what explains recent changes in international monetary policy attitudes toward inflation evidence from developed countries abstract this paper identifies source s contributing to the recent international shift in monetary policy attitudes toward inflation data from 18 developed countries suggests that this shift is connected to the universal increase in policy responses to economic openness in the 1990s

assessing demand artifacts in consumer research an alternative perspective in a recent insightful article on demand artifacts in consumer research t a shimp e m hyatt and d j snyder using a 1989 article by j j kellaris and a d cox as backdrop provided an appraisal of demand artifacts in this article we critically evaluate some of the assumptions and conclusions of shimp et al s analysis of the extent to which demand artifacts might explain the 1982 results of g j gorn as analyzed by kellaris and cox in addition we offer some useful suggestions for minimizing demand problems

real exchange rate volatility and economic openness theory and evidence this paper relates the volatility of the trade weighted effective real exchange rate to the degree of trade openness of an economy the theoretical part presents an intertemporal monetary model of a small open economy with nominal rigidities both monetary and aggregate supply shocks are shown to produce ceteris paribus smaller real exchange rate movements if the country is more open to foreign trade empirical evidence on a cross section of forty eight countries confirms this relationship differences in trade openness explain a large part of the cross country variation in the volatility of the effective real exchange rate

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

corruption and inflation abstract this paper analyzes the relationship between corruption and inflation using alternative indicators of corruption i find a significant positive association between corruption and inflation even after controlling for a variety of other determinants of the latter

international evidence on the demand for money one of the current questions in the literature on the demand for money is whethe r the adjustment of actual to desired money holdings is in nominal or real terms this paper describes a simple procedure that can be used to test the nominal against the real hypothesis the test is carried out for twenty seven countries the paper also tests the structural stability of the demand for money equations and the correctness of th e dynamic specification the results are strongly in favor of the nom inal adjustment hypothesis there is however some evidence of moder ate structural instability before and after 1973 the instability doe s not affect the conclusion that the nominal adjustment hypothesis do minates the real adjustment hypothesis copyright 1987 by mit press

is free trade deflationary abstract we estimate the relation between trade openness and price level for 62 countries while our analysis shows a negative relation for developing countries we obtain a positive relation for advanced economies such as the u s belgium and ireland

does greater trade openness reduce inflation further evidence using panel data techniques abstract in this article we estimate the relation between inflation and trade openness q j econ 108 1993 869 the higher the gains in terms of product in generating an inflationary surprise the greater the incentives will be for the government to effect such a surprise

discretionary inflation in a general equilibrium model this paper extends the barro and gordon 1983 model to a general equilibrium framework in which the costs and benefits to surprise inflation reflect the preferences technology and market structure of the economy the benefit of such an approach is that we can relate the underlying features of the economy to the size of the inflation bias in particular it can be shown that an increase in the source of the monetary authority s incentive to inflate does not necessarily result in a worsened inflation bias due to offsetting changes in the cost of inflation furthermore changes in the real interest rate affect the monetary authority s incentives and hence the discretionary level of inflation lastly we can show that an increase in the labor share of national income worsens the inflation bias the model also indicates the importance of a nominal rigidity lack of policy precommitment and a distortion for optimal monetary policy to be characterized by a level of discretionary inflation that exceeds the friedman 1969 rule

reanalysis of nash equilibrium bidding strategies in a bilateral electricity market we reanalyze a bilateral electricity market model previously presented in where suppliers own multiple generators we clarify some implicit assumptions in the model and prove that under one detailed specification of the assumptions the previously suggested nash equilibria for the model are inconsistent with the definition of nash equilibrium we discuss the implications and comment on the relationship to multiple unit auction theory

a critique of darley and lim s alternative perspective this reply challenges w k darley and j s lim s conclusions that an earlier article of ours misleads consumer researchers about the role and treatment of demand artifacts and that our analysis regarding g j gorn s experiments are flawed we also question darley and lim s proposals for minimizing demand artifacts

openness and inflation a general equilibrium model of a small open economy is developed to analyse the optimal rate of inflation under discretion once agents welfare is the sole policy objective it is possible to show that openness and inflation no longer have a simple inverse relationship a greater degree of openness may lead the policy maker to want to exploit the short run phillips curve more aggressively even if involves a smaller short run benefit because changes in export demand affect the terms of trade inflation can then be higher in a more open economy

