nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

real effects of collapsing exchange rate regimes an application to mexico this paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate a sticky price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes output is found to

modeling exchange rate passthrough after large devaluations large devaluations are generally associated with large declines in real exchange rates burstein eichenbaum and rebelo 2005 argue that the primary force causing these declines is often the slow adjustment in the price of nontradable goods and services we develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations the first force is sticky nontradable goods prices instead of simply assuming that nontradable goods prices are sticky we develop conditions under which this phenomenon can emerge as an equilibrium outcome the second force is the impact of real shocks that often accompany large devaluations these real shocks lead to a decline in the price of nontradable goods relative to traded goods we argue that sticky nontradable goods prices generally play an important role in explaining post devaluation movements in real exchange rates however there are cases in which sticky nontradable goods prices are not sustainable as an equilibrium phenomenon in these cases real shocks are the primary driver of real exchange rate movements j e l classification f31

chronicle of currency collapses re examining the effects on output abstract the impact of currency collapses i e large nominal depreciations or devaluations on real output remains unsettled in the empirical macroeconomic literature this paper provides new empirical evidence on this relationship using a dataset for 108 emerging and developing economies over the period 1960 2006 we provide estimates of how these episodes affect growth and output trend our main finding is that currency collapses are associated with a permanent output loss relative to trend which is estimated to range between 2 and 6 of gdp however we show that such losses tend to materialize before the drop in the value of the currency which suggests that the costs of a currency crash largely stem from the factors leading to it taken on its own i e ceteris paribus we find that currency collapses tend to have a positive effect on output more generally we also find that the likelihood of a positive growth rate in the year of the collapse is over two times more likely than a contraction and that positive growth rates in the years that follow such episodes are the norm finally we show that the persistence of the crash matters i e one time events induce exchange rate and output dynamics that differ from consecutive episodes

five propositions to harmonize environmental footprints of food and beverages several attempts have been made to harmonize guidelines for environmental footprints of food and beverages for example the food sustainable consumption and production roundtable the leap partnership and the environmental footprint project in particular within the cattle model working group despite all these activities there are still many issues unresolved this paper gives an overview of five important reasons why it is so difficult to reach consensus within the sector in short the issues are 1 how to allocate deforestation to land use activities 2 how to assess agricultural emissions profiles 3 how to make regionalized water scarcity assessments 4 how to choose the functional unit of food and beverages and 5 how to deal with multi functional processes in agro industry recommendations as motivated in this paper are in summary to 1 use the method to calculate the amount of land use change caused by increased pressure from growing areas per crop in each country 2 always calculate agricultural emissions using at least an intermediate level of detail with the option to add more detail 3 use good quality irrigation and crop evapotranspiration data and at least country specific water scarcity factors 4 report the environmental footprint results per unit of economic value besides per unit of mass or volume to enable fairer comparisons 5 and apply economic allocation in all multi functional agricultural and agri industrial processes based on realistic prices calculated as multiple year averages

exchange rate policy and the zero bound on nominal interest rates in this paper we study the effectiveness of monetary policy in a severe recession and deflation when nominal interest rates are bounded at zero we compare two alternative proposals for ameliorating the effect of the zero bound an exchange rate peg and price level targeting we conduct this quantitative comparison in an empirical macroeconometric model of japan the united states and the euro area furthermore we use a stylized micro founded two country model to check our qualitative findings we find that both proposals succeed in generating inflationary expectations and work almost equally well under full credibility of monetary policy however price level targeting may be less effective under imperfect credibility because the announced price level target path is not directly observable

theoretical analysis regarding a zero lower bound on nominal interest rates this paper explores several issues concerning a possible zero lower bound zlb including its theoretical rationale the magnitude of effects of low sustained inflation on real interest rates the validity of analyzing monetary policy in models with no monetary variables and the dynamic stabilizing properties of taylor rules in a zlb context the most important argument however is that if the short nominal rate is immobilized at zero there nevertheless exists a route for monetary stabilization policy to be effective via the foreign exchange market its quantitative importance is examined in a calibrated optimizing open economy model

the liquidity trap and u s interest rates in the 1930s most current literature assumes that a central bank loses the ability to influence interest rates through variations in reserve supply as soon as overnight rates have been driven to zero i argue that reserve supply can be directly related to longer term rates when overnight rates are zero because banks reserve demand is then defined by the role of cash as an asset free of interest rate risk i present evidence that reserve supply affected longerterm interest rates in the u s from 1934 through 1939 while overnight rates were at the zero floor even when the changes in reserve supply reflected factors unlikely to have affected expectations of future overnight rates

estimating monetary policy effects when interest rates are close to zero abstract using a nonlinear structural var approach we estimate the effects of exogenous monetary policy shocks in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter cyclical monetary policies based on the data from japan we find that when interest rates are at zero the output effect of exogenous shocks to monetary policy is cut in half if the central bank continues to target the interest rate the conditional impulse response functions allow us to isolate the effect of monetary policy shocks operating through the interest rate channel when other possible channels of monetary transmission are present

