coexistence of strategic vertical separation and integration abstract this paper gives conditions under which vertical separation is chosen by some upstream firms while vertical integration is chosen by others in the equilibrium of a symmetric model a vertically separating firm trades off fixed contracting costs against the strategic benefit of writing a two part tariff exclusive dealing contract with its retailer coexistence emerges when more than two vertical cournot oligopolists supply close substitutes when vertical integration and separation coexist welfare could be improved by reducing the number of vertically separating firms the scope for coexistence diminishes when assumptions on contract observability and commitment are relaxed

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

lack of divine coincidence in new keynesian models abstract the literature has long agreed that the divine coincidence holds in standard new keynesian models the monetary authority is able to simultaneously stabilize inflation and output gap in response to preference and technology shocks i show that the divine coincidence holds only when inflation is stabilized at exactly zero even small deviations from zero generate policy trade offs i demonstrate this result using the model s non linear equilibrium conditions to avoid biases from log linearization when the model is log linearized a non zero steady state level of inflation gives rise to what i call the endogenous trend inflation cost push shock in the new keynesian phillips curve

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

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

tnc motives for signing international framework agreements a continuous bargaining model of stakeholder pressure over the past decade discussion has flourished among practitioners and academics regarding workers rights in developing countries the lack of enforcement of national labour laws and the limited protection of workers rights in developing countries have led workers rights representatives to attempt to establish transnational industrial relations systems to complement existing national systems in practice these attempts have mainly been operationalised in unilateral codes of conduct recently however negotiated international framework agreements ifas have been proposed as an alternative despite their growing importance few studies have empirically studied ifas this paper starts to fill this gap by studying why corporations adopt ifas based on a qualitative study of the process leading to the signing of a recent ifa the study s findings complement existing research into why corporations adopt ifas codes of conduct and csr policies by demonstrating that corporate motives can be linked to a desire to retain a trusting relationship with the labour union movement in addition the findings indicate that the discrete campaign model of stakeholder pressure dominant in previous research should be complemented by a continuous bargaining model of stakeholder pressure the paper concludes by discussing differences between these conceptual models of stakeholder pressure and avenues for future research

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

trend inflation sticky prices and expectational stability abstract micro evidence indicates that each period a fraction of prices is kept unchanged under a positive trend inflation rate in a sticky price model based on this evidence recent research shows that high trend inflation is a serious cause for indeterminacy of rational expectations equilibrium under the taylor rule this paper examines implications of trend inflation for expectational stability of the equilibrium an empirically plausible calibration of the model demonstrates that a fundamental rational expectations equilibrium is likely to be expectationally stable even in cases of indeterminacy induced by high trend inflation

prices are sticky after all abstract economists have interpreted the evidence that prices change every four months as implying that sticky prices cannot be important for monetary transmission theory implies that this interpretation is correct if most price changes are regular but not if a large fraction are temporary as in the data since regular prices are much stickier than temporary ones our models predict that the stickiness of the aggregate price level matches that in a standard calvo model or a standard menu cost model in which micro level prices change about once a year in this sense prices are sticky after all

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

optimal monetary policy with relative price distortions this paper analyzes optimal monetary policy in a sticky price model with calvo type staggered price setting in the paper the optimal monetary policy maximizes the expected utility of a representative household without having to rely on a set of linearly approximated equilibrium conditions given the distortions associated with the staggered price setting it shows that the complete stabilization of the price level is optimal in the absence of initial price dispersion while optimal inflation targets respond to changes in the level of relative price distortion in the presence of initial price dispersion

the taylor rule and optimal monetary policy where it denotes the fed s operating target for the federal funds rate pt is the inflation rate measured by the gdp deflator yt is the log of real gdp and y t is the log of potential output identified empirically with a linear trend the rule has since been subject to considerable attention both as an account of actual policy in the united states and elsewhere and as a prescription for desirable policy taylor argues for the rule s normative significance both on the basis of simulations and on the ground that it describes u s policy in a period in which monetary policy is widely judged to have been unusually successful taylor 1999 suggesting that the rule is worth adopting as a principle of behavior here i wish to consider to what extent this prescription resembles the sort of policy that economic theory would recommend i consider the question in the context of a simple but widely used optimizing model of the monetary transmission mechanism which allows one to reach clear conclusions about economic welfare the model is highly stylized but incorporates important features of more realistic models and allows me to make several points that are of more general validity out of concern for the robustness of the conclusions reached the analysis here addresses only broad qualitative features of the taylor rule and attempts to identify features of a desirable policy rule that are likely to hold under a variety of model specifications