fiscal deficits and inflation abstract macroeconomic theory postulates that persistent fiscal deficits are inflationary yet empirical research has had limited success in uncovering this relationship this paper reexamines the issue in light of broader data and a new modeling approach that incorporates two key features of the theory unlike previous studies we model inflation as non linearly related to fiscal deficits through the inflation tax base and estimate this relationship as intrinsically dynamic using panel techniques that explicitly distinguish between short and long run effects of fiscal deficits results spanning 107 countries over 1960 2001 show a strong positive association between deficits and inflation among high inflation and developing country groups but not among low inflation advanced economies

testing commitment models of monetary policy evidence from oecd economies in ation rates in a number of oecd follow a common trend over the past four decades in ation starts out low in the 1960s rises for a time before peaking in the 1970s or early 1980s and then falls back to initial levels this similarity in the behavior of trend in ation suggests that any explanation of long run in ation trends ought to apply across oecd countries ireland 1999 shows that a simple time inconsistency model of monetary policy modifled to allow for a time varying nairu can explain long run trends in u s in ation in this paper we show that this result cannot serve as an explanation of the common trend in oecd in ation as it flts the data only in the u s we investigate two important variants of the hypothesis i that time inconsistency was an important component of central bank behavior in earlier decades but has become less signiflcant in recent years and ii that time inconsistency problems drive u s in ation which afiects in ation rates in other countries as a result of central bankers attempts to manage nominal exchange rate movements vis a vis the u s dollar we flnd that the flrst hypothesis flts the data no better than the baseline model we flnd some support for the international spillovers version of the model but the behavior of non u s central bankers with respect to domestic unemployment rates is not well described by the time inconsistency mechanism

are sale signs less effective when more products have them we analyze data from a variety of sources including historical data from a women s clothing catalog a field study in that catalog survey responses to catalog stimuli and grocery store data for frozen juice toothpaste and tuna the analysis yields three conclusions first sale signs are less effective at increasing demand when more items have them second total category sales are maximized when some but not all products have sale signs third placing a sale sign on a product reduces the perceived likelihood that the product will be available at a lower price in the future but the effect is smaller when more products have sale signs by ruling out alternative hypotheses the findings suggest that moderation of the sale sign effect is in part due to reduced credibility when they are used on more products the credibility argument is motivated in part by a recent paper that presented an equilibrium model predicting that customers who lack knowledge of market prices rely on point of purchase sale signs to help evaluate posted prices anderson and simester 1998 the model predicts that sale signs increase demand but that the increase is smaller when more products have them this moderating effect regulates how many sale signs stores use and makes customer reliance on these cues an equilibrium strategy to evaluate whether the number of sale signs moderates their effectiveness we compare demand for items with sale signs when varying the number of sale signs on other products for this comparison we use two datasets describing demand for products in a women s clothing catalog the first dataset describes customer orders for the same set of items across three sequential issues of the catalog the second dataset is a field test conducted by mailing different versions of the catalog to randomly selected customer samples reassuringly although the datasets do not share the same limitations the findings are consistent and indicate that sale signs are less effective when more products have them in addition to the credibility explanation there are at least two alternative explanations for this result first using a sale sign to make a product more attractive may lead to substitution of demand from other sale items within a store and so demand may vary even if there is no change in the credibility of the sale signs to discriminate between the substitution and credibility explanations we evaluate whether total category demand is maximized when some but not all products in the category have sale signs the credibility explanation implies that adding another sale sign will eventually decrease total category sales when many items already have sale signs in contrast if adding a sale sign to an item leads solely to substitution from other products within or outside the category we will not observe a decrease in total category demand we test the total category sales prediction using grocery store scan data describing total category demand for frozen juice toothpaste and canned tuna the findings reveal that in all three categories there is a significant reduction in aggregate demand a second alternative explanation is that sale signs focus customer attention on products with these cues distinguishing between the attention and credibility explanations is a difficult task they both imply that sale signs deliver less information when there are too many sale signs the credibility argument predicts that this occurs because the signs are noticed but not believed the attention explanation predicts that the signs are less likely to be noticed when attention is diluted by a large number of sale signs to discriminate between the credibility explanation and this attention effect we use survey measures to evaluate a third hypothesis this hypothesis predicts both that placing a sale sign on a product reduces the perceived likelihood that the product will be available at a lower price in the next period and that this effect is smaller when more items have them in an attempt to control for the attention effect we focus subjects attention on a set of focal items under these conditions it is unlikely that subjects overlook sale signs on these items more important the likelihood of overlooking sale signs on the focal items is unlikely to depend on how many other items also have sale signs the results confirm both that the presence of a sale sign reduced subjects expectations that an item would be available at a lower price in the future and that this effect is smaller when more items have sale signs

