the inflation targeting regime in the united kingdom a view from threadneedle street the recent financial crisis and subsequent deterioration in macroeconomic outcomes have raised question marks over the framework for monetary policy in the united kingdom this paper examines the performance of the uk s monetary policy framework in the light of these questions far from concluding that inflation targeting needs to be replaced we argue in the paper that the regime has provided a clear policy compass that facilitated strong and decisive monetary policy decisions during the financial crisis we argue that it should remain the mainstay of the uk macroeconomic policy framework even so lessons need to be learnt to prevent financial market excesses from destabilizing the economy in future the single most important being the need to expand the range of instruments available to policy makers copyright 2010 oxford university press

remaking macroeconomic policy after the global financial crisis a balance sheet approach this paper describes the origins of the global financial crisis and how the prevailing new keynesian macroeconomic orthodoxy failed to anticipate its severity this failure we argue stemmed from an incomplete understanding of the pivotal role of financial institutions in the amplification of the crisis and its transmission to the wider economy low global interest rates and a consequent search for yield in the pre crisis period encouraged financial institutions to build highly leveraged balance sheets which in turn generated extremely large asset price movements when a small event the downturn in the us sub prime mortgage market triggered the crisis the paper then briefly describes the element of the broadly successful and coordinated macroeconomic policy response to the crisis before turning to the medium term challenges facing policymakers in sustaining global recovery at the national level we focus on the resolution of fiscal imbalances which contributed in part to the crisis and which then worsened because of the policy actions which have been taken to deal with it at the international level we emphasise the need to rectifying the imbalances between savings and investment in many significant countries this will require greater coordination of macroeconomic policy across the world s major economies it will also involve strengthening the role and the governance of the international monetary fund

consideration review of research and prospects for future insights the authors review the behavioral underpinnings of consideration set formation and revisit the theoretical and empirical evidence that led them to develop an individual level model of consideration

the sensitivity of vpin to the choice of trade classification algorithm abstract the vpin metric easley et al 2012b aims to detect and predict the toxicity of order flow this paper examines the sensitivity and robustness of vpin to the choice of trade classification scheme which is the major input used to compute vpin we compare deterministic trade by trade classification approaches with results computed using a newly proposed heuristic approach bulk volume classification we find substantial differences for all levels of aggregation trade classification order imbalance vpin and identifying toxic periods we also find that the detection of toxic periods does not yield consistent results in more than 60 of cases but regression analysis can identify volume and return volatility as parameters that contribute to higher levels of sensitivity

retrieving unobserved consideration sets from household panel data the authors propose a new model to capture unobserved consideration from discrete choice data this approach allows for unobserved dependence in consideration among brands easily copes with many brands and accommodates different effects of the marketing mix on consideration and choice as well as unobserved consumer heterogeneity in both processes an important goal of this study is to establish the validity of the existing practice to infer consideration sets from observed choices in panel data the authors show with experimental data that underlying consideration sets can be reliably retrieved from choice data alone and that consideration is positively affected by display and shelf space next the model is applied to information resources inc panel data the findings suggest that promotion effects are larger when they are included in the consideration stage of the two stage model than in a single stage model the authors also find that consideration covaries across brands and that this covariation is mainly driven by unobserved consumer heterogeneity finally the authors show the implications of the model for promotion planning relative to a more standard model of choice

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

a two stage disaggregate attribute choice model a two stage disaggregate attribute choice model is proposed and empirically implemented the first stage of the model is attribute processing to screen the number of alternatives down to a lesser number the second stage is brand alternative processing which considers the attributes simultaneously while allowing for tradeoffs among the attributes this two stage approach is then applied to the same real world data set as two single stage disaggregate models logit and maximum likelihood hierarchical mlh which are state of the art models representing the alternative and attribute processing approaches respectively the predictive accuracy of the two stage approach compares favorably to the single stage models in addition it seems to offer diagnostic information that can provide managerial insights not found in the output of the single stage model

