an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

mutual fund misclassification evidence based on style analysis an iterative application of william sharpe s method of style analysis is applied to the classification of equity mutual funds a new methodology for creating purified mutual fund style indexes is used to verify existing classifications results suggest that 9 percent of all equity funds are seriously misclassified and another 31 percent are somewhat misclassified two factors emerge as the most likely reasons for misclassification 1 the ambiguity of the current classification system and 2 competitive pressures in the mutual fund industry and compensation structures that reward relative performance monte carlo simulations on out of sample data show that this misclassification has a significant effect on investors ability to build diversified portfolios of mutual funds

mutual fund performance an analysis of quarterly portfolio holdings this article employs the 1975 84 quarterly holdings of a sample of mutual funds to construct an estimate of their gross returns this sample which is not subject to survivorship bias is used in conjunction with a sample that contains the actual net returns of the mutual funds in addition to allowing the authors to estimate the bias in measured performance that is due to the survival requirement and to estimate total transaction costs the sample is used to test for the existence of abnormal performance the tests indicate that the risk adjusted gross returns of some funds were significantly positive copyright 1989 by the university of chicago

inflation persistence alternative interpretations and policy implications in this paper i consider the policy implications of two alternative structural interpretations of observed inflation persistence which correspond to two alternative specifications of the new keynesian phillips curve nkpc the first specification allows for some degree of intrinsic persistence by way of a lagged inflation term in the nkpc the second is a purely forward looking model in which expectations farther into the future matter and coefficients are time varying in this specification most of the observed inflation persistence is attributed to fluctuations in the underlying inflation trend which are a consequence of monetary policy rather than a structural feature of the economy with a simple quantitative exercise i illustrate the consequences of implementing monetary policy assuming a degree of intrinsic persistence that differs from the true one the results suggest that the costs of implementing a stabilization policy when the policymaker overestimates the degree of intrinsic persistence are potentially higher than the costs of ignoring actual structural persistence the result is more clear cut when the policymaker minimizes a welfare based loss function

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

macroeconometric equivalence microeconomic dissonance and the design of monetary policy abstract macroeconometric equivalence means that estimates of dsge models using first order approximations to equilibrium conditions fail to distinguish between alternative preference technology configurations microeconomic dissonance means that the underlying microeconomic differences between ostensibly equivalent models become important when optimal monetary policy is derived the relevance of these concepts is established by analysis of optimal monetary policy using a small scale new keynesian model microeconomic and financial datasets are promising tools with which to overcome the equivalence dissonance problem

optimal monetary policy in a small open economy with home bias we analyze optimal monetary policy in a small open economy characterized by home bias in consumption peculiar to our framework is the application of a ramseytype analysis to a model of the recent open economy new keynesian literature we show that home bias in consumption is a su cient condition for inducing the monetary policy maker of an open economy to deviate from a strategy of strict markup stabilization and contemplate some optimal degree of exchange rate stabilization we focus on the optimal setting of policy both in the case of rms setting prices one period in advance and in a gradual fashion subject to adjustment costs while the rst setup allows us to analytically highlight home bias as an independent source of equilibrium

price changes in the euro area and the united states some facts from individual consumer price data prices of goods and services do not adjust immediately in response to changing demand and supply conditions this paper characterizes the average frequency and size of price changes in the euro area and its member countries investigates the determinants of the probability of price changes and compares the evidence for the euro area with available u s results the facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except ireland and greece that is in datasets covering austria belgium finland france germany italy luxembourg the netherlands portugal and spain which together account for around 97 percent of euro area gdp the data used are the monthly price records underlying the computation of national consumer price indices and harmonized consumer price indices these data cover a large number of products selected on the basis of extensive household budget surveys

heterogeneous dynamics aggregation and the persistence of economic shocks estimates of shock persistence based on disaggregate or on aggregate data are frequently very different this article takes a step toward reconciling this apparent disconnect between micro and macro based estimates of shock response it is shown that although the average of the individual impulse response functions irfs is identical to the aggregate irf averages of other popular persistence measures such as the sum of the autoregressive coefficients among others tend to be larger the higher the aggregation level the theoretical results are illustrated with two applications that use u s and european inflation data

money and the natural rate of interest structural estimates for the united states and the euro area abstract we examine the role of money in three environments the new keynesian model with separable utility and static money demand a nonseparable utility variant with habit formation and a version with adjustment costs for holding real balances the last two variants imply forward looking behavior of real money balances with forecasts of future interest rates entering current portfolio decisions we conduct a structural econometric analysis of the u s and euro area economies fiml estimates confirm the forward looking character of money demand a consequence is that real money balances are valuable in anticipating future variations in the natural interest rate