nash equilibrium bidding strategies in a bilateral electricity market this paper examines bidding strategies in a bilateral market in which generating companies submit bids to loads a load accepts electricity delivery from the generator with the lowest bid at its bid price as long as this price is not higher than the load s willingness to pay necessary and sufficient conditions of nash equilibrium ne bidding strategy are derived based on a generic generating cost matrix and the loads willingness to pay vector the study shows that in any ne efficient allocation is achieved furthermore all nash equilibria are revenue equivalent for the generators based on the necessary and sufficient conditions this problem is formulated as an optimal assignment problem network optimization techniques are applied to calculate ne bid prices for the generators

consumer learning in a turbulent market environment modeling consumer choice dynamics after a product harm crisis abstract the authors empirically study consumer choice behavior in the wake of a product harm crisis which creates consumer uncertainty about product quality they develop a model that explicitly incorporates the impact of such uncertainty on consumer behavior assuming that consumers are uncertain about the mean product quality level and learn about product quality through the signals contained in use experience and the product harm crisis and also that consumers are uncertain about the precision of the signals in conveying product quality and update their perception of this precision over time they estimate this model using a scanner panel data set that includes consumer purchase history before during and after a product harm crisis that affected kraft foods australia s peanut butter division in june 1996 the proposed model fits the data better than the standard consumer learning model which assumes consumers are uncertain about product quality level but the precision of information in conveying p

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

a note on romer s openness inflation relation the responsiveness of as and ad to economic openness and monetary policy temple 2002 empirically challenges romer s 1993 negative openness inflation relation on empirical grounds this article links economic openness to the slopes of aggregate supply as and aggregate demand ad to explain why the openness inflation relation can be ambiguous starting with a widely used assumption initiated by romer 1993 that more open economies face greater output inflation tradeoffs we demonstrate that greater output inflation tradeoffs in more open economies reflected in the steeper as induce policymakers to adopt more aggressive optimal monetary policy reflected in the flatter ad empirical results from 15 developed countries data support our theoretical explanation on the recent empirical failure in finding the negative openness inflation relation

competitive depreciation and the role of distorting taxes in an interdependent economy abstract this paper investigates the manners in which international cooperation in monetary policies affects the rate of inflation in a two country sticky price model within reasonable parameter values international monetary coordination increases the steady state inflation for given tax policies when the tax regime is endogenously chosen however self oriented monetary policies can engage in competitive depreciation and induce a higher average inflation than the first best inflation rate

quantitative goals for monetary policy we study empirically the macroeconomic effects of an explicit de jure quantitative goal for monetary policy quantitative goals take three forms exchange rates money growth rates and inflation targets we analyze the effects on inflation of both having a quantitative target and of hitting a declared target our empirical work uses an annual data set covering 42 countries between 1960 and 2000 and takes account of other determinants of inflation such as fiscal policy the business cycle and openness to international trade and the endogeneity of the monetary policy regime we find that both having and hitting quantitative targets for monetary policy is systematically and robustly associated with lower inflation the exact form of the monetary target matters somewhat especially for the sustainability of the monetary regime but is less important than having some quantitative target successfully achieving a quantitative monetary goal is also associated with less volatile output

international monetary policy coordination and competitive depreciation a reevaluation is there a need for international coordination of monetary policies within the current system of floating exchange rates in a recent paper obstfeld and rogoff 1995 argue that in an environment of sticky prices under floating exchange rates monetary policy shocks will generate positive welfare spillovers across countries this leads to the conclusion that international monetary policy coordination is unnecessary and may in fact be undesirable since it nurtures a bias towards high inflation our paper shows that these conclusions are dependent on the manner in which prices are set when firms engage in pricing to market ptm setting prices in the currency of the buyer monetary policy tends to have negative welfare spillovers this gives an incentive to engage in competitive depreciation in a noncooperative equilibrium world inflation will be higher the greater the importance of ptm with a high degree of ptm it follows that the case for international monetary policy coordination is restored if ptm is at an intermediate range however international monetary coordination may have no consequences at all

