policy relevant treatment effects accounting for individual level heterogeneity in the response to treatment is a major development in the econometric literature on program evaluation a substantial body of empirical evidence demonstrates that econometric models fit on individual level data manifest heterogeneity in treatment effects that is present even after conditioning on observables an important distinction is the one between evaluation models where participation in the program being evaluated is based at least in part on unobserved idiosyncratic responses to treatment and models where participation is not based on unobserved idiosyncratic responses this is the distinction between selection on unobservables and selection on observables the validity of entire classes of evaluation estimators hinges on whether or not they allow agents to act on unobserved idiosyncratic responses in a wide variety of applications the available evidence suggests that not only are ex post postenrollment responses heterogeneous but that ex ante decisions to participate in programs are based in part on these heterogeneous responses heckman and vytlacil 2000b 2001

the empirical content of the roy model this paper clarifies and extends the classical roy model of self selection and earnings inequality the original roy model based on the assumption that log skills are normally distributed is shown to imply that pursuit of comparative advantage in a free market reduces earnings inequality compared to the earnings distribution that would result if workers were randomly assigned to sectors aggregate log earnings are right skewed even if one sectoral distribution is left skewed most major implications of the log normal roy model survive if differences in skills are log concave however few implications of the model survive if skills are generated from more general distributions we consider the identifiability of the roy model from data on earnings distributions the normal theory version is identifiable without regressors or exclusion restrictions sectoral distributions can be identified knowing only the aggregate earnings distribution for general skill distributions the model is not identified and has no empirical content with sufficient price variation the model can be identified from multimarket data cross sectional variation in regressors can substitute for price variation in restoring empirical content to the roy model

congestion games with player specific payoff functions a class of noncooperative games in which the players share a common set of strategies is described the payoff a player receives for playing a particular strategy depends only on the total number of players playing the

the estimation of wage gains and welfare gains in self selection models the authors modify the basic self sele ction model for the effects ofeducation training unions and other activities on wages by including heterogeneity of rewards to the activity i e diffe rences across individuals in the rate of return to the activity the authors sho w that such heterogeneity creates a new form of selectionbias they provide tes ts for its presence and draw out its implications for the wage and welfare gains to the activity an empirical application provides strong support for such hete rogeneityin one particular training program copyright 1987 by mit press

monetary and fiscal policy interactions in a new keynesian model with capital accumulation and non ricardian consumers the paper examines simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of ricardian equivalence under this assumption government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics the key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics specifically we identify bifurcations associated with threshold values of steady state debt leading to qualitative changes in the local determinacy requirements

third party certification and the effectiveness of voluntary pollution abatement programs evidence from responsible care we analyze whether third party certification has been successful in improving the performance of voluntary pollution abatement in the responsible care rc program which made certification mandatory from 2005 onward we use facility level panel data from 821 plants between 1996 and 2010 and exploit the change in the program requirements to estimate the causal impact of third party certification on participating facility emissions compared to non rc plants in the u s chemical industry we address endogenous selection into rc via instrumental variables and explore heterogeneity in the treatment effect we find that on average there is no statistically discernible effect of third party certification on facility emissions and that this result is robust to a variety of models that correspond to different assumptions related to identification jel q53 q58 l60

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

does early child care affect children s development we study how early child care ecc affects children s development in a marginal treatment effect framework that allows for rich forms of observed and unobserved effect heterogeneity exploiting a reform in germany that induced school districts to expand ecc at different points in time we find strong but diverging effects on children s motor and socio emotional skills children who were most likely to attend ecc benefit in terms of their motor skill development children who were least likely to attend ecc gain in terms of their socio emotional skill development especially boys and children from disadvantaged families such as those with low education or migration backgrounds simulating expansions of ecc we find that a moderate expansion fosters motor skills for all children and language skills for boys and immigrant children a progressive expansion of ecc improves all children s socio emotional development but neither their motor skills nor their language skills

on the international dimension of fiscal policy this paper analyses the international dimension of fiscal policy using a small open economy framework in which the government finances its spending by levying distortionary taxation and issuing non state contingent debt the main finding of the paper is that once the open economy aspect of the policy problem is considered it is not optimal to smooth taxes following idiosyncratic shocks even when prices are flexible and inflation can costlessly act as a shock absorber to restore fiscal equilibrium the presence of a terms of trade externality lead to movements in the tax rate also in contrast with the closed economy the introduction of sticky prices can reduce the optimal volatility of taxes