two stage discrete choice models for scanner panel data an assessment of process and assumptions discrete choice models such as the multinomial logit assume that consumers choose from the full set of alternatives available to them however because i consumers may not be able to recall or recognize available brands ii consumers may not have the cognitive capacity or mental energy to process information pertaining to all available brands or iii careful consideration of all available brands might be suboptimal from an economic standpoint given the cost of information search consumers tend to make choices from a relatively small subset of the available brands this study assesses the process assumptions of existing two stage models for scanner panel data and their consistency with the actual processes believed to be used by consumers in forming choice sets after reviewing what is known from two stage models in scanner data applications we highlight issues in need of research

investigating heterogeneity in brand preferences in logit models for panel data in analyzing panel data the issue of heterogeneity across households is an important consideration if heterogeneity is present but is ignored in the analysis it will result in biased and inconsi

asian currency and financial crises lessons from vulnerability crisis and collapse this paper presents an analytical framework for understanding the east asian crises we argue that vulnerability was created by the boom and bust incurred under pegged exchange rates and by liberalisation in the presence of a bank based financial regime with implicit promises of bail out these vulnerabilities were interconnected negative shocks precipitated both currency devaluation and financial crisis and the latter created obligations for the government to bail out the financial sector the critical feature which led to collapse was we argue the fact that currency depreciation led to a worsening of the financial crisis due to massive unhedged borrowing in foreign currency to which the fixed exchange rate regime had led financial collapse resulted when the currency devaluation was sufficiently large that those who had lent to the financial system came to believe that government guarantees could not be honoured this in turn triggered fears of sovereign insolvency which turned currency depreciation into currency collapse

in search of a smoking gun macroeconomic policies and the crisis this paper looks at macroeconomic factors behind the current crisis the first part looks at how global macroeconomic trends including sustained strong growth low real interest rates and high saving rates provided an environment conducive to increased financial risk taking the second part examines macroeconomic policies and the international monetary system assessing whether too easy monetary policy contributed to asset price bubbles whether excessive reserve accumulation contributed to a glut of global savings whether the us dollar s reserve currency status aggravated financial excesses and whether policies in capital importing countries were sufficiently countercyclical we do not find a single factor that can explain the crisis and account for differences in countries experiences leading up to it instead the contribution of macroeconomic policy choices seems complex and ambiguous however there are still important policy lessons for in particular rebalancing economies away from export dominated growth and having monetary policy place greater weight on macrofinancial stability copyright 2009 oxford university press

inflation targeting during asset and commodity price booms the recent global economic crisis originated in the midst of a commodity price boom that had triggered sharp increases in inflation in many world countries the crisis also came in the context of a rally in asset prices and large domestic imbalances in the united states this paper uses a small open economy dynamic stochastic general equilibrum dsge model to design the correct monetary policy response to a protracted supply shock and examines how that response would change when many become credit constrained like in a credit crunch and when spending of those who can still borrow becomes very sensitive to the interest rates because of overleveraging using a version of the model with kalman learning the paper also evaluates the implications of a loss of target credibility showing how rules must be adjusted when the authorities commitment to the inflation target has been eroded the appropriate response to future evolutions of the price of oil including to large downward corrections from the current level is also evaluated copyright 2010 oxford university press

the new uk monetary arrangements a view from the literature this paper considers the likely operating characteristics of the new uk monetary arrangements introduced in may 1997 the paper first argues that the time inconsistency of policy is not an issue provided the bank of england is properly independent however the current inflation remit from the chancellor to the bank specifies a numerical target for the inflation rate but does not specify how quickly deviations from the target are to be corrected it is thus an incomplete contract and there is a danger that the bank may choose to stabilise inflation at the cost of excessively volatile movements in output or vice versa we estimate the optimal policy frontier for the uk economy and show that in practice it is close to rectangular consequently all the bank needs to assume is that the government s preferences are reasonable in order to know approximately where to locate on this frontier the incompleteness of the remit therefore need not be a cause for concern