a test of the theory of reference dependent preferences eight alternative methods of eliciting preferences between money and a consumption good are identified two of these are standard willingness to accept and willingness to pay measures these methods differ with respect to the reference point used and the dimension in which responses are expressed the loss aversion hypothesis of tversky and kahneman s theory of reference dependent preferences predicts systematic differences between the preferences elicited by these methods these predictions are tested by eliciting individuals preferences for two private consumption goods the experimental design is incentive compatible and controls for income and substitution effects the theory s predictions are broadly confirmed

elusive persistence wage and price rigidities the new keynesian phillips curve and inflation dynamics abstract we review the main new keynesian inflation equations that have arisen as a result of aggregation from individual firms price rigidities we find that on the whole they cannot account for inflation persistence a key feature of the empirical dynamics of inflation and with important policy implications the only exceptions seem to be when indexation is allowed in price setting or when price stickiness is combined with wage rigidity and staggering

price competition in an inflationary environment we study how inflation and deflation affect firms ability to cooperate in an experimental bertrand duopoly with differentiated products we find that there is significantly less cooperation in the treatments with inflation and deflation compared to the no inflation treatments the difficulties to cooperate affect prices and welfare depending on the market structure inflation and deflation lead to significantly lower real prices and higher welfare

comment on endogenous objectives and the evaluation of targeting rules for monetary policy 1 four mccallum principles itis bothanprivilege andapleasureformetoparticipateinthisconferenceinhonorofbennettt mccallum henceforthbtm thus beforeproceedingtomakespeci c comments regarding carl walsh s elegant paper on endogenous objectivesand targeting rules i would like to begin by providing some context in light ofbtm snumerouscontributionstotheanalysisofmonetarypolicy forthispurpose itishelpfultohighlightfourbasicprinciplesofeffectivemonetarypolicythatbtmhas consistently emphasized over the past several decades given the logicalcoherencyandintuitiveappealofhisworkonthissubject itisonlynaturaltorefertothesefourpointsasthe mccallumprinciples the rstmccallumprincipleisthatmonetarypolicymatters thatis theconductof monetary policy can have important consequences for social welfare btmanalyzedthetheoreticalandempiricalunderpinningsofthisprincipleinaseriesof

housing finance and monetary policy we document three facts concerning how the structure of housing finance affects the monetary transmission mechanism first the characteristics of residential mortgage markets differ markedly across industrialized countries second the impact of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility development of mortgage markets third the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable rate type we then build a two sector dsge model with financial constraints to rationalize those facts

deeds not words a cosmopolitan perspective on the influences of corporate sustainability and ngo engagement on the adoption of sustainable products in china to make a business case for corporate sustainability firms must be able to sell their sustainable products the influence that firm engagement with non governmental organizations ngos may have on consumer adoption of sustainable products has been neglected in previous research we address this by embedding corporate sustainability in a cosmopolitan framework that connects firms consumers and civil society organizations based on the understanding of responsibility for global humanity that underlies both the sustainability and cosmopolitanism concepts we hypothesize that firms sustainability engagement and their ngo engagement influence consumer adoption of sustainable products empirically we investigate the adoption of sustainable eco circle products made from recycled fibers marketed by li ning a china based global sportswear brand we apply a stepwise regression approach to test our hypotheses with paper and pencil survey data from 217 chinese consumers we find adoption to be positively associated with consumers sustainability attitude but not with firms sustainability engagement for firm ngo engagement these relationships are reversed adoption is positively associated with firm ngo engagement but not with consumers related attitude our results present a picture of the chinese context in which there is a business case for corporate sustainability if firms words about sustainable product strategies are supported by signals from civil society about firm deeds the results imply that in a chinese context firms need to be particularly aware of the role of ngos when hoping to be rewarded for sustainability

disaggregate evidence on spanish inflation persistence this article investigates the degree of persistence of different inflation rates for the spanish economy using the consumer price index cpi for the aggregate as well as for the regions provinces