monotone instrumental variables with an application to the returns to schooling for fifty years econometric analyses of treatment response have made extensive use of instrumental variable iv assumptions holding that mean response is constant across specified subpopulations of a population of interest 2 yet the credibility of mean independence conditions and other iv assumptions has often been a matter of considerable disagreement with much debate about whether some covariate is or is not a valid instrument in an application of interest there is therefore good reason to consider weaker but more credible assumptions to this end we introduce monotone instlumental variable miv assumptions holding that mean response varies weakly monotonically across specified subpopulations we study the identifying power of these miv assumptions and give an empirical application the findings reported here add to the literature developing nonparametric bounds on treatment effects 3 this paper uses the same formal setup as manski 1997 there is a probability space j x2 p of individuals each member j of population j has observable covariates xi e x and a response function yj t y mapping the mutually exclusive and exhaustive treatments t e t into outcomes yj t e y person j has a realized treatment zj e t and a realized outcome y 1 y zi both of which are observable the latent outcomes yj t

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

viewpoint estimating the causal effects of policies and programs estimation inference and interpretation of the causal effects of programs and policies have all advanced dramatically over the past 25 years we highlight three particularly important intellectual trends an improved appreciation of the substantive importance of heterogeneous responses and of their methodological implications a stronger focus on internal validity brought about by the credibility revolution and the scientific value that follows from grounding estimation and interpretation in economic theory we discuss a menu of commonly employed partial equilibrium approaches to the identification of causal effects emphasizing that the researcher s central intellectual contribution always consists of making an explicit case for a specific causal interpretation given the relevant economic theory the data the institutional context and the economic question of interest we also touch on the importance of general equilibrium effects and full cost benefit analyses

macroeconomic interdependence under incomplete markets this paper uses a two country flexible price model with overlapping generations of infinitely lived households to study the role of net foreign asset dynamics in the propagation of productivity shocks absence of ricardian equivalence ensures existence of a unique steady state level of net foreign assets to which the economy returns following temporary shocks model dynamics are significantly different from those of a setup in which terms of trade movements perform all the international adjustment and net foreign assets do not move the difference relative to a complete markets economy in which net foreign asset movements play no role in shock transmission is smaller it is amplified if the substitutability across goods rises and if shocks are permanent

stock market conditions and monetary policy in a dsge model for the u s abstract this paper investigates the interactions between stock market fluctuations and monetary policy within a dsge model for the u s economy first we design a framework in which fluctuations in households financial wealth are allowed but not necessarily required to exert an impact on current consumption this is due to the interaction in the financial markets of long time traders holding wealth accumulated over time with newcomers holding no wealth at all importantly we introduce nominal wage stickiness to induce pro cyclicality in real dividends additional nominal and real frictions are modeled to capture the pervasive macroeconomic persistence of the observables employed to estimate our model we fit our model to post wwii u s data and report three main results first the data strongly support a significant role of stock prices in affecting real activity and the business cycle second our estimates also identify a significant and counteractive response of the fed to stock price fluctuations third we derive from our model a microfounded measure of financial slack the stock price gap which we then contrast to alternative ones currently used in empirical studies to assess the properties of the latter to capture the dynamic and cyclical implications of our dsge model the behavior of our stock price gap is consistent with the episodes of stock market booms and busts occurred in the post wwii as reported by independent analyses and closely correlates with the current financial meltdown typically employed proxies of financial slack such as detrended log indexes or growth rates show limited capabilities of capturing the implications of our model consistent index of financial stress cyclical properties of the model as well as counterfactuals regarding shocks to our measure of financial slackness and monetary policy shocks are also proposed

openness imperfect exchange rate pass through and monetary policy abstract this paper analyses the implications of imperfect exchange rate pass through for optimal monetary policy in a linearised open economy dynamic general equilibrium model calibrated to euro area data imperfect exchange rate pass through is modelled by assuming sticky import price behaviour the degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output net trade and the exchange rate it is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation

evaluating education programs that have lotteried admission and selective attrition we study the effectiveness of magnet programs in an urban district that ration excess demand by admission lotteries differential attrition arises since students who lose the lottery are more likely to pursue options outside the school district than students who win the lottery when students leave the district important outcome variables are often not observed the treatment effects are not point identified we exploit known quantiles of the outcome distribution to construct informative bounds on treatment effects we find that magnet programs improve behavioral outcomes but have no significant effect on achievement