on the performance of nominal income targeting as a strategy for monetary policy in a small open economy abstract there is a great deal of support for nominal income targeting in the literature on strategies for monetary policy in a closed economy framework is nominal income targeting equally attractive in a small open economy this paper compares nominal income targeting to alternative monetary policy rules in a stochastic macro model for a small open economy we find that both the weighting in the overall price level of the exchange rate and foreign prices and the elasticity of output supplied with respect to the real exchange rate are important factors in assessing the attractiveness of nominal income targeting in a small open economy where the size of both parameters is not negligible a rule targeting the overall price level may actually be preferred to nominal income targeting

financial bilateral contract negotiation in wholesale electricity markets using nash bargaining theory bilateral contracts are important risk hedging instruments constituting a major component in the portfolios held by many electric power market participants however bilateral contract negotiation is a complicated process as it involves risk management strategic bargaining and multi market participation this study analyzes a financial bilateral contract negotiation process between a generation company and a load serving entity in a wholesale electric power market with congestion managed by locational marginal pricing nash bargaining theory is used to model a pareto efficient settlement point the model predicts negotiation outcomes under various conditions and identifies circumstances in which the two parties might fail to reach an agreement both analysis and simulation are used to gain insight regarding how these negotiation outcomes systematically vary in response to changes in the participants risk preferences and price biases

openness exchange rate regimes and the phillips curve abstract recent research suggests that the phillips curve slope measured using sacrifice ratios from the period 1961 88 is positively related to trade openness contradicting the romer 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 hypothesis that disinflations are less costly in open economies in this paper i consider sacrifice ratios and output inflation trade offs from 1981 98 and allow their dependence on openness to vary with the exchange rate regime sacrifice ratios are weakly negatively related to openness but the strength of the relationship does not increase with exchange rate flexibility output inflation trade offs are negatively related to openness and the strength of the relationship increases with exchange rate flexibility

exchange rate pass through openness and the sacrifice ratio abstract considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation output trade off and suggests that the ultimate effect of openness on the output inflation relationship is influenced by a variety of factors in this paper we consider the impact of exchange rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio we develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output inflation relationship next we empirically explore the nature of these two variables and their interaction results indicate that greater pass through increases the sacrifice ratio that there is statistically significant interaction between pass through and openness and once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio such as central bank independence openness fails to exert an empirically robust effect on the sacrifice ratio

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

does globalisation discipline monetary policymakers abstract this paper analyses globalisation using a small general equilibrium model it concludes that whether increased openness a reduction in the costs of international trade helps to discipline monetary policy in large open economies depends on the type of trade costs moreover to the extent that globalisation induces stronger competition in the goods market this may also have an adverse effect on monetary policy discipline the latter is due to international expenditure switching which becomes a more forceful channel as competition intensifies thus the answer to the question in the title is not necessarily affirmative

have the free trade agreements reduced inflation rates abstract most previous studies have examined extensively the economic effects of free trade agreements ftas such as their effects on economic growth income distribution across industries price competitiveness for international trade trade volume and the price of a commodity but not very much on inflation rates this study empirically estimates how much ftas affect domestic inflation rates from the cross country panel data analysis of 34 oecd countries over the period 1980 2014 the expansion of ftas shows a significant negative effect on the consumer price index inflation which is more apparent than the traditionally used openness measure the inflation reduction effect is more significant in countries with a low level of openness than those with a high level of openness

useful government spending direct crowding out and fiscal policy interdependence this paper introduces perfect substitutability between private and public consumption in a dynamic open economy with imperfect competition and nominal rigidities this implies a direct crowding out effect that generalising to the two country case some well known properties of a closed economy tends to reduce consumption following both domestic and foreign expansions a less expected result is that sub stitutability has a positive effect on the short run output spillover we also show that if we modify the model to allow for home bias in government spending temporary fiscal expansions display a quasi neutrality property

openness inflation and the phillips curve a puzzle models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output inflation trade off or phillips curve using a variety of measures of the trade off and a standard measure of openness this paper argues that the direct evidence for a correlation is not strong in turn this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by romer 1993 the paper considers some alternative explanations for the romer evidence

exchange rate determination the role of factor price rigidities and nontradeables this paper introduces factor labor markets into the intertemporal monetary model of obstfeld and rogoff and combines this richer market structure with a new utility independent representation of nontradeables this allows us to explore the international monetary transmission mechanism for factor price wage rigidities under different degrees of macroeconomic openness factor price rigidities imply similar properties for the international transmission mechanism as domestic producer price rigidities nontradeables give raise to interesting new effects under asymmetric monetary shocks they create short run ppp deviations increase exchange rate volatility relative to price level volatility and reduce positive consumption and negative output comovements 2000 elsevier science b v all rights reserved