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

fund management changes and equity style shifts we examined changes in performance risk and investment style for mutual funds that changed managers during the 1983 91 period results show that funds experiencing a managerial change performed poorly before the change primarily as a result of inferior security selection risk adjusted performance on average improved 200 basis points annually and systematic risk increased significantly after the management change we also classified funds according to their equity effective mix of company sizes and value versus growth more than 65 percent of the funds experienced a shift in investment style after the management change

consumption self control by rationing purchase quantities of virtue and vice consumers attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers pricing policies addressing theoreticians and practitioners alike this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self control problems for example many regular smokers buy their cigarettes by the pack although they could easily afford to buy 10 pack cartons these smokers knowingly forgo sizable per unit savings from quantity discounts which they could realize if they bought cartons by rationing their purchase quantities they also self impose additional transactions costs on marginal consumption which makes excessive smoking overly difficult and costly such strategic self imposition of constraints is intuitively appealing yet theoretically problematic the marketing literature lacks operationalizations and empirical tests of such consumption self control strategies and of their managerial implications this paper provides experimental evidence of the operation of consumer self control and empirically illustrates its direct implications for the pricing of consumer goods moreover the paper develops a conceptual framework for the design of empirical tests of such self imposed constraints on consumption in consumer goods markets within matched pairs of products we distinguish relative virtue and vice goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences for example ignoring long term health effects many smokers prefer regular relative vice to light relative virtue cigarettes because they prefer the taste of the former however ignoring these short term taste differences the same smokers prefer light to regular cigarettes when they consider the long term health effects of smoking these preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption this creates a potential self control problem because these consumers will be tempted to over consume the vices they have in stock at home purchase quantity rationing helps them solve the self control problem by limiting their stock and hence their consumption opportunities such rationing implies that per purchase occasion vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts we first test this prediction in two laboratory experiments we then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain wide store level demand across a variety of different pairs of matched vice regular and virtue reduced fat calorie or caffeine etc product categories the analyses of these experimental field and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as among others potato chips chocolate chip cookies cream cheese beer soft drinks ice cream and frozen yogurt chewing gum coffee and beef andturkey bologna vice consumers demand increases less in response to price reductions than virtue consumers demand although their preferences are not generally weaker for vices than for virtues constraints on vice purchases are self imposed and strategic rather than driven by simple preferences we suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption as a result of purchase quantity rationing however vice buyers forgo savings from price reductions through quantity discounts effectively paying price premiums for the opportunity to engage in self control thus purchase quantity rationing vice consumers are relatively price in sensitive from a managerial and public policy perspective our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self control they can charge premium prices for small sizes of vices relative to the corresponding quantity discounts for virtues virtue consumers on the other hand will buy larger amounts even when quantity discounts are relatively shallow a key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self constraining consumer behaviors empirically moreover this research is the first to extend previous theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making

menu costs and phillips curves this paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation sellers can change price only by incurring a real menu cost we calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new u s data set of individual prices due to klenow and kryvtsov the prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies the model is also used to conduct numerical experiments on the economy s response to various shocks in none of the simulations we conducted did monetary shocks induce large or persistent real responses

modeling loss aversion and reference dependence effects on brand choice based upon a recently developed multiattribute generalization of prospect theory s value function tversky and kahneman 1991 we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points and that consumers weigh losses from a reference point more than equivalent sized gains loss aversion we sketch implications of this model for understanding brand choice we develop a multinomial logit formulation of a reference dependent choice model calibrating it using scanner data in addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model the model s coefficients demonstrate significant loss aversion as hypothesized we also discuss the implications of a reference dependent view of consumer choice for modeling brand choice demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics and examine other implications for competitive strategy

the csr quality trade off when can corporate social responsibility and corporate ability compensate each other this paper investigates under what conditions a good corporate social responsibility csr can compensate for a relatively poor corporate ability ca quality and vice versa the authors conducted an experiment among business administration students in which information about a financial services company s ca and csr was provided participants indicated their preferences for the company s products stocks and jobs the results show that for stock and job preferences a poor ca can be compensated by a good csr for product preferences a poor ca could not be compensated by a good csr at least when people thought that ca is personally relevant to them furthermore a poor csr could be compensated by a good ca for product stocks and job preferences

constructive consumer choice processes consumer decision making has been a focal interest in consumer research and consideration of current marketplace trends e g technological change an information explosion indicates that this topic will continue to be critically important we argue that consumer choice is inherently constructive due to limited processing capacity consumers often do not have well defined existing preferences but construct them using a variety of strategies contingent on task demands after describing constructive choice consumer decision tasks and decision strategies we provide an integrative framework for understanding constructive choice review evidence for constructive consumer choice in light of that framework and identify knowledge gaps that suggest opportunities for additional research

sectoral and aggregate inflation dynamics in the euro area this paper synthesises the implications of recent statistical evidence regarding inflation persistence in the euro area for aggregate data the degree of inflation persistence appears to be very high for sample periods spanning multiple decades but falls dramatically once we allow for time variation in the mean level of inflation furthermore the timing of these breaks in mean generally coincides with observed shifts in the monetary policy regime finally sectoral inflation series exhibit much less persistence than aggregate inflation mainly because of the influence of transitory sector specific shocks jel e31 c22 c43