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

modelling the effect of chronic wasting disease on recreational hunting site choice preferences and choice set formation over time chronic wasting disease cwd is a prion disease that affects deer elk and other cervid wildlife species although there is no known link between the consumption of cwd affected meat and human health hunters are advised to have animals from cwd affected areas tested and are advised against consuming meat from cwd infected animals government of alberta 2010 we model hunter response to the knowledge that deer in a wildlife management unit have been found to have cwd in alberta canada we examine hunter site choice over two hunting seasons using revealed and stated preference data in models that incorporate preferences choice set formation and scale we compare a fully endogenous choice set model using the independent availability logit model swait in probabilistic choice set formation in transportation demand models dissertation mit 1984 with the availability function approach cascetta and papola in transp res c 9 4 249 263 2001 that approximates choice set formation we find that cwd incidence affects choice set formation and preferences and that ignoring choice set formation would result in biased estimates of impact and welfare measures this study contributes to the broader recreation demand literature by incorporating choice set formation scale and temporal impacts into a random utility model of recreation demand

note consumer store choice and choice set definition consumer store choice results from a process whereby information on various alternatives is evaluated by the consumer prior to the selection of one of these alternatives in the application of store choice models it is often assumed that the information processing strategy underlying store choice is a simultaneous one in which all possible alternatives are evaluated by an individual a competing assumption increasingly recognized in aspatial choice is that individuals initially evaluate clusters of alternatives and then only evaluate alternatives within a chosen cluster the nested logit model is a well known formulation for capturing this type of choice process this paper adds to the above understanding of consumer spatial choice in the following ways i it describes an alternative to the nested logit model known as a competing destinations model which can be used to model hierarchical spatial choice processes while this model has been described previously in the geography and planning literature this paper contains a novel derivation of it from within the random utility maximization framework ii a general choice formulation is derived from which the logit nested logit and competing destinations models can be obtained this allows the behavioral assumptions embedded in each model to be seen clearly and it allows a comparison of the nested logit and competing destinations formulations the latter is shown to be preferable in most spatial choice situations in particular the latter can be used when restricted choice sets are fuzzy iii the errors that arise when spatial choice results from a hierarchical process and when a simultaneous choice structure is assumed are demonstrated and are related to the presence of consumer competition agglomeration effects between stores which are thought to be important in store choice

the macroeconomic role of fiscal policy this article examines the new consensus that fiscal policy should have no macroeconomic role in flexible inflation targeting regimes there is little basis for this presumption fiscal policy remains important in setting the policy mix and in managing shocks and imbalances the credibility of an inflation targeting regime should be enhanced rather than reduced if fiscal policy plays its proper role it is true nevertheless that the costs of focusing fiscal policy narrowly on public sector concerns may not be very great most of the time however when interest rates cannot be used the role of fiscal policy must be different with interest rates at their lower bound of zero there is no plausible alternative for asymmetric shocks and adjustments in emu fiscal policy needs ideally to substitute for the interest rate policy reaction function of the consensus but the difficulties are very great we suggest a policy focus on real exchange rates as a way of resolving some of the dilemmas there is a serious danger that orthodox views about fiscal policy drawn from the consensus will be inappropriately applied especially in europe copyright 2005 oxford university press

modeling preference and structural heterogeneity in consumer choice consumer heterogeneity is fundamental to the marketing concept providing the basis for market segmentation targeting and positioning as well as micro marketing substantial effort has already been devoted to incorporate heterogeneity in brand choice models however most of the research in this area has focused on differences in preferences or tastes across consumers in contrast limited attention has been given to the possibility that consumers might also differ in the process they follow when making choices failure to account for either form of consumer heterogeneity may lead to misinterpretations of market structure and market segments as demonstrated in our simulations our main research objective in this paper is to account for these two forms of consumer heterogeneity with an integrated model we develop a choice model that simultaneously identities consumer segments on the basis of their preferences response to the marketing mix and choice processes this choice model is a finite mixture of nested logit models that incorporates the mixture of multinomial logits as a special case one main limitation of the now popular multinomial logit model is that choices by each consumer are assumed to be independent from irrelevant alternatives as a consequence that model predicts that within each segment a brand has exactly the same cross elasticities upon every competitor in contrast our mixture of nested logits allows for violations of the iia property within each segment leading to more realistic patterns of brand competition where one brand draws differently from each competitor depending on the choice process used by members of the segment in addition to the flexible combination of choice processes and preference structures our model also incorporates a latent class of hard core loyal consumers who are expected to always buy the same brand and are thus insensitive to price and promotions application of our model to household scanner data in the peanut butter category led to four types of segments a hard core loyals who do not respond to price and promotions b brand type for which the brand choice precedes the choice of product form creamy vs crunchy c form type members of these segments first choose the product form and then decide for the brand peter pan jif skippy or store brand d iia type members of these segments make choices according to the iia property our results showed a large 14 hard core loyal segment we also identified three segments of the brand type one segment of the form type and three iia type segments all these segments also differ in their preferences for brands and product forms one useful feature of our model is that it allows for cross elasticity structures with non proportional draw even when computed within a homogeneous segment most importantly the proposed model allows for more complex cross elasticity structures within a segment rather than constraining the elasticities to any particular pattern a priori these cross elasticity patterns imply distinct competitive environments within each segment leading to different price and promotion strategies in each segment for example a promotion by jif crunchy to a brand type segment is more likely to cannibalize on shares of the creamy form of the same brand than to draw from competitors if offered to a form type segment the same promotion is more likely to draw shares from competitors because of its finite mixture formulation our proposed model shares the same limitations of this category of models for example maximum likelihood estimation of the model may lead to local optima thus requiring a multiple number of random starts in order to increase the chances of finding the model that best fits to the data our model also requires specification of the number and type of segments in each particular application several criteria are available to select the number of segments however the specification of choice processes must be based on a heuristic procedure or on the basis of prior knowledge