monopolistic competition relative prices and output adjustment in the open economy abstract this paper explains price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs this leads producers to pre set the price path for several periods the paper derives an optimal pricing rule including the optimal pre setting horizon it does so for a rational expectation equilibrium characterized by staggered unsynchronized price setting for which the degree of staggering is endogenously determined

trade union density and inflation performance evidence from oecd panel data this paper examines the impact of union membership rates on inflation in oecd countries a positive effect of union density is estimated even after controlling for fixed effects and time dummies additional institutional characteristics for example union coordination employment protection laws and central bank independence do not affect inflation directly in a panel setting but do influence the size of the unionization coefficient via interaction terms the results are robust to controlling for potential common causes such as oil price shocks and the political stance of the government and to using gmm iv techniques to handle possible endogeneity biases

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

the macroeconomic effects of monetary and fiscal policy in a small open economy does the exchange rate regime matter abstract this paper develops a small open economy model in the spirit of obstfeld and rogoff 1995 the introduction of endogenous traded sector output unlocks current account and real exchange rate effects within this framework where specific consideration is given to the case with fixed but adjustable parities exchange rate devaluation generates similar qualitative effects as a money supply expansion under floating rates output and external effects of government spending shocks are broadly consistent with the adjusted basic non micro founded mundell and fleming mf framework but differ in significant ways from the baseline mf model contrary to the textbook mf model a government expenditure shock depreciates the nominal exchange rate and generates real effects under the fixed rate system

fiscal consolidation under fixed exchange rates abstract we present the fixed exchange rate version of the obstfeld and rogoff model and analyze the international transmission of fiscal policy shocks the welfare effects of an unanticipated contraction in government expenditure in the home country are shown to depend crucially on the way in which world money stock is set if home authorities alone are responsible for pegging the exchange rate a fiscal adjustment leads to a decrease in the real interest rate stimulates private consumption and limits the contraction in world output compared with a situation in which a cooperative scheme is implemented the model is then used to propose a new interpretation of recent events in the eu countries that have enacted restrictive fiscal policies while pegging their currencies to the dm

public debt indexation and denomination with an independent central bank abstract this paper examines the interaction between public debt management and the design of monetary institutions the analysis shows that delegation of monetary policy to an independent central bank is more effective in containing inflationary expectations than the use of foreign currency or inflation indexed debt if delegation of monetary policy is viable the optimal policy is to issue nominal debt this increases the sensitivity of taxes and output to unexpected inflation thus minimizing the inflation needed to offset supply shocks evidence on central bank independence debt composition and output variability suggests that the normative argument has some positive content

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

trade openness and exchange rate regimes the paper evaluates the net welfare gains of inflation targeting over a fixed exchange rate as a function of a country s trade openness using a multisectoral structural model calibrated to chile for most calibrations with separable preferences net welfare gains are increasing in trade openness the reason is that in more open economies terms of trade shocks which favor inflation targeting become quantitatively more important while price markup shocks in the imperfectly competitive nontradables sector which favor exchange rate targeting become less important the most important exception is heavily indebted countries where net welfare gains are decreasing in trade openness

unrealistically optimistic consumers a selective hypothesis testing account for optimism in predictions of future behavior we propose that when predicting future behavior consumers selectively but unwittingly test the hypothesis that they will behave ideally this selective hypothesis testing perspective on unrealistic optimism suggests that estimates of future behavior should be similar to those made by individuals who assume that conditions will be ideal moreover consumers who initially provide estimates assuming that conditions will be ideal should recognize that the world is not ideal and so should test a more realistic hypothesis in line with these predictions we find that ideal world estimates e g in an ideal world how often will you exercise next week do not differ from standard estimates e g how often will you exercise next week we also find that individuals who initially estimate their behavior in an ideal world subsequently make more realistic predictions