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

the time vs money effect shifting product attitudes and decisions through personal connection the results of five field and laboratory experiments reveal a time versus money effect whereby activating time vs money leads to a favorable shift in product attitudes and decisions because time increases focus on product experience activating time vs money augments one s personal connection with the product thereby boosting attitudes and decisions however because money increases the focus on product possession the reverse effect can occur in cases where merely owning the product reflects the self i e for prestige possessions or for highly materialistic consumers the time versus money effect proves robust across implicit and explicit methods of construct activation

euro area inflation persistence in an estimated nonlinear dsge model abstract we estimate the approximate non linear solution of a small dsge model on euro area data using the conditional particle filter to compute the model likelihood our results are consistent with previous findings based on simulated data suggesting that this approach delivers sharper inference compared to the estimation of the linearised model we also show that the non linear model can account for richer economic dynamics the impulse responses to structural shocks vary depending on initial conditions selected within our estimation sample

a small estimated euro area model with rational expectations and nominal rigidities abstract we estimate a small model of the euro area to be used for evaluating alternative monetary policy strategies starting with the relationship between output and inflation we compare the fit of the nominal wage contracting model due to taylor j political econom 88 1980 1 and the relative real wage contracting model proposed by buiter and jewitt the manchester school 49 1981 211 reprinted in buiter ed macroeconomic theory and stabilization policy manchester university press manchester 1989 and estimated with u s data by fuhrer and moore quart j econom 110 1995 127 while fuhrer and moore reject nominal contracts in favor of relative contracts which induce more inflation persistence we find that both specifications fit euro area data reasonably well when considering france germany and italy separately however we find that nominal contracts fit german data better while the relative contracting model does well with respect to formerly high inflation countries such as france and italy we close the model by estimating an aggregate demand relationship and investigate the implications of nominal versus relative contracts for the inflation output variability tradeoff when monetary policy follows taylor s rule

interpreting inflation persistence comments on the conference on quantitative evidence on price determination the past decade has seen important advances in the analysis of price setting behavior most notably in my view a great deal of effort has been directed at the development of models that on the one hand have an explicit behavioral interpretation the models are clear about who sets prices what they seek to achieve when choosing prices and to what constraints they are subject when making the decision and at the same time can be parameterized so as to be compared in detail to inflation data this has allowed these models to be incorporated into complete dsge models of business fluctuations and of the monetary transmission mechanism that can be econometrically estimated this raises the prospect that it should soon be possible to base policy analysis on models that are both quantitatively realistic and plausibly invariant under the kinds of changes in policy that the analyst may wish to contemplate some argue that these two desiderata remain in considerable tension with one another that one cannot insist upon optimizing foundations at least under the current state of knowledge without substantial sacrifice of quantitative realism it is somewhat unfair however to present the quest for a model with optimizing foundations as a retreat from full insistence upon empirical realism given the fact that models with clear behavioral interpretations can be checked against a wider range of types of empirical evidence which should ultimately allow greater confidence in the realism of the specification that can withstand such scrutiny for example the exhaustive recent study of evidence on price setting in the euro area undertaken by the eurosystem s inflation persistence network compares alternative models in the light of three distinct

measuring investment performance in a rational expectations equilibrium model much research has been concerned with evaluating the performance of managed portfolios e g mutual funds and examining whether portfolio managers display in some sense superior performance superior performance would seemingly turn on the possession of superior information that is utilized in managing portfolios in general a fund s asset holdings or portfolio weights might not be observable to an outsider whether they are or not however they are likely to change over time this happens especially when better performance is a result of superior information since managers will change their portfolio composition on obtaining private information since such changes must be taken into account the problem of measuring performance of managed portfolios is inherently different from that of evaluating the performance of individual assets groups of assets or generally portfolios with constant and known composition

price stability and the ecb s monetary policy strategy abstract this paper focuses on the price stability objective within the framework of the single monetary policy strategy it starts by reviewing what this objective which is common to all central banks means second this paper focuses exclusively on the anchoring of short to medium term inflation expectations part 2 several measures show that this anchoring is effective a two pillar small structural macro economic model framework is used to analyze the impact that this anchoring of expectations has on the determination of the short to medium term inflation rate from this point of view observed inflation in the euro area seems to be in line with the theory and the ecb s action seems to be very effective third we focus on the other aspect of monetary stability the degree of price level uncertainty and the anchoring of inflation expectations in the medium to long term even though this assessment is more difficult than it is in the short to medium term since we only have a track record covering 6 years various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ecb

