real and nominal effects of monetary policy shocks we employ the identification scheme of kahn kandel and sarig 2002 to analyse the impact of canadian monetary policy on ex ante real interest rates and inflationary expectations first we decompose nominal interest rates into ex ante real rates and inflationary expectations using the methodology of blanchard and quah 1989 then we estimate a recursive var model with innovations in a monetary aggregate and the overnight target interest rate as alternative measures of monetary policy shocks we find that a negative policy shock raises both nominal and ex ante real interest rates lowers inflationary expectations and real industrial output and appreciates the canadian dollar les auteurs utilisent le scheme d identification de kahn kandel et sarif 2002 pour analyser les impacts de la politique monetaire canadienne sur les taux d interet reels ex ante et sur les anticipations d inflation d abord ils decomposent les taux d interet nominaux entre taux d interet reel ex ante et anticipation d inflation en utilisant la methodologie de blanchard et quah 1989 ensuite ils calibrent un modele var recursif avec des innovations dans l agregat monetaire et le taux directeur en tant que mesures alternatives des chocs dans la politique monetaire on decouvre qu un choc monetaire negatif tend a accroitre et le taux d interet nominal et le taux reel ex ante a reduire les anticipations d inflation et le produit industriel reel et a faire s apprecier le dollar

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

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

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

ageing health and health care the population in the developed world has experienced a significant increase in life expectancy over the last 50 years simultaneously while the onset of comorbidities has been deferred to older age groups health care expenditure has grown dramatically primarily owing to the advancement of medical technology and the expansion of individual income levels along with population ageing in the wake of increased longevity however the contribution of population ageing to health expenditure growth is subject to some theoretical and empirical scrutiny this paper takes the question of ageing and health and health care to the data to evaluate the net impact of ageing we focus on two main questions namely the welfare valuation of longevity improvements for various oecd countries along with the red herring hypothesis which suggests that population ageing has a small and almost negligible impact on health care expenditure our estimates lead us to suggest an average gain in longevity of 4 5 years since 1980 corresponding to about 13 5 per cent of lifetime income of a 20 year old in 2000 furthermore we confirm a weak red herring claim that is that population ageing accounts for only a 0 5 per cent annual growth rate of health care expenditure finally we find that the rise in longevity leads to a further demand for life prolonging medical care

monetary policy foreign exchange policy and delayed overshooting this paper provides an explanation for delayed overshooting puzzle based on foreign exchange policy s reaction to monetary policy for canada in which ample interactions between monetary and foreign exchange policies are found foreign exchange policy reaction mitigates the initial effects of monetary policy shocks on the exchange rate as the effects of the monetary policy shocks are more prolonged than that of the foreign exchange policy reaction the maximum effect is found in delay

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

ageing and the welfare state securing sustainability over the next four decades increasing old age dependency ratios will exert an enormous upward pressure on welfare spending in most developed countries as this is mainly due to existing unfunded public pension schemes many countries have embarked on far reaching reforms in this area strengthening actuarial fairness modifying indexation rules adding elements of pre funding and last but not least attempting to extend the period of economic activity efforts to contain costs may also be relevant with regard to public expenditure on health and long term care but thus far no country has started to really deal with these issues still some countries have made substantial progress in securing the long term sustainability of their welfare systems what remains to be considered is re constructing the system of intergenerational transactions as a potential way of removing disincentives to raise children and invest in their human capital in the long run