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

panel discussion price stability how should long term monetary policy be determined these comments address the question of monetary strategy as distinct from monetary tactics they are not directed at the question of what monetary policy is appropriate at the present time or of how monetary policy should be determined at any specific point as a function of prevailing conditions instead the issue i take is one that has been of increasing interest to economists in recent years what should be the long terrn objectives of the monetary authority increased interest in this issue as opposed to the issue of fine tuning the economy reflects the general intellectual consensus that has emerged on two points first what the monetary authority surely can control in the long run is the growth rate of nominal income second issues of dynamic consistency and commitment are crucial to the design of appropriate monetary policies beyond its recognition of these points my view is that most of what the academic economics community has had to say on the issue of long run monetary strategy has been tangential at best and i fear that many of the papers at this conference have not done much to improve the situation i wish to advance four propositions about monetary policy and to discuss their implications first an optimal tax theory has little or nothing to do with sensible inflation policy second positive rates of inflation are almost certainly desirable third to an important extent institutions do the work of rules and monetary rules should be avoided instead institutions should be drafted to solve time inconsistency problems fourth h j res 409 the proposed zero inflation amendment is a good idea if it is not taken too seriously or too literally but is instead viewed as a device for strengthening the independence of the federal reserve system my first proposition is that the connection between optimal tax theory and infla

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

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

real implications of the zero bound on nominal interest rates if monetary policy succeeds in keeping average inflation very low nominal interest rates may occasionally be constrained by the zero lower bound the degree to which this constraint has real implications depends on the monetary policy feedback rule and the structure of price setting policy rules that make the price level stationary lead to small real distortions from the zero bound if policy imparts persistence into the inflation rate the real implications of the zero bound are large in the presence of backward looking price setting and small if prices are set to maximize profits

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

the influence of fomc member characteristics on the monetary policy decision making process abstract this paper provides new empirical evidence on a monetary policy committee with heterogeneous members whose decisions affect the efficacy of monetary policy it thereby provides a link between the literature on monetary policy committees and central bank monetary policy implementation through monetary rules using a novel dataset of the idiosyncratic characteristics of fomc members over the period from august 1979 to february 2014 the empirical findings show that characteristics such as education age and to a lesser extent work experience are not important in understanding the fomc decision making process instead the results point to the importance of time spent within the federal reserve system tenure on the fomc itself and the influence of the chair in shaping the decision making process the results are expected to have implications for the capacity of economic agents as well as various markets in the economy to more readily interpret public monetary policy information that reaches them this makes the monetary policy decision process less noisy and thus enhances the capability of agents and markets to attach the correct weight to this information

alternative views of the money transmission mechanism what difference do they make for monetary policy this paper examines how alternative views of the monetary transmission mechanism affect the choice of a monetary policy rule the main finding is that many different structural models indicate that the same simple monetary policy rule one in which the central bank s target short term interest rate reacts to inflation and to real output would perform well such rules work well even in models where the monetary transmission mechanism has a relatively strong exchange rate channel the models differ however in their implications for more complex monetary rules prepared for the oxford review of economic policy this paper is an updated revised and shortened version of an earlier paper entitled the monetary transmission mechanism and the evaluation of monetary policy rules presented at the central bank of chile in september 20 21 1999 i am grateful to david vines for very helpful comments