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

income velocity of money in agricultural developing economies t he response of income velocity of money to economic growth has implications for monetary planning in a developing economy velocity is the ratio of nominal income to money stock and decreases only if money stock rises at a faster rate than nominal income a well known hypothesis in this context is that of friedman 1959 which states that in countries experiencing a secular rise in real income per capita the stock of money generally rises over long periods at a decidedly higher rate than does money income i e velocity declines ezekiel and adekunle 1969 and melitz and correa 1970 in their international crosscountry comparisons have found evidence largely in favour of the friedman hypothesis this in its turn has strengthened the hope for active growthoriented monetary planning the extent of resources that can be transferred for investment purposes through non inflationary monetary expansion increases as development proceeds cross section studies involving developed and developing economies do not provide satisfactory indications of what happens to velocity over time in any individual developing economy firstly velocities have not behaved uniformly in all the developing economies secondly international cross country comparisons do not adequately explain why velocity changes in any individual economy is it because money is a luxury good i e income elasticity of demand for money is greater than unity to the agents in the economy is it because economic development brings about structural changes in the economy which lead to the observed behaviour of velocity is it because monetary habits change in a systematic way it is important to have time series analyses of developing economies to provide answers to such questions for example in a study of malaysia and singapore short 1973 found that though velocity did move inversely to per capita income this negative impact was overpowered by the change in monetary habits which the increase in bank offices caused the aim of this paper is to analyse the temporal behaviour of income velocity of money in agricultural developing economies in the literature on velocity and demand for money in developing economies attention is focussed mainly on three issues i the incomeelasticity of demand for money and in particular whether money is a luxury good or not ii the growth of monetisation and changes in monetary habits and iii the effect of the cost of holding money one important factor which has suffered total neglect is the role of sectoral differences in money demand behaviour and the structural shifts in the sectoral composition of income that accompany development money demand behaviour may vary across sectors this is true not only in developing economies but also in developed economies for example goldfeld 1976 has found that the business sector and the household sector in the united states have different money demand functions an implicit specification error is committed in the aggregative money demand or velocity equation whenever the sectoral income composition factor is omitted on a priori grounds this factor should have special significance in developing economies where sectoral shares in national income change over time in the absence of flow offunds accounts and adequate data on sectoral money holdings for most of the developing economies direct estimation of sectoral demand functions is not possible thus an aggregative specification which incorporates the sectoral income composition factor is necessary to analyse the behaviour of velocity

public inflation aversion and the political economy of macroeconomic policymaking do the macroeconomic priorities of citizens differ across countries if so what accounts for this variation and what are its consequences for explanations of the choice of monetary institutions macroeconomic policy and international monetary cooperation this article uses survey data from twenty advanced economies to examine individual preferences about macroeconomic priorities the analysis establishes three key findings first the results suggest that economic context defined by inflation and unemployment performance has a substantial impact on the public s economic objectives in a way that is broadly consistent with the specification of utility loss functions in the theoretical political economy literature second the results suggest that there is significant cross country variation in inflation aversion controlling for economic context third some of this variation is accounted for by national level factors affecting the aggregate costs of inflation and unemployment these results have significant implications for optimal monetary policymaking the explanation of variation in economic outcomes and for accounts of the choice of institutional frameworks for policymaking i thank the bank of england the center for basic research in the social sciences and the institution for social and policy studies for research support and jim alt andrew bailey bill bernhard lawrence broz john freeman jeff frieden jim granato shigeo hirano david lake jeff lax simon price rose razaghian ron rogowski david stasavage gabriel sterne mike tomz jim vreeland the editor and two anonymous reviewers for helpful comments all views expressed are those of the author and do not represent those of the bank of england

are fiscal deficits inflationary abstract this paper applies the dynamic panel quantile regression dpqr model under the autoregressive distributional lag ardl specification and examines the deficit inflation relationship in 91 countries from 1960 to 2006 the dpqr model estimates the impact of deficits on inflation at various inflation levels and allows for a dynamic adjustment with the ardl specification the empirical results show that the fiscal deficit has a strong impact on inflation in high inflation episodes and has a weak impact in low inflation episodes the results imply that fiscal consolidation would be more effective in price stabilization the higher the inflation rate is and are consistent with the theoretical model of catao and terrones 2005

the importance of composition of fiscal policy evidence from different exchange rate regimes abstract we study the macroeconomic effects of fiscal policies in an open economy we emphasize two transmission mechanisms the cost channel by which wage government spending and labor taxes raise the real wage firms must pay and the exchange rate channel by which the nominal exchange rate shifts induced by fiscal policy have real effects if some prices and wages are sticky the latter channel implies that changes in wage government spending or in labor taxation should have different effects under flexible than under fixed exchange rates in a 1964 93 panel of oecd countries we find significant evidence for both channels moreover we find that the real product wage and profitability are more responsive than quantities employment and output to fiscal policy innovations