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

factor market search and the structure of simple general equilibrium models this paper presents a simple general equilibrium model in which unemployed workers search for jobs and vacant firms search for employees formally i develop a two sector constrained efficient version of the diamond mortensen pissarides matching model of trade coordination this approach to modeling factor market search appears promising since its algebraic development parallels jones s treatment of the two sector model of production and the latter framework underlies most applied general equilibrium analyses some illustrative short run and steady state results are presented concerning the behavior of open and closed economies that exhibit unemployment and vacancies

should generational accounts replace public budgets and deficits the author assesses the concept of generational accounts and the specific accounts constructed by alan auerbach jagadeesh gokhale and laurence kotlikoff 1991 although these accounts support the assertion of present orientation in fiscal policy they rest on numerous assumptions based on judgments that are open to question these involve the treatment of the public budget constraint the benefits from public exhaustive expenditures economic and population projections the discount rate and fiscal incidence alternative and equally reasonable assumptions could yield radically different conclusions the author concludes that the auerbach gokhale and kotlikoff accounts should not replace the annual public budget as they argue

the effect of protestantism on education before the industrialization evidence from 1816 prussia across prussian counties and towns protestantism led to more schooling already in 1816 before the industrial revolution this supports a human capital theory of protestant economic history and rules out a weberian explanation of protestant education just resulting from industrialization

social security and the real economy an inquiry into some neglected issues the debate concerning the effects of payas you go payg defined benefits socialsecurity systems on the real economy has focused on private savings robert j barro 1978 martin feldstein 1997 we expand the inquiry to neglected effects on economic growth and underlying family choices our inquiry is based on ehrlich and francis t lui s 1998 model of the relationships among social security the family and endogenous growth

general equilibrium in a simple economy with imperfect information the author determines equilibrium in a simple economy with imperfect information each risk neutral household acts as a firm making wage offers according to an endogenous wage distribution and as a laborer sampling a stochastic number of offers made by other households over its search period this economy with imperfect information and decentralized production and consumption will not maximize welfare policy must be carefully formulated because there are two nontrivial equilibria an unstable keynesian underemployment equilibrium with coordination failure resulting in underemployment and reduced search effort and a stable high effort low unemployment equilibrium that is reminiscent of a classical equilibrium with frictional unemployment

stability of equilibria with externalities it is shown that in a class of models with multiple externalities one positive and one negative all stationary equilibria may be locally stable to perturbations in the sense that there exist perfect foresight trajectories leading back to the equilibrium thus scale diseconomies arising for example out of a common resource pool generally overturn the liviatan samuelson result that equilibria are either saddlepoints or sources

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

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

the liquidity effect in the federal funds market evidence at the monthly frequency in this paper we argue that much of the research into the link between money and interest rates suffers from misspecification the measure of money and the measure of interest rates are not always well matched in examining the transmission of monetary policy we show that using an appropriate measure of money federal reserve balances and the appropriate interest rate the federal funds rate a clear liquidity effect exists furthermore we explain how a lack of a clear institutional understanding may have contributed to the finding of a liquidity puzzle in the past

family ties and the crowding out of long term care insurance insurance for long term care ltc has developed only moderately compared to other areas of welfare which has been explained variously as the result of market failures public misconceptions of the risk of ltc needs and intergenerational contracts this paper offers a cultural explanation for the limited ltc insurance development in europe it argues that family ties by enhancing informal care giving duties inhibit individuals expected public and private insurance coverage the empirical analysis of the paper exploits cross country and sub group variability of a representative database of european union member states containing records on ltc coverage and family structure drawing upon two measures of familistic culture or family ties we find a negative association between family ties and expected coverage of ltc for different sub samples these results are robust to a set of checks for different definitions of family ties and controls and for a sub sample of first and second generation migrants policy implications suggest that widespread expansion of ltc coverage might need to accommodate existing familistic cultural norms to avoid insurance crowding out

the exchange rate in a dynamic optimizing business cycle model with nominal rigidities a quantitative investigation this paper studies a quantitative dynamic optimizing business cycle model of a small open economy with staggered price and wage setting the model exhibits exchange rate overshooting in response to money supply shocks the predicted variability of the nominal and especially of the real exchange rate is noticeably higher than in standard real business cycle models with flexible prices and wages a positive domestic money supply shock is predicted to lower the domestic interest rate raise gdp and trigger a depreciation of both the nominal and real exchange rate increases in domestic productivity and in the world interest rate are also predicted to induce a nominal and real exchange rate depreciation 2001 elsevier science b v all rights reserved