optimal monetary policy and financial stability in a non ricardian economy this paper develops a model with discontinuous asset market participation in which all agents are infinitely lived and non ricardian and where heterogeneity among market participants implies financial wealth effects on aggregate consumption derivation of a welfare based loss function shows that financial stability arises as an additional and independent target besides infl ation and output stability evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal even absent inefficient supply shocks some fluctuations in output and infl ation are optimal as long as they reduce financial instability ignoring the heterogeneity among market participants in this economy may lead monetary policy to induce substantially higher welfare losses

price stability with imperfect financial integration this paper studies whether the international monetary system can be affected by asymmetries in the cross country positions in the international financial markets i e the fact that some countries are large debtors while others are creditors an important channel that is explored is the interaction between international risk sharing and the stabilization role of monetary policy in each country the main finding is that the welfare costs of incomplete markets and the gains of deviating from a policy of price stability are increasing with the cross country asymmetries in the initial net international positions and in particular they become nonnegligible when the persistence of the shocks increases 1 of a permanent shift in steady state consumption for the welfare costs of incomplete markets and 0 2 for the gains of deviating from a policy of price stability when global imbalances become larger optimal monetary policy requires an increase in the volatilities of the real returns on assets and in particular of the nominal interest rates which should happen to be more correlated across countries

juvenile incarceration human capital and future crime evidence from randomly assigned judges over 130 000 juveniles are detained in the united states each year with 70 000 in detention on any given day yet little is known about whether such a penalty deters future crime or interrupts social and human capital formation in a way that increases the likelihood of later criminal behavior this article uses the incarceration tendency of randomly assigned judges as an instrumental variable to estimate causal effects of juvenile incarceration on high school completion and adult recidivism estimates based on over 35 000 juvenile offenders over a 10 year period from a large urban county in the united states suggest that juvenile incarceration results in substantially lower high school completion rates and higher adult incarceration rates including for violent crimes in an attempt to understand the large effects we found that incarceration for this population could be very disruptive greatly reducing the likelihood of ever returning to school and for those who do return significantly increasing the likelihood of being classified as having an emotional or behavioral disorder jel codes k140 i210

measuring heterogeneity in the returns to education using an education reform abstract in this paper we explore the impact of a mandatory education reform as well as pre reform availability of schools above the mandatory level on educational attainment and returns to education in norway we contribute to the existing literature by focusing on the heterogeneity of the impact of reforms our results indicate that increased compulsory education from seven to nine years increased the general level of education beyond the compulsory education we also find that the effect of family background on educational attainment was weaker after the reform the average treatment effect on returns to education is surprisingly high for education of intermediate duration this means that increasing the general level of education potentially generates high returns in the form of wages we also find that the effect of treatment on the treated on the returns to education is 1 4 percentage points higher than the average treatment effect

two step estimation and inference with possibly many included covariates we study the implications of including many covariates in a first step estimate entering a two step estimation procedure we find that a first order bias emerges when the number of included covariates is large relative to the square root of sample size rendering standard inference procedures invalid we show that the jackknife is able to estimate this many covariates bias consistently thereby delivering a new automatic bias corrected two step point estimator the jackknife also consistently estimates the standard error of the original two step point estimator for inference we develop a valid post bias correction bootstrap approximation that accounts for the additional variability introduced by the jackknife bias correction we find that the jackknife bias corrected point estimator and the bootstrap post bias correction inference perform excellent in simulations offering important improvements over conventional two step point estimators and inference procedures which are not robust to including many covariates we apply our results to an array of distinct treatment effect policy evaluation and other applied microeconomics settings in particular we discuss production function and marginal treatment effect estimation in detail

the new open economy macroeconomics of government debt in this paper we introduce an overlapping generations structure of the blanchard type in a new open economy macroeconomics model this allows us to study a wider range ofscal shocks compared to the traditional mundell fleming and to the baseline redux models one important policy implication of our model is that the tax cut imple mented in the us in 2001 might have contributed to the appreciation of the dollar vis a vis the euro in contrast the imposition ofscal constraint such as the golden rule proposed by the uk government can have opposite exchange rate e ects