testing monetary policy intentions in open economies 1 introductionthis article examines the relationship between economic openness and inflation performance among the most prominent research on this topic is the work by romer 1993 he demonstrates a negative relationship between economic openness and the inflation level his finding has also been viewed as supportive albeit indirectly of time consistency theory kydland and prescott 1977 1 romer 1993 argues that policymakers in more open economies have less incentive to adopt an expansionary monetary policy his argument is based on the assumption that monetary surprises in more open economies result in higher inflation for a given increase in output romer s finding that more open economies have lower inflation levels leads him to infer that this is evidence of time consistency in monetary policy practices however romer s work has not been generally accepted temple 2002 provides evidence that the openness inflation correlation does not stem from time consistency theory because the inflation level may not properly reveal the monetary authorities policy intentions temple questions this inference because it starts from a strong but unjustified assumption more open economies possess a relatively steeper phillips curve consequently temple proposes that the examination of the positive relationship between openness and the slope of the phillips curve is a fundamental condition for romer s argument he however finds little support for the positive relationship between economic openness and the slope of the phillips curve further work on the relationship of openness and monetary policy intentions comes from clarida gali and gertler 2001 2002 hereafter cgg in cgg 2001 the authors present a simple open economy model with a taylor type interest rate policy rule taylor 1993 the article concludes that the optimal monetary policy in an open economy has the same solution as that in a closed economy derived in cgg 1999 the authors also suggest that there is a direct link between the degree of economic openness and the aggressiveness of monetary policy they state that o penness does affect the parameters of the model suggesting a quantitative implication h ow aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness cgg 2001 p 248 in subsequent work cgg 2002 revisit the issue based on a dynamic open economy new keynesian model and the role of monetary policy in open economies is refined consistent with the argument in cgg 2001 they find that the optimal monetary policy rule in an open economy is isomorphic to that in a closed economy in the nash equilibrium they also suggest that openness does not affect the optimality of a policy rule in such a scenario on the other hand economic openness does affect optimal monetary policy when the foreign optimal policy is endogenous in the domestic country s objective function this effect however is ambiguous in direction because the relationship between the degree of economic openness and the aggressiveness of monetary policy is determined by the relative size of trade and wealth effects of changes in foreign output this line of theoretical literature is limited and does not offer a definitive conclusion on the relationship between economic openness and monetary policy intentions our article provides an alternative empirical evaluation of the relationship based on prior literature we use inflation variability and persistence as the measures of monetary policy intentions one branch of the literature such as taylor 1999 cgg 2000 and owyang 2001 argues that aggressive monetary policy reduces the volatility of inflation for instance cgg 2000 estimate a forward looking taylor rule for the period between 1960 i and 1996 iv they use paul volcker s appointment as chairman of the federal reserve system as a regime shift to a more aggressive anti inflation policy stance

on the flexibility of monetary policy the case of the optimal inflation tax this paper examines optimal monetary policy under uncertainty in a context in which policy makers are able to make credible policy commitments we study an optimal taxation problem of minimizing the social cost of financing a stochastic and exogenous level of government transfers since in the basic model the welfare costs of inflation derive only from expected inflation the optimal monetary policy is highly responsive to the state of nature in a benchmark case in which all shocks are transitory the optimal policy calls for loading all the variability of government transfers on the shoulders of the inflation tax

traded goods competitiveness and aggregate fluctuations in the united kingdom this paper presents an investigation of the relations between wage adjustment competitiveness and aggregate fluctuations in the united kingdom it uses a real business cycle model based on the distinction between internationally traded and nontraded goods the traded goods sector is assumed a price taker and the focus is on the supply side the model can account quite well for fluctuations in competitiveness output wages and the terms of trade the results suggest output flexibility and wage price rigidity a combination that produces interesting patterns of macroeconomic adjustment which parallel the predictions of more traditional keynesian models copyright 1990 by royal economic society

globalization the output inflation tradeoff and inflation abstract this paper provides comprehensive evidence on the relation between inflation and globalization defined here as trade and financial openness using a large cross section of 91 countries over the period 1985 2004 we establish two main empirical regularities both higher trade and financial openness i reduce central banks inflation bias yielding lower average inflation and ii are associated with a larger output inflation tradeoff this evidence is at odds with the standard barro gordon framework which would require globalization to have a negative effect on the output inflation tradeoff to yield lower equilibrium inflation but it is consistent with a recent strand of new keynesian models emphasizing the role of imperfect competition and nominal rigidities our findings also support the relevance of the time inconsistency hypothesis which underlies the theoretical models predicting a relation between globalization and inflation for the oecd subsample however we do not find an effect of openness on inflation the output inflation tradeoff suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time inconsistency problem