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

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

do nominal devaluations lead to real devaluations in ldcs abstract devaluation or depreciation of nominal exchange rate is a policy to boost exports however since any favorable effects of devaluation could be offset by its inflationary effects one must consider real devaluation this note investigates whether nominal devaluation leads to real devaluation by employing a relatively new method of cointegration and error correction modeling

defending against speculative attacks it is risky but it can pay off abstract while currency crises are typically considered to be painful and costly events a closer look reveals that economic developments after a speculative attack differ considerably monetary authorities can play a central role in determining the economic course and costs of currency crises they have to decide whether to defend or not to defend the domestic currency giving rise to three different types of crises i an immediate depreciation if the central bank does not intervene and either ii a successful defense or iii an unsuccessful defense in the case of an intervention we find that a central bank has two options to mitigate the costs of speculative attacks namely an immediate depreciation and a successful defense if a central bank intervenes she might be able to stabilize the exchange rate only temporarily and risks to ultimately fail facing the worst of the three scenarios with the highest economic costs

are currency devaluations effective a panel unit root test abstract using a panel unit root test with real exchange rate volatility measures this paper shows that currency devaluation leads to a short run contractionary effect for the crisis affected asian economies in addition devaluation is ineffective in the long run in influencing aggregate output

withstanding financial crises would trade partners help or hurt abstarctthis article provides new empirical evidence on the losses of real activity caused by various financial shocks spillover effects due to foreign trade linkages deserve special attention to this end we estimate a modify auto regressive process and a seemingly unrelated regression equations estimator is used to account for the dependency of one s country growth on its trade weighted partners growth we run estimations on a set of currency collapses banking crises and sovereign defaults in 49 advanced and developing countries from 1978 to 2011 the trade weighted foreign demand effect mitigated the economic downturn following a banking or a sovereign debt crisis in all countries while only the advanced ones benefited from it after a currency collapse trade based spillover effects make banking crises more costly in the developing countries in those that liberalize their financial account it contrasts with what is observed during currency or sovereign debt crises

behavior of output during currency crises abstract this paper documents the behavior of output and its association with other macroeconomic variables in 195 episodes of currency crises in developing countries during 1970 2000 we find that about 60 of the crises are contractionary while the rest are expansionary crises are one and a half times more likely to be contractionary in emerging markets than in other developing economies the number of contractionary crises or their severity does not increase in the 1990s economies which experience capital inflows in the years prior to the crisis or an increase in external debt burden during the crisis are more likely to slow down during crises while those with restrictions on capital flows prior to the crisis or are more open to international trade are less likely to do so the results are robust to different ways of measuring changes in output during crises

how central banks prepare for financial crises an empirical analysis of the effects of crises and globalisation on international reserves central banks international reserve holdings have increased significantly in the recent past while traditional models fail to explain this accumulation of reserves the more recent literature argues that reserves are used as a lifejacket against currency crises however research so far has neglected the question whether and how central banks change their precautionary reserve holdings after the country was affected by a currency crisis this paper tests the hypothesis that central banks revise their reserve policy in the aftermath of currency crises a dynamic panel data model is estimated for developing and industrial countries covering the period from 1975 to 2003 the evidence suggests that currency crises induce a permanent increase of reserves this effect is particularly strong for recent currency crises since the asian financial crisis

inflation output variance trade offs and optimal monetary policy the author estimates the inflation output gap variance trade off faced by monetary policymakers in the united states for policymakers who care about deviations of inflation around target and output around potential the estimated trade off represents the optimal policy frontier given the structure of the economy policymakers can do no better than to attain weighted variances of inflation and output that lie on the frontier the author finds that the variance trade off becomes quite severe when the standard deviation of inflation or output drops much below 2 percent this suggests that approximately balanced responses to policy goals are consistent with reasonable preferences over inflation and output variability copyright 1997 by ohio state university press

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

optimal discretionary monetary policy in a micro founded model with a zero lower bound on nominal interest rate abstract this paper investigates optimal discretionary monetary policy under the zero lower bound on the nominal interest rate zlb in the case of a distorted steady state due to monopoly and taxation solving a fully nonlinear micro founded fnl model using a global method i find that the central bank in a more distorted economy would cut the interest rate less aggressively under a particularly adverse demand shock this occurs because inflation and nominal interest rates are higher on average making the zlb less likely to bind and causing the economy to escape from the zlb sooner however the social planner would choose the optimal inflation rate of approximately zero the result emerges because the unconditional benefit of avoiding the zlb is not big enough to offset the cost of higher relative price dispersion when inflation is significantly positive in addition i show that the conventional linear quadratic lq method is inaccurate in the case of a sufficiently distorted steady state

worldwide economic recoveries from financial crises through the decades abstract the profiles of economic recoveries after a financial crisis are identified through a self organizing map covering 104 countries during 1973 2017 first and surprisingly only 55 of the 276 events belong to the usual v u l classification new s shaped bounce back recoveries d oomed ones and double dip m occur in 23 18 and 4 of the cases respectively second the frequencies of profiles vary with the crisis type countries development and location and over time third unlike government spending supporting domestic credit liquidity foreign trade or else the exchange rate after the crisis may help activity bounce back