the joint determination of union status and union wage effects some tests of alternative models the problems of estimation and interpretation of union wage differentials are examined the properties of cross section and longitudinal estimators are compared estimates are presented and those in the literature summarized conflicting results are obtained longitudinal estimators typically produce results smaller than those of ols while cross section methods instrumental variables or inverse mills ratio raise the estimate the paper offers a reconciliation of these results it supports a more optimistic conclusion than that reached in reviews by freeman and lewis who argued that little has been learned from attempts to deal with the endogeneity issue comparisons between estimators are used to throw light on the process governing union status and to suggest interpretations of union differentials consistent with the current evidence

fiscal policy and monetary integration in europe fiscal policy economists policy makers and the media often argue that the maastricht treaty and the stability and growth pact make it difficult for governments of emu countries to stabilize their economies with appropriate fiscal policy and to provide adequate public investment our empirical analysis offers little support to this view discretionary budget deficits have actually become more counter cyclical in emu countries after the maastricht treaty as well as in the other eu and non eu industrialized countries we study and while public investment has declined recently in emu countries a similar tendency is apparent in other countries and started well before the maastricht treaty was signed jordi gali and roberto perotti

twin deficits openness and the business cycle in this paper we study the co movement of the government budget balance and the trade balance at business cycle frequencies in a sample of 10 oecd countries we find that the correlation of the two time series is negative but less so in more open economies moreover for the us the cross correlation function is s shaped we show that a standard business cycle model featuring government spending and technology shocks is able to replicate these empirical regularities the model predicts that conditional on spending shocks the correlation of the budget balance and the trade balance is close to perfect consistent with the twin deficit hypothesis despite this high correlation however the economic effect of spending shocks on the trade balance is contained if the economies are not very open to trade

learning monetary policy and asset prices this working paper should not be reported as representing the view s of the imf the views expressed in this working paper are those of the author s and do not necessarily represent those of the imf or imf policy working papers describe research in progress by the author s and are published to elicit comments and to further debate

the effect of male migration on employment patterns of women in nepal what is the impact of male migration on the labor market behavior of women in nepal the instrumental variable full information maximum likelihood method is applied to data from the 2004 nepal household survey to account for unobserved factors that could simultaneously affect men s decision to migrate and women s decision to participate in the labor market the results indicate that male migration has a negative impact on the level of the labor market participation by women in the migrant sending household there is evidence of substantial heterogeneity based on both observable and unobservable characteristics in the impact of male migration the findings highlight the important gender dimension of the impact of predominantly male migration on the well being of sending households strategies for economic development in nepal should take into account such gender aspects of the migration dynamics

net foreign assets and the exchange rate redux revived abstract we revisit obstfeld and rogoff s 1995 results on exchange rate dynamics in a two country monetary model with incomplete asset markets stationary net foreign assets and endogenous monetary policy the nominal exchange rate exhibits a unit root under flexible prices it also depends on the stock of real net foreign assets with sticky prices the exchange rate depends on the past gdp differential along with net foreign assets endogenous monetary policy and asset dynamics have consequences for exchange rate overshooting a persistent relative productivity shock results in delayed overshooting under both flexible and sticky prices a persistent relative interest rate shock generates undershooting under flexible prices

us trade balance dynamics the role of fiscal policy and productivity shocks and of financial market linkages abstract this paper examines whether domestic and foreign productivity and fiscal policy changes can account for the wide swings in us net exports during the period 1975 1991 a two country real business cycle model is used for that purpose the model is simulated using data on productivity government purchases and taxes for the g7 countries a version of the model with incomplete asset markets in which only bonds can be used for international capital flows tracks the us trade balance fairly closely provided permanent country specific productivity shifts are assumed the simulations suggest that us productivity changes were the main source of fluctuations in us net exports

forecasting marketing mix responsiveness for new products abstract before a new product launch marketers need to infer how demand will respond to various levels of marketing mix variables to set an appropriate marketing plan a critical challenge in estimating marketing mix responsiveness from historical data is that the observed decisions were affected by private information possessed by managers about the heterogeneous effects of marketing mix variables on sales the authors refer to this as the slope endogeneity problem such endogeneity differs from the intercept endogeneity problem which has been widely acknowledged in the literature to correct for the slope endogeneity bias the authors develop a conceptually simple control function approach that is amenable to multiple endogenous variables and marketing mix carryover effects the method is applied to forecasting advertising responsiveness in the u s dvd market the results suggest that advertising responsiveness varies substantially across dvd titles and that estimated marketing mix elasticities w

eliciting and utilizing willingness to pay evidence from field trials in northern ghana we utilize the becker degroot marschak 1964 mechanism to estimate the willingness to pay for clean drinking water technology in northern ghana the bdm mechanism has attractive properties for empirical research allowing us to directly estimate demand compute heterogeneous treatment effects and study the screening and causal effects of prices with minor modifications to a standard field experiment setting we demonstrate the implementation of bdm along these three dimensions compare it to the standard take it or leave it method for eliciting willingness to pay and discuss practical issues for implementing the mechanism in true field settings jel classifications c93 d12 d82 l11 l31