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

the inflationary bias in a model of the open economy a note abstract in this paper we highlight the importance of aggregate supply effects on the size of the inflationary bias under discretionary policy making using a simple model of an open economy that imports a foreign resource input we show that under discretion the inflationary bias bears an inverse relationship to the elasticity of output supplied with respect to the real exchange rate this theoretical finding is consistent with romer 1993 romer d 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 empirical results that point to the existence of a negative association between openness and inflation

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

excess capacity monopolistic competition and international transmission of monetary disturbances analyzes the excess capacity monopolistic competition and international transmission of monetary policy disturbances in the united states sheds light on the international impact of monetary policy emphasis on the spillover effects of monetary disturbances similarity of framework used with open economy macroeconomics

a critical appraisal of demand artifacts in consumer research especially since the publication of sawyer s instructive article on the topic consumer researchers have been concerned that demand artifacts significantly compromise the validity and generalizability of experimental findings in this article we provide an overview of the issues surrounding the demand artifacts controversy evaluate the preconditions for demand artifacts and offer a critique of suppositions about the consequences and appropriate control of demand artifacts kellaris and cox s critique of gorn s well known classical conditioning experiments provides the backdrop for much of the discussion

real exchange rates and macroeconomics evidence and theory since the early 1980s a large body of research has thrown doubt on the relevance of macroeconomic models for understanding exchange rates the authors argue that a balanced reading of recent literature in exchange rate economics gives a more optimistic assessment many studies have established the pertinence of long run purchasing power parity ppp and the explanatory power of macroeconomic fundamentals in real exchange rate fluctuations a reasonably strong case can be made for a traditional macroeocnomic interpretation of real exchange rates which emphasizes short run price stickiness but long run ppp but a central new ingredient in this interpretation is the presence of international commodity market segmentation and persistent deviations from the law of one price an example is given of a dynamic general equilibrium model that can reproduce some of the observed features of real exchange rate fluctuations

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

staggered wages and output dynamics under disinflation we study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages the money wage is fixed for two periods and is chosen according to intertemporal optimisation agents have labour market monopoly power we show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models namely that disinflation in staggered pricing models causes a boom in our model disinflation whether unanticipated or anticipated unambiguously causes a slump

the markup and inflation evidence in oecd countries in this paper we evaluate the dynamic inconsistency argument put forth by kydland and prescott 1977 and barro and gordon 1983 as an explanation for differences in the average inflation experience across oecd countries the focus is on the empirical evidence relating the overall degree of competition among firms as measured by the markup of price over marginal cost and inflation over the 1973 88 period the prediction is that higher markups raise the monetary authority s incentive to increase output leading to higher equilibrium rates of inflation we find that the markup does well in explaining cross country differences in average inflation jel classification e31 e58 d43 l ecart du prix par rapport au cout marginal et l inflation resultats pour les pays de l ocde ce memoire examine l argument mis de l avant par kydland et prescott 1977 et barro et gordon 1983 pour expliquer les differences dans le taux moyen d inflation entre les pays de l ocde on porte une attention speciale aux resultats empiriques qui relient le degre general de concurrence entre les entreprises mesure par l ecart du prix par rapport au cout marginal et le niveau d inflation entre 1973 et 1988 la prediction est que des ecarts prix cout marginal plus eleves augmentent l incitation des autorites monetaires a accroitre le niveau de production ce qui entraine des taux d inflation d equilibre plus eleves il s avere que l ecart du prix par rapport au cout marginal tend a expliquer bien les differences dans le niveau moyen d inflation entre pays

trade openness and inflation episodes in the oecd boschen and weise journal of money credit and banking 2003 model the probability of a large upturn in inflation in the oecd an inflation start we extend their work to consider the impact of trade openness on the probability of such an event the main finding is that increased openness reduces the probability of an inflation start both directly and indirectly through restricting the role of general elections in triggering inflation starts

raw materials world price changes and exchange rates in a small open economy this paper studies the impact of a rise in the world price of imported raw materials oil on the small open economy exchange rate we obtain a depreciation which magnitude depends on the share and substitutability in the productive structure