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

new evidence on inflation persistence and price stickiness in the euro area implications for macro modeling this paper evaluates new evidence on price setting practices and inflation persistence in the euro area with respect to its implications for macro modeling it argues that several of the most commonly used assumptions in micro founded macro models are seriously challenged by the new findings jel e31 e52

intrinsic persistence of wage inflation in new keynesian models of the business cycles we derive and estimate a new keynesian wage phillips curve that accounts for intrinsic inertia in line with microevidence on wage setting we consider a wage setting model featuring an upward sloping hazard function based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset our wage phillips curve embeds also backward terms we test the hazard function slope using generalized method of moment estimation then placing our equation in a small scale new keynesian model we investigate its dynamic properties using bayesian estimation model comparison shows that our model outperforms commonly used alternative methods to introduce persistence

self control for the righteous toward a theory of precommitment to indulgence prior research has examined consumers use of self control to avoid hedonic myopic temptations such as overspending and smoking in this research we investigate the opposite form of self control whereby consumers force themselves to indulge and avoid default forms of spending on utilitarian necessities and or savings in particular consumers who have difficulty choosing items that are perceived as indulgences or luxuries e g a cruise over necessities e g saving for college education and cash in everyday decisions may use precommitments to indulgence especially when the psychological cost of such commitments is less concrete these propositions were tested in a series of studies involving real and hypothetical choices as well as process measures the results indicate that a substantial segment of consumers choose hedonic luxury rewards over cash of equal or greater value consumers typically explain such choices based on the need to precommit to indulgence to make sure that the award does no

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

how to solve the price puzzle a meta analysis the short run increase in prices following an unexpected tightening of monetary policy constitutes a frequently reported puzzle yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed we collect about 1 000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results our ndings indicate publication selection in favor of the intuitive response of prices to a tightening the estimates depend systematically on study design when misspecications are

on the role of heuristics experimental evidence on inflation dynamics we run an experiment where groups of six subjects must set prices in a non stationary macroeconomic environment where prices are complements the exogenous variable a business indicator is common knowledge and prices are flexible disregarding sticky prices or sticky information in a first treatment subjects insignificantly corrected for past errors which implies that history plays a role for determining current prices by reporting the business indicator in a simpler form the second treatment tacitly offered a heuristic for setting prices this option was widely taken bringing about an excess response to the business indicator and a significant deviation from equilibrium even in the long run in a third treatment with staggered pricing we observe that subjects look only one round into the future but not further ahead contrary to theoretical predictions our findings suggest that monetary transmission may be impaired due to what we label sticky reasoning the failure or unwillingness to iteratively delete dominated strategies 2013 elsevier b v all rights reserved

endogenous nominal rigidities and monetary policy monetary policy analysis with exogenously given nominal rigidities is subject to lucas critique if the degree of them varies over policy regimes as recent empirical studies point out in a calvo style sticky price model we endogenize nominal rigidities and examine its implications for monetary policy while previous studies stress that the frequency of price adjustment changes with steady state inflation we focus on how this frequency varies in response to changes in the taylor rule in the same steady state we find that a more aggressive policy response to inflation makes firms less likely to reset their prices resulting in a flat slope of the new keynesian phillips curve as observed in the post 1982 u s economy and a small variance of shocks to the curve as in the great moderation we also find that an aggressive policy response to inflation can stabilize both inflation and the output gap by exploiting the feedback effect of the policy stance on firms price setting taking into account this effect is thus crucial to the policy conduct further we show that an endogenous inflation weight of the social welfare loss function is critical to policy evaluation since this weight changes significantly with the frequency of price adjustment jel classification e31 e32 e52

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

flying under the radar perverse package size effects on consumption self regulation consumers believe that small package formats of hedonic but not of utilitarian products help to regulate consumption especially when their self regulatory concerns are activated these beliefs may backfire and increase consumption of hedonic products specifically activating self regulatory concerns had no consumption effects when tempting products came in small package formats yet when tempting products came in large package formats consumers deliberated most before consumption were least likely to consume and consumed the least this illustrates how small temptations can remain undetected flying under the radar and large package formats may reduce consumption as a result of the experienced self control conflict