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

experimental identification of asymmetric information evidence on crop insurance in the philippines abstract i study asymmetric information in crop insurance in the philippines using a two level randomized field experiment and incentivized preference elicitation in this first experimental study of moral hazard in non health insurance preventable damages double on randomly insured plots among farmers with high trust in the insurance provider farmers prefer insurance on plots that are at risk of floods and crop diseases a sign of classic adverse selection and plots that are far away from home a sign of selection on anticipated moral hazard behavior resulting in 72 higher payouts on preferred plots overcoming these challenges requires leveraging new technologies

fiscal and monetary rules for a currency union abstract this paper addresses the optimal joint conduct of fiscal and monetary policy in a two country model of a currency union with staggered price setting and distortionary taxes a tractable linear quadratic approximation permits a representation of the optimal policy plan in terms of targeting rules in the optimal equilibrium monetary policy should achieve aggregate price stability following a flexible inflation targeting rule fiscal policy should stabilize idiosyncratic shocks allowing for permanent variations of government debt but should abstain from creating inflationary expectations at the union level simple policy rules can approximate the optimal commitment benchmark through a mix of strict inflation targeting and flexible budget rules conversely the welfare costs of balanced budget rules are at least one order of magnitude higher than conventional estimates of the costs of business cycle fluctuactions

marital status and earnings of young men a model with endogenous selection it is a matter of course in applied labor economics to presume that marital status is a predetermined contributor to earnings among young males we find no evidence to support that proposition we estimate a model of earnings determination that permits endogenous selection of marital status our estimates are based on a sample of young employed males from the michigan panel survey of income dynamics they indicate that marital status viewed in this manner does not significantly shift the mean earnings profile our sensitivity tests indicate that this conclusion is robust with respect to a variety of alternative specifications excerpt

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

the long run educational cost of world war ii an important component of the long run cost of a war is the loss of human capital suffered by school age children who receive less education austrian and german individuals who were 10 years old during the conflict or were more directly involved through their parents received less education than comparable individuals from nonwar countries such as switzerland and sweden we also show that these individuals experienced a sizable earnings loss some 40 years after the war which can be attributed to the educational loss caused by the conflict the implied consequences in terms of gross domestic product loss are calculated

equilibria in a model with partial rivalry abstract in this paper we show that a non cooperative game with a finite set of players and common finite strategy sets possesses a strong nash equilibrium in pure strategies whenever individuals preferences satisfy independence of irrelevant choices anonymity and partial rivalry moreover if any of these assumptions is violated then even a pure strategy nash equilibrium may fail to exist further more we demonstrate that even with a continuum of players the same three assumptions yield the existence of a pure strategy strong nash equilibrium and in addition the equivalence of the sets of nash and strong nash equilibria in pure strategies journal of economic literature classification numbers c72 d62