risk premium shocks and the zero bound on nominal interest rates there appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real world and predictions from quantitative dsge models recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain optimal monetary policy

comment on theoretical analysis regarding a zero lower bound on nominal interest rates the sharp decline in interest rates in the past two decades has shifted attention to a new policy question do low interest rates interfere with the ability of a central bank to do its job some say the answer is yes according to them with rates low the central bank has lost the option to cut them further in the event of a bad economic shock 1 according to mccallum the right answer is no he asserts that the central bank has a second tool for stabilizing the economy the exchange rate he maintains that the central bank can stabilize the economy by exploiting its control over the exchange rate even if it cannot cut the interest rate because it is stuck on its zero lower bound according to mccallum s model exchange rate policy can even lift the economy out of the worst case scenario this occurs when the nominal rate of interest is zero and the expected future price level and exchange rate are sxed because the public srmly believes the central bank is committed to a price level target in this scenario a standard prescription for stimulating the economy reduce the real interest 1ate by committing to loose money in the future is ineffective according to mccallum s model this worst case scenario is not as big a problem as it might seem the central bank can still stimulate the economy by depreciating the currency through purchases of foreign exchange in my comment i make two points

the monetary transmission mechanism an empirical framework this paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real gdp changes in financial market prices including long term interest rates and exchange rates are the main vehicle for the transmission of policy the framework incorporates rational expectations and policy rules it is empirical and appears to fit the facts well

do real exchange rate appreciations matter for growth the impact of exchange rate changes on growth a long standing key issue in international macroeconomics has received renewed attention in recent years owing to weaker growth rates and the debate on currency wars the connection between real exchange rates and growth remains however an unsettled question in the academic literature we fill this gap by providing an empirical assessment based on a broad sample of emerging and advanced economies we assess the impact of appreciations productivity booms and capital inflows surges using a propensity score matching approach to address causality issues appreciations associated with higher productivity have a larger impact on growth than those associated with capital inflows furthermore appreciations per se tend to have a negative impact on growth we provide a simple theoretical model that delivers a contrasted growth appreciation pattern depending on the underlying shock the model also implies adverse effects of shocks to international capital flows so concerns about an appreciation are not inconsistent with concerns about a depreciation while the presence of an externality through firms destruction leads to inefficient allocations addressing the inefficiency does not dampen exchange rate movements

dealing with monetary paralysis at the zero bound recently the key constraint for central banks is the zero lower bound on nominal interest rates central banks fear that if they push short term policy interest rates too deeply negative there will be a massive flight into paper currency this paper asks whether in a world where paper currency is becoming increasingly vestigial outside small transactions at least in the legal tax compliant economy there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live surprisingly this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out of the box solutions for dealing with it in an inversion of the old joke it is a bit as if the economics literature has insisted on positing assume we don t have a can opener without considering the possibility that we might be able to devise one it makes sense not to wait until the next financial crisis to develop plans fundamentally there is no practical obstacle to paying negative or positive interest rates on electronic currency and as we shall see effective negative rate policy does not require eliminating paper currency

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

recovery from a currency crisis some stylized facts abstract using a comprehensive data set of over 100 developing countries this paper examines how economies recover from a currency crisis some of the regularities found are listed below first it takes less than 3 years for the gdp growth rate to fully recover its tranquil period average the level of gdp however remains permanently below its initial trend suggesting that the shocks underlying a crisis are persistent second the credit crunch problem lasts much longer than the reduction in the gdp growth rate third the pre crisis credit expansion and reserve inadequacy which have been widely recognized as the main causes of a crisis also are closely related to the extent of the post crisis recession fourth crisis episodes that are caused mainly by illiquidity rather than by insolvency tend to exhibit a sharp recovery

environmental impact of the substitution of imported soybean meal with locally produced rapeseed meal in dairy cow feed abstract growing public concerns about the traceability safety and environmental friendliness of food products provide an incentive for shorter supply chains in agricultural production here we assessed the environmental impacts of the substitution of imported soybean meal with locally produced rapeseed meal in french dairy production systems using a life cycle approach two feeding rations based on either french produced rapeseed meal or brazilian produced soy meal as concentrates were compared for nine impact categories including global warming ecotoxicity and eutrophication crop production was the main contributor to most impacts while overseas transport of soy meal only had a marginal effect the soybean ration appeared more environmentally efficient than the rapeseed ration because it involved less intensive management practices in particular regarding synthetic fertilizers consumption however land use changes brought about by soybean cultivation should also be examined