sustaining fiscal policy through immigration this paper explores the fiscal implications of immigration to the us and argues that immigration policy should be viewed as a vital part of fiscal policy in particular a case is made that skill

real and nominal effects of central bank monetary policy abstract we examine the impact of monetary policy using israeli data on nominal and indexed bonds which allow us to decompose nominal interest rates into inflation expectations and ex ante real interest rates we find that a monetary policy shock introduced by raising the overnight rate the bank of israel charges member banks raises real interest rates but lowers inflation expectations long term real interest rates are less impacted than short term rates lastly monetary shocks affect the exchange rate between the israeli currency and the us dollar our estimates are robust to numerous modifications to the basic var model

jointly determined saving and fertility behaviour theory and estimates for germany italy uk and usa abstract the comparative statics predictions of models of the joint determination of household saving and fertility are derived under various hypotheses self interest altruism of parents towards children altruism of children towards parents etc and compared with those of models which determine saving under the assumption of exogenous fertility country specific saving and fertility equations are then estimated using time series data for germany italy uk and usa for each of the countries considered the estimates are consistent with the hypothesis that saving and fertility are jointly determined by self interested parents and reject the alternative hypotheses the data also show that a self financing expansion of social security discourages fertility and generally raises household saving

identifying monetary policy in a small open economy under flexible exchange rates abstract previous empirical study on the effects of monetary policy shocks in small open economies has generated puzzling dynamic responses in various macroeconomic variables this paper argues that these puzzles derive from an identification of monetary policy that is inappropriate for such economies to remedy this it is proposed that a structural model be estimated to explicitly account for the features of the small open economy such a model is applied to canada with tightly estimated results overall the dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the exchange rate as a transmission mechanism

has monetary policy been so bad that it is better to get rid of it the case of mexico motivated by the dollarization debate in mexico we estimate an identified vector autoregression for the mexican economy using monthly data from 1976 to 1997 taking into account the changes in the monetary policy regime that occurred during this period we find that i exogenous shocks to monetary policy have had no impact on output and prices ii most of the shocks originated in the foreign sector iii disturbances originating in the u s economy have been a more important source of fluctuations for mexico than shocks to oil prices we also study the endogenous response of domestic monetary policy by means of a counterfactual experiment the results indicate that the response of monetary policy to foreign shocks played an important part in the 1994 crisis

the pay as you go pension system as fertility insurance and an enforcement device a paygo system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension in fact the latter was bismarck s historic motive for introducing this system it is true that the paygo system reduces the investment in human capital but if it is run on a sufficiently small scale it may nevertheless bring about a welfare improvement if on the other hand the scale of the system is so large that parents bequeath some of their pensions to their children it is overdrawn and creates unnecessarily strong disincentives for human capital investment

monetary transmission mechanisms in a small open economy a bayesian structural var approach abstract this paper develops a bayesian structural var model for canada in order to estimate the effects of monetary policy shocks using the overnight rate target as the policy instrument i allow the policy variable and other home and foreign variables to interact with each other contemporaneously the key finding is that monetary policy affects the real economy through both the market interest rate and the exchange rate i also find that the bank of canada responds to any home and foreign variables that embodies information about future inflation and that external shocks are an important source of output fluctuations

bayesian methods for dynamic multivariate models if dynamic multivariate models are to be used to guide decisionmaking it is important that probability assessments of forecasts or policy projections be provided when identified bayesian vector autoregression var models are presented with error bands in the existing literature both conceptual and numerical problems have not been dealt with in an internally consistent way in this paper the authors develop methods to introduce prior information in both reduced form and structural var models without introducing substantial new computational burdens their approach makes it feasible to use a single large dynamic framework for example twenty variable models for tasks of policy projections copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association