real balance effects and monetary policy i introduction modern literature on monetary policy rules employs new keynesian optimizing models that do not explicitly include monetary aggregates see e g rotemberg and woodford 1997 clarida et al 1999 taylor 1999 in these models the demand for output derives from the log linearization of the standard euler equation characterizing household s saving decisions the real money stock does not enter the is relation and therefore monetary policy affects output and inflation only through its effect on the real interest rate when the nominal interest rate is the policy instrument it is not necessary to specify a money market equilibrium condition see romer 2000 the practice of neglecting monetary aggregates in monetary policy analysis has recently been questioned by meltzer 1999 mccallum 2001 and nelson 2002 2003 in particular mccallum 2001 points out that although no explicit term involving money appears in the standard new keynesian setup long run inflation can still be pinned down by the economy steady state nominal money growth rate moreover mccallum 2000 2001 andres et al 2001 kremer et al 2003 woodford 2003 ireland 2004a and collard and dellas 2005 analyze the case in which the resources used by consumers in conducting transactions are modeled by a nonseparable function of consumption and real money balances meltzer 1999 2001 argues that changes in real monetary base generate effects on real aggregate demand not summarized by the real interest rate on short term securities nelson 2003 emphasizes the role of money in the transmission mechanism both as a proxy for a whole spectrum of rates of return and as an indicator variable which contains information about the state of the economy the main aim of the present article is to provide additional microfoundations for an explicit role for money in the current macroeconomic debate in particular i derive a real balance effect that explicitly enters the is relation within an optimizing general equilibrium framework of the new keynesian type according to de scitovszky 1941 haberler 1946 pigou 1943 and patinkin 1965 a change in real money balances has an impact on the real financial wealth of consumers and therefore affects consumption and output notably this effect is not considered in traditional models there is in fact empirical evidence showing that real monetary base growth is a significant determinant of consumption and output gap in both the united states and in the united kingdom see chari et al 1995 meltzer 1999 nelson 2002 the present article extends the dynamic stochastic new keynesian setup with money in the utility function by introducing overlapping generations as modeled by yaari 1965 and blanchard 1985 there are good reasons to base the demand side of the economy on a discrete time stochastic monetary version of the yaari blanchard model first this kind of extension allows one to maintain the main characteristics of the so called new neoclassical synthesis that is forward looking behavior of optimizing agents and incomplete nominal adjustment of prices featured in new keynesian theories goodfriend and king 1997 second the derivation of the real balance effect does not require nonseparability in the utility function thus the implications are analytically more tractable 1 third my framework is more general because it includes the immortal representative agent setup as a particular case my analysis attempts to examine whether the presence of an explicit real balance effect in the is relation helps evaluate the role for money in designing monetary policy rules i focus on basic issues concerning the design of monetary policy rules specifically i investigate whether it is necessary for monetary policy to overreact to inflation by raising the nominal interest rate by more than the observed increase in inflation to rule out equilibrium multiplicity

the use of nonlinear hedging strategies by us oil producers motivations and implications abstract this paper investigates the motivations and value effect of nonlinear hedges using a new dataset on the hedging activities of 150 u s oil producers we present empirical evidence that nonlinear hedging strategies are motivated by sensitivities of firm s investment expenditures and revenues to oil price fluctuations and quantity price correlation we also find a non monotonic relationship between the use of nonlinear hedges and financial constraints investment opportunities production uncertainty and changes in oil prices and volatilities also play a significant role in hedging strategy choice controlling for bias related to omitted variables and self selection in the estimation of marginal treatment effects of hedging strategy choice we find that oil producers with a higher propensity to use pure nonlinear hedging strategies tend to have higher marginal firm value

monetary policy and stock prices in an open economy this paper studies monetary policy in a two country perpetual youth model where agents can invest their wealth in both stock and bond markets in our economy the foreign country is financially dominant in the sense that it hosts the only active equity market where all agents also residents of the home country can trade stocks of listed foreign firms we show that contrary to what happens in a closed economy the central bank in the economy endowed with an active stock market should grant a dedicated response to movements in stock prices driven only by local productivity shocks moreover we show that the other central bank should also optimally respond to stock price movements in the other economy as they affect the budget constraint of domestic residents optimal monetary policy pursuing price stability requires dedicated response to stock price dynamics driven by productivity shocks in addition to what implied by the simple existence of the terms of trade channel of policy transmission determinacy of rational expectations equilibria and approximation of the optimal policy by simple monetary rules are also investigated

monetary and fiscal policy interactions in a micro founded model of a monetary union abstract this paper analyzes in detail the mechanisms behind fiscal stabilization policy and the role of policy commitment in a micro founded new keynesian model of a two country monetary union which is hit by supply shocks we also explore the determinants of the gains from fiscal stabilization while monetary policy with identical union members is concerned with stabilizing the union wide economy fiscal policy aims at stabilizing inflation differences and the terms of trade besides exploring optimal policies we also consider monetary and fiscal rules we study these rules both under coordination and non coordination by the fiscal authorities

are valuation effects desirable from a global perspective abstract recent studies have emphasized the role of valuation effects due to exchange rate movements in easing the process of adjustment of the external balance of a country this paper asks to what extent valuation effects are desirable from a global perspective as a mean to achieve an efficient allocation of resources in a frictionless world it is desirable to have large movements in prices and exchange rates but once a small degree of price rigidity is introduced not only should prices be stabilized but also the response of the exchange rate should be muted there is a minor role for valuation effects that depends both on the size and composition of assets and liabilities

games of social interactions with local and global externalities abstract in this paper we present a result on the existence of pure strategies nash equilibrium which covers a large class of games with local and global social interactions the result highlights common features of well known games analyzed in the literature