macroprudential policy what can it achieve this paper examines both the objectives and the available instruments for new macroprudential policy making bodies it argues that the objective financial stability is best understood as avoiding widespread disruption of financial flows achieving this objective requires that policy makers carry out two different but related tasks first they must ensure the resilience of the financial system to external shocks second they must respond in a timely fashion to future unsustainable expansions of credit and growth of asset prices these are old policy challenges what has changed is the emergence of new vulnerabilities in our innovative and relatively lightly controlled financial system exposed by the recent global financial crisis macroprudential policy can be effective in addressing these vulnerabilities but will not remove the major political and institutional obstacles to the effective control of unsustainable credit expansions 136 words

macroeconomic policy in light of the credit crunch the return of counter cyclical fiscal policy this paper begins by arguing that the 2007 8 credit crunch does not require a fundamental reevaluation of monetary policy the crunch occurred because regulation was too lax and we need to develop new and more effective tools of regulatory control to focus on current account imbalances or mistakes in setting interest rates as a prime cause of the credit crunch is unconvincing and has the danger of diverting attention away from the need to increase financial regulation the current recession does require a re evaluation of the role fiscal policy can play when interest rates hit a zero bound an expansionary fiscal policy is required because monetary policy makers are reluctant to promise higher future inflation and the impact of quantitative easing is likely to be small although rising debt may place a limit on how much conventional fiscal policy can do not all expansionary fiscal measures require additional borrowing there are two important lessons for the future first although monetary policy should remain the primary tool to stabilize the business cycle the combination of fiscal implementation lags and uncertainty means that some precautionary fiscal action may be appropriate during the early phase of some economic downturns second to play this backstop stabilization role effectively a policy that results in the government debt to gdp ratio declining albeit gradually and erratically in normal times seems appropriate

monetary policy in a systemic crisis summary this paper examines the monetary policy followed during the current financial crisis from the perspective of the theory of the lender of last resort it is argued that standard monetary policy measures would have failed because the channels through which monetary policy is implemented depend upon the well functioning of the interbank market as the crisis developed liquidity vanished and the interbank market collapsed central banks had to inject much more liquidity at low interest rates than predicted by standard monetary policy models at the same time as the interbank market did not allow for the redistribution of liquidity among ban ks central banks had to design new channels for liquidity injection

the assessment macroeconomic policy this paper describes the emerging consensus about the reaction function approach to macroeconomic policy the first section of the paper describes the historical emergence of this consensus as a synthesis of pre keynesian keynesian and monetarist ideas the theoretical part of the paper presents the basic framework of the approach and explains a number of extensions including finding the optimal reaction function avoiding the problem of inflation bias the relevance of the taylor rule forward looking expectations extensions to the open economy and the interconnections between monetary and fiscal policy the later parts of the paper contain a detailed discussion of some of the practical and institutional issues involved in the implementation of this new framework