willingness to pay and willingness to accept how much can they differ comment i agree with the point made by edoh y amiran and daniel a hagen 2003 that there can be a substantial or even infinite divergence between the wta and wtp for a public good even where there is a nonzero elasticity of substitution between market goods and the public good provided that the indifference curves are asymptotically bounded with respect to market goods in the manner they describe this is an important point they are also correct to point out that the elasticity of substitution is a local concept whereas their asymptotic boundedness condition applies also for discrete changes my 1991 paper used a local analysis because it was following the structure of the analysis in robert d willig 1976 and alan randall and john r stoll 1980 i wanted to show that while randall and stoll appeared to extend willig s local result on wta versus wtp from price changes to changes in the quantity of a public good the relevant elasticity was in fact different and involved the substitution elasticity as well as the income elasticity i view these points by amiran and hagen as not two separate results but essentially the same result their asymptotic boundedness condition generalizes my zero elasticity of substitution condition to discrete changes the asymptotic boundedness condition can be expressed as follows assuming a bivariate utility function u x q and given a reference point x q associated with a reference utility level u u x q there exists some q q such that for all q q there exists no x such that u x q u in other words no amount of x can substitute for the reduction in public good from q to q q in the case of a zero elasticity of substitution q q but as amiran and hagen show in their theorem 1 this is unnecessarily restrictive when dealing with a discrete reduction in q furthermore their theorem 2 can be viewed as a special case of their theorem 1 in which q 0 which makes q an essential commodity it is well known in consumer theory that the wta to avoid the loss of an essential market good is infinite their theorem 2 extends this result to the case of an essential nonmarket good but as their theorem 1 shows essentialness is not necessary for an infinite wta the boundedness condition is the key and this implies a fundamental lack of substitutability between money market goods and the public good

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

micro based estimates of heterogeneous pricing rules the united states vs the euro area this paper presents us and euro area estimates for a fully heterogeneous model in which there is a continuum of firms setting prices with a constant probability of adjustment which may differ from firm to firm the estimated model accurately matches the empirical distribution function of individual price durations for the us and the euro area incorporating these micro based pricing rules into a dsge model we find that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard calvo model we also find that nominal and real shocks bring about a reallocation of resources among sectors monetary policy is found to have a greater real impact in the euro area than in the united states

the impact of choice architecture on sustainable consumer behavior the role of guilt companies often encourage consumers to engage in sustainable behaviors using their services in a more environmentally friendly or green way such as reusing the towels in a hotel or replacing paper bank statements by electronic statements sometimes the option of green service is implied as the default and consumers can opt out while in other cases consumers need to explicitly ask opt in for switching to a green service this research examines the effectiveness of choice architecture and particularly the different default policies i e the alternative the consumer receives if he she does not explicitly request otherwise in engaging consumer green behavior in four experiments we show that the opt out default policy is more effective than the opt in because it increases anticipated guilt this effect is stronger for consumers who are less conscious for the environment study 1 we also show that a forced choice policy in which the consumer is not automatically assigned to any condition and is forced to choose between the green and the non green service option is more effective than the opt in policy and not significantly more effective than the opt out policy study 2 finally we show that the role of defaults is weakened enhanced if a negotiated reciprocal cooperation strategy is used study 3 the article contributes to the literature of defaults and provides managerial and public policy implications for the design of green services

yes but this other one looks better works better how do consumers respond to trade offs between sustainability and other valued attributes consumers are increasingly facing product evaluation and choice situations that include information about product sustainability i e information about a product s relative environmental and social impact in many cases consumers have to make decisions that involve a trade off between product sustainability and other valued product attributes similarly product and marketing managers need to make decisions that reflect how consumers will respond to different trade off scenarios in the current research we study consumer responses across two different possible trade off scenarios one in which consumers face a trade off between product sustainability and hedonic value and another in which they must trade off between product sustainability and utilitarian value our results suggest that overall consumers are more likely to trade off hedonic value e g esthetics for sustainability than to trade off utilitarian value e g functional performance for sustainability in studies 1a and 1b we presented participants with a product choice task and also measured their anticipatory emotions as they contemplated their options the results suggest that given a trade off consumers are more likely to choose a sustainable product when they have to trade off hedonic value than when they have to trade off utilitarian value further these studies provide some insight into the emotions underlying this effect in study 2 we use a different consumer response measure relative purchase likelihood and investigate the effect of trade off type across categories that vary in the degree to which hedonic and utilitarian attributes are perceived to be important referred to as product type our results suggest that the effect of trade off type still holds yet is moderated by product type such that consumers greater willingness to trade off hedonic value vs utilitarian value for sustainability is attenuated as the relative importance of hedonic vs utilitarian attributes increases in addition to building on our theoretical understanding of decision making given trade offs with moral attributes this research is also intended to support managers as they define and choose among various strategic product development and marketing promotion options

variety vice and virtue how assortment size influences option choice assortment size has been shown to influence whether consumers make a choice but could it also influence what they choose five studies demonstrate that because choosing from larger assortments is often more difficult it leads people to select options that are easier to justify virtues and utilitarian necessities are generally easier to justify than indulgences consequently choosing from larger assortments often shifts choice from vices to virtues and from hedonic to utilitarian options these effects reverse however when situational factors provide accessible reasons to indulge underscoring the role of justification implications for choice difficulty and justification processes are discussed