news droughts news floods and u s disaster relief this paper studies the influence of mass media on u s government response to approximately 5 000 natural disasters occurring between 1968 and 2002 these disasters took nearly 63 000 lives and affected 125 million people per year we show that u s relief depends on whether the disaster occurs at the same time as other newsworthy events such as the olympic games which are obviously unrelated to need we argue that the only plausible explanation of this is that relief decisions are driven by news coverage of disasters and that the other newsworthy material crowds out this news coverage

optimal monetary and fiscal policy in a currency union we lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union the monetary authority sets a common interest rate for the union whereas fiscal policy is implemented at the country level through the choice of government spending in the presence of country specific shocks and nominal rigidities the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank whereas fiscal policy has a country specific stabilization role one beyond the efficient provision of public goods

identifying effect heterogeneity to improve the efficiency of job creation schemes in germany previous empirical studies of job creation schemes in germany have shown that the average effects for the participating individuals are negative however we find that this is not true for all strata of the population identifying individual characteristics that are responsible for the effect heterogeneity and using this information for a better allocation of individuals therefore bears some scope for improving programme efficiency we present several stratification strategies and discuss the occurring effect heterogeneity our findings show that job creation schemes do neither harm nor improve the labour market chances for most of the groups exceptions are long term unemployed men in west and long term unemployed women in east and west germany who benefit from participation in terms of higher employment rates

a universal construction generating potential games abstract strategic games are considered where each player s total utility is the sum of local utilities obtained from the use of certain facilities all players using a facility obtain the same utility therefrom which may depend on the identities of users and on their behavior if a trimness condition is satisfied by every facility then the game admits an exact potential conversely if a facility is not trim adding it to a potential game may destroy that property in both congestion games and games with structured utilities all facilities are trim under additional assumptions the potential attains its maximum which is a nash equilibrium of the game

better late than nothing some comments on deaton 2009 and heckman and urzua 2009 two recent papers deaton 2009 and heckman and urzua 2009 argue against what they see as an excessive and inappropriate use of experimental and quasi experimental methods in empirical work in economics in the last decade they specifically question the increased use of instrumental variables and natural experiments in labor economics and of randomized experiments in development economics in these comments i will make the case that this move towards shoring up the internal validity of estimates and towards clarifying the description of the population these estimates are relevant for has been important and beneficial in increasing the credibility of empirical work in economics i also address some other concerns raised by the deaton and heckman urzua papers

fiscal stimulus with spending reversals abstract the short run effects of fiscal policy depend not only on current tax and spending choices but also on expectations about future policy adjustment while general equilibrium models typically restrict medium term adjustment to taxation we highlight the importance of government spending dynamics first we provide time series evidence for the united states suggesting that an exogenous increase in government spending prompts a rise in public debt followed over time by a reduction in spending below trend second we show how expected spending reversals alter the short run impact of fiscal policy in a new keynesian model bringing it closer in line with the evidence

accounting for heterogeneity diversity and general equilibrium in evaluating social programmes this paper considers the merits and limitations of alternative criteria proposed to evaluate social programmes in the modern welfare state and the information required to implement them when individual responses to programmes are heterogeneous participation in programmes is based in part on this heterogeneity and the programmes have general equilibrium impacts on the economy particular attention is devoted to the voting criterion used in modern positive political economy and the ranking of alternative social states based on anonymity postulates evidence on heterogeneity is presented conflicts among the criteria are revealed in two empirical studies partial equilibrium approaches are shown to be misleading