modelling the global financial crisis this paper models the global financial crisis as a combination of shocks to global housing markets and sharp increases in risk premia of firms households and international investors in an intertemporal dynamic stochastic general equilibrium or dsge global model the model has six sectors of production and trade in 15 major economies and regions the paper shows that a switching of expectations about risk premia shocks in financial markets can easily generate the severe economic contraction in global trade and production currently being experienced in 2009 and subsequent events the results show that the future of the global economy depends critically on whether the shocks to risk are expected to be permanent or temporary the best representation of the crisis may be one where initial long lasting pessimism about risk is unexpectedly revised to a more moderate scenario this suggests a rapid recovery in countries not experiencing a balance sheet adjustment problem copyright 2009 oxford university press

the limits to fiscal stimulus the paper considers the case for an internationally coordinated further fiscal stimulus during the second half of 2009 although this makes some of the analysis period specific most of the issues and principles considered are timeless for a fiscal stimulus to be both effective there must be idle resources due to a failure of effective demand for it to be desirable there must be no alternative policy instruments including monetary policy for boosting demand there must be no complete financial crowding out and no complete direct crowding out through ricardian equivalence debt neutrality through minsky equivalence or through a high degree of substitutability between private and public exhaustive expenditure in private preferences or production possibilities finally for international coordination to be desirable there must be cross border externalities from national fiscal stimuli the paper considers each of these conditions in turn

the interactions between fiscal policy and monetary policy this paper studies the interactions of fiscal policy and monetary policy when they stabilize a single economy against shocks in a dynamic setting if both policy makers are benevolent then in our model the best outcome is achieved when monetary policy does nearly all of the stabilization if the monetary authorities are benevolent but the fiscal authority discounts the future or aims for an excessive level of output then a nash equilibrium will result in large welfare losses after an inflation shock there will be excessively tight monetary policy excessive fiscal expansion and a rapid accumulation of public debt however if in these circumstances there is a regime of fiscal leadership then the outcome will be very nearly as good as when both policy makers are benevolent

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

monetary and fiscal policy in the great moderation and the great recession in this paper we argue for a new approach to monetary and fiscal policy during the great moderation the inflation targeting regime worked well central banks used the interest rate to stabilize inflation and subject to inflation being controlled stabilized the level of demand fiscal policy exerted discipline over the public sector deficits thereby indirectly managing the level of public debt such fiscal housekeeping worked well because the monetary authorities were stabilizing the economy but once private sector deleveraging led to the great recession and interest rates hit their zero bound the outcome could no longer be managed by monetary policy recovery depended on the automatic stabilizers output and tax revenues have fallen public debt has been created and assets have been created which a deleveraging private sector wishes to hold but the effect has been very gradual recovery would have been faster if fiscal policy had been responsible for the restoration of full employment in an environment which tolerated the necessary rises in public debt conversely policies of austerity designed to reduce public debt have slowed the recovery growth will not be resumed until the private sector begins to invest strongly again creating the financial assets which the private sector wishes to hold thereby enabling public debt to be retired this has not yet happened because the private sector correctly does not believe that macroeconomic policy is capable of sustaining a strong recovery

leverage and asset bubbles averting armageddon with chapter 11 an iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to overshoot equilibrium when an asset bubble bursts threatening widespread insolvency and what richard koo calls a balance sheet recession besides interest rates cuts asset purchases and capital restructuring are key to crisis resolution the usual bankruptcy procedures for doing this fail to internalise the price effects of asset fire sales to pay down debts however we discuss how official intervention in the form of super chapter 11 actions can help prevent asset price correction causing widespread economic disruption

limited choice sets local price response and implied measures of price competition it is becoming increasingly evident that a consumer s brand choice decision in low involvement categories does not involve full search evaluation and comparison of price information of all brands available at point of purchase global price response the authors propose a two stage choice process in which the consumer first identifies a subset of brands within the universal set of brands called the choice set and then evaluates only those brands that are in the choice set relative to one another to select a single brand the authors find that consistent with reports of the extent of external price search of consumers response to shelf price variations is limited to the brands in the choice set local price response their results indicate that employing the assumption of global price response may lead to biased estimates of price elasticity and derived measures of clout and vulnerability to enable a managerially meaningful and useful assessment of a brand s competitive clout and vulnerability the