focusing on the forgone how value can appear so different to buyers and sellers we propose that buying and selling price estimates reflect a focus on what the consumer forgoes in the potential exchange and that this notion offers insight into the well known difference between those two types of value assessment buyers and sellers differ not simply in their valuation of the same item but also in how they assess the value buyers tend to focus on their sentiment toward what they forgo typically the expenditure and buying prices are thus heavily influenced by variables such as salient reference prices by the same token sellers tend to focus on their sentiment toward surrendering the item and selling prices are hence more heavily influenced by variables such as benefits of possessing the item four studies examining buying and selling price estimates of tickets for national collegiate athletic association basketball games offer consistent support for these ideas the studies show that naturally occurring differences among respondents in attitudes relating to the tickets that sellers forgo e g significance of the game corresponded more closely to variation in selling prices than in buying prices conversely measures relating to the expenditure e g respondents concern with money corresponded more closely to buying prices than to selling prices using controlled manipulations we then showed that changes in aspects relating to the game e g expected climate in the stadium affected selling prices more than buying prices but changes relating to the expenditure e g list price of the ticket influenced buying prices more than selling prices we also showed that drawing attention to the benefits of possessing a ticket before asking for the price estimates influenced buying prices more than selling prices supporting our claim that otherwise these benefits are naturally more salient to sellers than buyers similarly drawing attention to alternative uses of money before asking for price estimates influenced selling prices more than buying prices

price setting and inflation persistence did emu matter surprisingly it did not or at least not directly using micro data on consumer prices and sectoral inflation rates from 6 euro area countries spanning several years before and after the introduction of the euro we look at whether emu has altered the behaviour of retail price setting and or inflation dynamics we find no evidence that anything has changed around 1999 if anything persistence may have slightly increased at the end of 2001 and in the beginning of 2002 period surrounding the euro cash changeover retail price adjustment frequencies both up and down increased substantially while the magnitude of the price adjustment also both up and down was smaller than otherwise however both settled quickly back to the earlier patterns on the contrary we do find evidence of a decline in the persistence of the inflation process in the mid 1990s this could be due to a structural change in private inflationary expectations due at least in part to policies linked to the preparation of emu however this interpretation is weakened by the fact that a similar decline occurred also in the us

market timing selectivity and mutual fund performance an empirical investigation this article empirically examines market timing and selectivity performance of a sample of mutual funds it uses a very simple regression technique to separate stock selection ability from timing ability this technique first suggested by treynor and mazuy and later refined by bhattacharya and pfleiderer uses a modified security market line approach to produce individual measures of timing and stock selection ability the inputs to the model are only the returns earned on the fund and those earned on the market portfolio the empirical results indicate that at the individual fund level there is some evidence of superior micro and macroforecasting ability on the part of the fund manager copyright 1990 by the university of chicago

inflation dynamics and subjective expectations in the united states i introduction this paper analyzes the ability of sticky price models to explain the dynamics of u s inflation when using survey data as proxies for inflation expectations testing sticky price models with survey expectations is attractive since to the extent that survey data correctly capture agents expectations they allow to disregard issues related to the specification of agents expectations functions one neither has to impose untested orthogonality restrictions as required when estimating under the assumption of rational expectations nor has to make restrictive assumptions about the precise form of nonrationality present in agents forecast functions this allows to focus on the question whether the economic models under consideration are correctly specified previous tests of sticky price models performed under the assumption that agents hold rational expectations have generated mixed results prominently fuhrer and moore 1995 have reported that sticky price models do not generate sufficient stickiness for inflation when the output gap is used as a measure of real marginal costs recent evidence however has shown that the empirical performance depends crucially on how one measures real marginal costs the main determinant of inflation according to sticky price models for instance gall and gertler 1999 and sbordone 2002 show that sticky price models perform well once marginal costs are approximated by average unit labor costs 1 it makes an important difference whether sticky price models successfully explain inflation dynamics as a function of output behavior or they relate inflation dynamics to the behavior of unit labor costs given that the ultimate objective is a model explaining the joint behavior of output and inflation the latter case would require an additional empirically plausible theory linking the dynamics of unit labor costs to the behavior of output this paper studies whether the currently popular new keynesian phillips curve nkpc which can be derived from calvo 1983 style sticky price models is able to explain a relationship between inflation on the one hand and output or unit labor costs on the other hand thus we let the data speak whether a theory linking output to costs is warranted once expectations are approximated by data reported in the survey of professional forecasters our main finding is that the nkpc performs equally well with both measures of marginal costs output and unit labor costs whatever measure is used the estimate of the quarterly discount factor is close to one and the point estimate of the degree of price stickiness implies that firms reset their prices roughly every five quarters on average these results suggest that potential nonrationalities in expectations as they show up in surveys have biased previous estimates using output as a measure for marginal costs quite surprisingly the same nonrationalities do not seem to play a role when using unit labor costs here our estimates confirm the results obtained by gall and gertler 1999 and sbordone 2002 who assumed rational expectations we show that the reason for this finding is that approximating the agents information set using the unit labor cost variable rests on more solid grounds than approximating it using the output variable in particular the survey data suggest that the hypothesis of rational expectations implies a too high correlation between lagged output and future inflation expectations we show that this causes the coefficient estimate for output to become negative contrary to what is implied by theory these results suggest that once one takes account of potentially nonrational expectations via survey expectations sticky price models are able to establish a close link between output dynamics and the behavior of inflation to assess the robustness of this finding we include into the price equation lags of various variables and test for their significance