designing programs for heterogeneous populations the value of covariate information normative judgments embodied in the american legal system mandate that in certain respects public policy should treat all members of the population uniformly nevertheless the legal system permits many forms of disparate treatment of the population the medicare program provides health care benefits to persons age 65 and older but not to younger americans the federal welfare to work program known as tanf permits states to treat welfare recipients differentially placing some in job training and others in basic skills classes judicial sentencing guidelines variously permit or require judges to sentence convicted offenders differentially based on past convictions public high schools track students making class assignments vary with past student achievement in these and other settings where legal constraints do not preclude disparate treatment society may choose among many alternative treatment rules a program could mandate uniform treatment of the population or require that treatment vary in particular ways with observable covariates of the persons treated e g age in the case of medicare past convictions in the case of sentencing or permit agents of society e g judges welfare case managers school counselors to make their own treatment choices subject to specified constraints research on program evaluation can help to inform public policy through efforts to learn the consequences of alternative treatment rules in particular evaluation research should seek to characterize how treatment response varies across the population if we learn that all persons respond to treatment in much the same manner then the best policy may be one that treats all persons uniformly however if we learn that treatment response varies with observable covariates of the persons treated then society may be able to do better by designing programs in which treatment varies appropriately with these covariates for example society may be able to lower recidivism among criminal offenders by sentencing some offenders to prison and others to probation it may be able to increase the life cycle earnings of welfare recipients by placing some in job training and others in basic skills classes in these and many other cases the key to success is to determine which persons should receive which treatments regrettably evaluation research has had little to say about how treatment response varies with observable covariates of the persons treated a common practice especially in observational studies has been to assume that all persons respond to treatment in the same manner studies that are sensitive to possible variation in treatment response may report findings by race or gender or age but they rarely disaggregate the population more finely as a consequence policymakers seeking to design programs for heterogeneous populations have to speculate on the consequences of alternative treatment rules this short article draws on my recent research manski 1997 2000a b to argue that increased attention to observable variation in treatment response would enhance the value of evaluation research

the mixing problem in programme evaluation a common concern of evaluation studies is to learn the distribution of outcomes when a specified treatment policy or assignment rule determines the treatment received by each member of a specified population recent studies have emphasized evaluation of policies providing the same treatment to all members of the population in particular experiments with randomized treatments have this objective policies mandating homogenous treatment of the population are of interest but so are ones that permit treatment to vary across the population this paper examines the use of empirical evidence on programs with homogenous treatments to infer the outcomes that would occur if treatment were to vary across the population experimental evidence from the perry preschool project is used to illustrate the inferential problem and the main findings of the analysis

estimating the benefits of targeted r d subsidies we study the expected welfare effects of targeted r d subsi dies using project level data from finland we model the application and r d investment decisions of firms and the subsidy granting decision of the public agency in charge of the program our model and institutional environment allow us to identify different benefits and costs of the r d subsidy program we find that expected effects of subsidies are very het erogeneous and estimated application costs low on average the social rate of return on targeted subsidies is 30 to 50 but spillover effects of subsidies are smaller than effects on firm profits

essays in social experimentation what experiments are needed for manpower policy experiments where prospective participants are randomly assigned into experimental and control groups are often regarded as the ideal approach to evaluation of manpower policies this examination shows that such experimental designs can yield misleading and incomplete information about program impacts in cases where program effects vary among individuals when individual heterogeneity is present such designs at best provide unbiased estimates of average program effects not of marginal effects the latter are often more important for policy than the former this paper proposes alternative experimental designs that permit estimation of the marginal as well as average program impacts

evaluating marginal policy changes and the average effect of treatment for individuals at the margin this paper develops methods for evaluating marginal policy changes we characterize how the effects of marginal policy changes depend on the direction of the policy change and show that marginal policy effects are fundamentally easier to identify and to estimate than conventional treatment parameters we develop the connection between marginal policy effects and the average effect of treatment for persons on the margin of indifference between participation in treatment and nonparticipation and use this connection to analyze both parameters we apply our analysis to estimate the effect of marginal changes in tuition on the return to going to college

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

using experiments to evaluate performance standards what do welfare to work demonstrations reveal to welfare reformers this paper examines how experimental demonstrations can be used to inform planners about the efficacy of social programs in light of a performance standard the problem is illustrated by considering the situation faced by state governments attempting to design programs to meet the new federal welfare to work standards data from experimental evaluations alone allow only limited inferences about the labor market outcomes of welfare recipients combined with prior information on the selection process however these data are informative suggesting either that the long run federal requirements cannot be met or that these standards will only be met under special circumstances

productivity shocks stabilization policies and the dynamics of net foreign assets in this paper we investigate the role of macroeconomic stabilization policies for the international transmission of productivity shocks and their eects on the external sector we develop a two country stochastic dynamic new keynesian perpetual youth model of the business cycle with incomplete international nancial markets our olg structure implies stationary net foreign asset dynamics and allows for a thorough analysis of the interaction of monetary policy with non balanced budget scal policy we derive the dynamic and cyclical properties of scal decit feedback rules and their implications for net foreign assets dynamics our results imply that the degree of scal discipline i e the extent to which the scal rule responds to debt dynamics is crucial for the dynamics of net foreign assets we show that under a counter cyclical scal rule with low