monetary policy in a low inflation environment developing a state contingent price level target a number of academic studies find that either price level targeting or temporary above average inflation are nearly optimal policies to address a liquidity trap crisis still central bankers and the public generally question whether even a temporarily higher inflation rate could be beneficial in addressing a liquidity trap or could be consistent with price stability over the longer term at the same time however the federal reserve s projections for high unemployment and low inflation do not seem to be consistent with the best monetary policies to address the fed s dual mandate responsibilities accordingly it is useful to seriously discuss these potentially beneficial alternative policies

the macroeconomic effects of nonzero trend inflation we study the macroeconomic effects of nonzero trend inflation in a simple dynamic stochastic general equilibrium model under three common time dependent pricing schemes calvo truncated calvo and taylor we show that regardless of the pricing mechanism trend inflation leads to a reduction in the stochastic means of output consumption and employment and an increase in the stochastic mean of inflation beyond its deterministic steady state level the variability of most aggregates also increases these effects are quantitatively much stronger with calvo pricing

trend inflation wage and price rigidities and productivity growth abstract what are the steady state implications of inflation in a general equilibrium model with real per capita output growth and staggered nominal price and wage contracts surprisingly a benchmark calibration implies an optimal inflation rate of 1 9 percent the analysis also shows that trend inflation has important effects on the economy when combined with nominal contracts and real output growth steady state output and welfare losses are quantitatively important even for low values of trend inflation further nominal wage contracting is found to be quantitatively more important than nominal price contracting in generating the results this conclusion does not arise from price dispersion per se but from an effect of nominal output growth on the optimal markup of monopolistically competitive labour suppliers finally accounting for productivity growth is found to be important for calculating the welfare costs of inflation indeed the presence of 2 percent productivity growth increases the welfare costs of inflation in the benchmark specification by a factor of four relative to the no growth case

increasing returns to scale and the long run phillips curve abstract a growing body of empirical evidence shows that there exists a long run positive trade off between inflation and real macroeconomic activity within a new keynesian framework we examine how increasing returns generate a positive long run relation between inflation and output

trend inflation indexation and inflation persistence in the new keynesian phillips curve purely forward looking versions of the new keynesian phillips curve nkpc generate too little inflation persistence some authors add ad hoc backward looking terms to address this shortcoming we hypothesize that inflation per sistence results mainly from variation in the long run trend component of inflation which we attribute to shifts in monetary policy we derive a version of the nkpc that incorporates a time varying inflation trend and examine whether it explains the dynamics of inflation when drift in trend inflation is taken into account a purely forward looking version of the model fits the data well and there is no need for backward looking components jel e12 e31 e52 in this paper we consider the extent to which guillermo calvo s 1983 model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward looking terms in its baseline formulation the calvo model leads to a purely forward looking new keynesian

optimising agents staggered wages and persistence in the real effects of money shocks in this paper we incorporate taylor s 1979 staggered wage setting into an optimising dynamic general equilibrium framework to study whether staggered wages could induce a high degree of persistence in the real effects of money shocks we conclude that high persistence is an unlikely outcome sensible values of the microeconomic parameters and or a moderate rate of underlying inflation imply a low degree of persistence furthermore once explicit microfoundations are taken into account we show that i the model is highly non linear ii the inertia of the system is inversely related to the level of average inflation

the macroeconomics of trend inflation most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state but most central banks target an inflation rate of about 2 percent many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy in this survey we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers we first review empirical research on the evolution and dynamics of u s trend inflation and some proposed new measures to assess the volatility and persistence of trend based inflation gaps we then construct a generalized new keynesian model that accounts for a positive trend inflation in this model an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations this analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long run inflation target jel e12 e31 e32 e52 e58

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

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation