins jusqu a 1950 toutefois l analyse des salaires reels dans 10 villes canadiennes au cours de la periode 1971 2000 ne fournit pas de resultats supportant l idee d integration des marches regionaux du travail on suggere que le manque apparent d integration du marche du travail est l effet d echo d une approche qui presume que les marches sont en equilibre la periode de l apres 1970 en est une ou les taux de chomage suggerent plutot que certains marches regionaux peuvent etre raisonnablement caracterises comme definis par une offre excedentaire de travail une analyse des taux de chomage provinciaux relatifs revele que la force de travail locale s ajuste aux conditions changeantes du marche du travail