seize the day or save the world the importance of ethical claims and product nature congruity consumers have shown increasing interest in products that reflect social and environmental concerns so called sustainable products although consumers typically view sustainability positively the ethical attributes of products do not always drive their preferences which implies a trade off between ethical attributes and other valued attributes in the current research we examine how consumers implicitly judge products and services that are more or less congruent with social and environmental concerns and how incongruity between ethical claims and a product s nature may influence consumers to behave responsibly the results from two experimental studies show that increasing the strength of ethical claims impairs sophisticated products evaluation but enhances simple products evaluation additionally the findings reveal that the strength of ethicality on sophisticated products may impair perceptions of product enjoyment to a point at which products are evaluated more favorably when less ethical claims are used to promote them for managers the results highlight an important business consideration as they reveal the circumstances under which it is worth emphasizing the strength of the sustainability appeal of products or services results show that not all consumers are willing to sacrifice taste or quality in their leisure time preferring to seize the day rather than saving the world

consumer choice between hedonic and utilitarian goods abstract in this article the authors examine how consumer choice between hedonic and utilitarian goods is influenced by the nature of the decision task building on research on elaboration the authors propose that the relative salience of hedonic dimensions is greater when consumers decide which of several items to give up forfeiture choices than when they decide which item to acquire acquisition choices the resulting hypothesis that a hedonic item is relatively preferred over the same utilitarian item in forfeiture choices than in acquisition choices was supported in two choice experiments in a subsequent experiment these findings were extended to hypothetical choices in which the acquisition and forfeiture conditions were created by manipulating initial attribute level reference states instead of ownership finally consistent with the experimental findings a field survey showed that relative to market prices owners of relatively hedonic cars value their vehicles more than do owners of relat

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

identifying the influences of nominal and real rigidities in aggregate price setting behavior we formulate a generalized price setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs real rigidities we estimate this framework using macroeconomic data for germany 1975 1998 and for the u s 1983 2003 in each case we find that the data are well characterized by nominal contracts with an average duration of about two to three quarters we also find that new contracts exhibit very low sensitivity to marginal cost corresponding to a relatively high degree of real rigidity finally our results indicate that backward looking price setting behavior such as indexation to lagged inflation is not needed in explaining the aggregate data at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective

uncertain potential output implications for monetary policy abstract a small forward looking model of the euro area economy is used to investigate the implications of incomplete information about potential output for the conduct of monetary policy three results emerge first under optimal monetary policy output gap uncertainty leads to persistent deviations between the actual and the perceived output gap in response to supply and cost push shocks second in first difference form a simple policy rule such as the taylor rule continues to perform relatively well as long as the output gap is optimally estimated third incomplete information implies that it is optimal to appoint a more hawkish central bank

justification effects on consumer choice of hedonic and utilitarian goods abstract people want to have fun and they are more likely to have fun if the situation allows them to justify it this research studies how people s need for justifying hedonic consumption drives two choice patterns that are observed in typical purchase contexts first relative preferences between hedonic and utilitarian alternatives can reverse depending on how the immediate purchase situation presents itself a hedonic alternative tends to be rated more highly than a comparable utilitarian alternative when each is presented singly but the utilitarian alternative tends to be chosen over the hedonic alternative when the two are presented jointly second people have preferences for expending different combinations of time effort and money for acquiring hedonic versus utilitarian items they are willing to pay more in time for hedonic goods and more in money for utilitarian goods the author explores the topic through a combination of four experiments and field studies