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

overcoming the zero bound on interest rate policy the paper proposes three options for overcoming the zero bound on interest rate policy a carry tax on money open market operations in long bonds and monetary transfers a variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates a carry tax could be imposed on currency to create more leeway to make interest rates negative quantitative policy monetary transfers and open market purchases of long bonds could stimulate the economy by creating liquidity broadly defined a central bank needs more fiscal support than usual from the treasury to pursue quantitative policy at the interest rate floor

teaching modern macroeconomics at the principles level ideas taught at the macroeconomics principles level should satisfy two goals first they should be simple enough to be both understandable and memorable for the beginning student second they should be consistent both with the modem economy and with the macroeconomic models of this economy that are used in practice for policy evaluation there is no necessary conflict between these two goals the greater the consistency between the ideas taught in the classroom and the models used in practice the easier the ideas are to understand and the worthier they are of being remembered it would be an exaggeration to say that a consensus now exists in advanced research about how macroeconomics should evolve in the future debates continue for example about the usefulness of models with representative agents or what it means to have a fully articulated model of money nevertheless at the practical level a common view of macroeconomics is now pervasive in policyresearch projects at universities and central banks around the world this view evolved gradually since the rational expectations revolution of the 1970 s and has solidified during the 1990 s it differs from past views and it explains the growth and fluctuations of the modern economy it can thus be said to represent a modem view of macroeconomics 1 the purpose of this paper is to show how this modem macroeconomics can be taught at the principles level i focus on macroeconomic concepts including economic growth and fluctuations and their graphical representation rather than on techniques of delivery whether active learning experiments or the use of new media 2 the teaching ideas are similar to those used by david romer 2000 and taylor 1998 but the purpose of this paper is to show how closely they represent modern macroeconomics

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

a resilience based policy evaluation framework application to european rural development policies abstract given the major changes that rural areas have undergone and are continuing to undergo serious problems of achieving sustainable development are being experienced these changes have multiple characters varying from changes in ecosystem conditions to changes in socio economic impacts due to for example food and financial crises nowadays there is an increasing awareness of the need to develop rural policies that support adaptive strategies of stakeholders in response to a disturbance we propose that resilience thinking offers a framework that could be helpful in the governance of rural changes this framework is based on the complexity of the social ecological system and takes into account the unpredictable future as it emphasizes adaptive approaches to management as such it helps evaluate to what extent rural development policies contribute to the resilience of rural areas nine criteria were developed including thirteen specifications in order to evaluate the usability and usefulness of the proposed framework a case study has been performed that specifically investigated the degree of resilience of a european rural development policy i e the spending of extra funds generated through compulsory modulation under the 2009 health check in the netherlands

the robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the european central bank abstract this paper examines the implications of recent research on monetary policy rules for practical monetary policy making with special emphasis on strategies for setting interest rates by the european central bank ecb the paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules further it stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose much more evidence is becoming available on the robustness of simple monetary policy rules for the interest rate than ever before

currency crises are they all the same abstract the plethora of currency crises around the world has fueled many theories on the causes of speculative attacks the first generation models focus on fiscal problems while the second generation models emphasize countercyclical policies and self fulfilling crises in the 1990s models pinpoint to financial excesses with the crisis of argentina in 2001 models of sovereign default have become popular again while the theoretical literature has emphasized variety the empirical literature has supported the one size fits all models this paper contributes to the empirical literature by assessing whether the crises of the last 30 years are of different varieties

on the effect of devaluation during stabilization programs in ldcs this paper is a cross section study of the effect of real devaluations on capacity utilization during stabilization programs in ldcs it finds that such devaluations had a significant negative effect on output as predicted in many recent papers this was not because devaluation caused a rise in aggregate saving but more because of a sharp contraction in investment external factors such as terms of trade and the capacity to import had a significant positive impact while monetary and fiscal policy played only a minor role copyright 1992 by mit press

optimal monetary policy at the zero interest rate bound what should a central bank do when faced with a weak aggregate demand even after reducing the short term nominal interest rate to zero to address this question we solve a central bank s intertemporal loss minimization problem in which the non negativity constraint on nominal interest rates is explicitly considered we find that the optimal path is characterized by policy inertia in the sense that a zero interest rate policy should be continued for a while even after the natural rate of interest returns to a positive level by making such a commitment the central bank is able to achieve higher expected inflation lower long term nominal interest rates and a weaker domestic currency in the adverse periods when the natural rate of interest significantly deviates from a steady state level

optimal monetary policy when interest rates are bounded at zero abstract this paper characterizes the optimal monetary policy reaction function in the presence of a zero lower bound on the nominal interest rate we analytically prove and numerically show that the function is highly non linear more expansionary and more aggressive than the taylor rule we then test its empirical validity taking the case of japan in the 1990s qualitatively we find some evidence of non linear monetary policy quantitatively we find the actual monetary policy to be too contractionary during the first half of the decade while the low interest policy during the latter half turns out to be fairly consistent with the simulated path

towards a new early warning system of financial crises abstract this paper develops a new early warning system ews model based on a multinomial logit model for predicting financial crises it is shown that commonly used ews approaches which use binomial discrete dependent variable models are subject to what we call a post crisis bias this bias arises when no distinction is made between tranquil periods when economic fundamentals are largely sound and sustainable and crisis post crisis periods when economic variables go through an adjustment process before reaching a more sustainable level or growth path we show that applying a multinomial logit model which allows distinguishing between more than two states is a valid way of solving this problem and constitutes a substantial improvement in the ability to forecast financial crises the empirical results reveal that for a set of 20 open emerging markets for the period 1993 2001 the model would have correctly predicted a large majority of crises in emerging markets

monetary policy and the zero bound to interest rates a review1 this paper reviews the literature on what the zero bound to nominal interest rates implies for the conduct of monetary policy the aim is to evaluate the risks of hitting the zero bound and to evaluate policies that are said to be able to reduce that risk or policies that are proposed as means of helping the economy escape if it is in a zero bound trap i conclude that policies aimed at cure are arguably more uncertain tools than those aimed at prevention so prevention is a less risky strategy for policymakers but since the risks of hitting the zero bound seem quite small anyway and the risks of encountering a deflationary spiral smaller still it is conceivable that inflation objectives that typify modern monetary regimes already have more than enough insurance built into them to deal with the zero bound problem

economic costs of alternative monetary policy responses to speculative currency attacks abstract the outcome of a speculative attack on the foreign exchange rate can be classified into three cases i immediate depreciation of the nominal exchange rate ii successful defense or iii failed defense this paper explores which of these outcomes yields the lowest cost in terms of output and unemployment in the short and medium run ex ante the outcome of a speculative attack is uncertain therefore the appropriate response of monetary authorities to a speculative attack depends on the cost of an immediate depreciation compared with that of the expected outcome of a currency defense our empirical analysis focuses on a sample of 73 emerging and developing countries over the 1960 2011 period our results indicate that an immediate depreciation is the policy response that is associated with a lower expected output loss and unemployment in the short run and it tends to be expansionary in the medium run a defense if successful entails insignificant costs in the short run but unlike an immediate depreciation a successful defense is not expansionary in the medium run if a defense fails large output losses and an increase in unemployment ensue at least in the short run

the deflation bias and committing to being irresponsible i model deflation at zero nominal interest rate in a microfounded general equilibrium model i show that one can analyze deflation as a credibility problem if three conditions are satisfied first the government s only policy instrument is increasing the money supply by open market operations in short term bonds second the economy is subject to large negative demand shocks third the government cannot commit to future policy i call the credibility problem that arises under these conditions the deflation bias i propose several policies to solve it they all involve printing money or issuing nominal debt in addition they require cutting taxes buying real assets such as stocks or purchasing foreign exchange the government credibly commits to being irresponsible by pursuing these policies it commits to higher money supply in the future so that the private sector expects inflation instead of deflation this is optimal since it curbs deflation and increases output by lowering the real rate of return

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

an empirical assessment of currency devaluation in east asian countries the hypothesis of contractionary devaluation has received surprisingly strong empirical support especially in the context of latin american countries in this paper we study whether it applies equally well in seven east asian countries when we use the pre 1997 crisis data and the trade weighted exchange rate we find no evidence of contractionary devaluations in fact currency devaluation appears strongly expansionary in several countries this is contrasted to the case of chile and mexico where the evidence of devaluation is persistent we find that the results are somewhat sensitive to the definition of the exchange rate and the period of estimation

global liquidity trap abstract how should monetary policy respond to a global liquidity trap where the two countries may fall into a liquidity trap simultaneously using a two country new open economy macroeconomics model we first characterize optimal monetary policy and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap we next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules the interest rate rule targeting the producer price index performs well in this respect