targeting inflation by constant interest rate forecasts this paper reviews the concept of constant interest rate inflation forecast cir targeting it stresses the time inconsistent nature of cir targeting and provides a new method for constructing cir forecasts consistently in the context of models with forward looking variables a dynamic new keynesian model with forward looking price setting is used as an illustration suggesting that the main reason for choosing a relatively long forecast targeting horizon lies in the monetary authorities objective to smooth interest rate movements as greater nominal and real stabilization is achieved at a relatively short inflation forecast targeting horizon

statistical discrimination and the early career evolution of the black white wage gap this article develops and tests a simple dynamic model of statistical discrimination the model improves on earlier static models both by allowing ex ante uncertainty about worker productivity to be resolved as on the job performance is observed and by generating several testable empirical implications these predictions are tested using a sample of young men from the national longitudinal survey of youth producing mixed evidence for the model the main empirical result is that no black white wage gap exists at labor force entry but that one develops as experience accumulates mainly because blacks reap smaller gains from job mobility

nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

hand in the cookie jar an experimental investigation of equity based compensation and managerial fraud the use of equity based compensation is an increasingly popular means by which to align the incentives of top management with those of the shareholders however recent theoretical and empirical research indicates that the use of equity based compensation has the unintended consequence of creating the incentive to commit managerial fraud of the type being reported in the press this paper reports experimental evidence that shows that the amount of fraud committed by subjects is positively correlated with the level of equity as is the level of effort in addition the amount of fraud that is committed is negatively correlated with the probability of detection and subjects risk aversion the experimental design permits the identification of causal relations in the directions just noted

life cycle and housing adjustment as explanations of residential mobility the paper develops a typology of reasons for residential mobility and systematises the many survey analyses of reasons for moving the relative importance of life cycle and housing adjustment mecha

adjusting housing consumption improve or move home improvement is becoming more important as a supplier of housing in australia this paper examines how and why home improving decisions are made and briefly discusses some equity questions abou

residential attachment and housing demand in this paper a model of housing demand behavior is proposed in which both monetary and non monetary adjustment costs termed attachment are allowed to affect demand levels an empirical implication of the model is that the individual variance around the housing demand curve is likely to increase directly with total adjustment costs a cross section housing demand curve is estimated with the variance specified as a linear function of variables thought to be correlated with total adjustment costs the results provide qualified support for the assertion that adjustment costs influence housing demand behavior in the manner suggested by the theoretical model

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

housing careers life cycle and residential mobility implications for the housing market the concept of a housing career provides a useful way of integrating the residential mobility and filtering literatures in understanding the operation of the housing market using data from a survey in adelaide the paper examines these careers in terms of moves to and from both rental accommodation and home ownership it shows how the progression of households through the stock is influenced by the circumstances that prompt moves economic resources and stage in the family life cycle the results suggest that acceleration and postponement of advancement along housing careers provide the principal mechanisms by which household demand adjusts to available housing supply over the short term

detecting and removing discrimination under equal opportunities policies abstract this paper surveys part of the recent voluminous literature on the economics of discrimination focusing on two key questions first how should discrimination be measured and can in fact unambiguous estimates be derived as the basis for detecting where discrimination is present and setting in train measures to eliminate it second to what extent has the implementation of equal opportunities legislation improved the relative standing of women and minority workers in the labour force this section includes a discussion of the likely effects of recent changes in the law such as the equal value amendment in the uk or the introduction of comparable worth in the usa the survey concludes that our ability to detect discrimination at all precisely is still rudimentary and consequently policy measures are likely to be inefficient for this reason

testing guilt aversion with an exogenous shift in beliefs we conduct a laboratory experiment to test whether subjects tend to meet the expectations of others the guilt aversion hypothesis the specificity of our approach is that second order beliefs are manipulated exogenously just by changing the parameters of the experimental game in particular we consider a simple communication game where the sender is perfectly informed about his material benefit from lying to the receiver at the same time the receiver knows only the ex ante distribution of the sender s material incentives by changing this distribution between the experimental treatments we achieve an exogenous variation in the receiver s payoff expectations and hence in the corresponding sender s second order beliefs while keeping the sender s actual material incentives fixed the results show that the rate of lying is significantly lower when the receiver is supposed to have higher payoff expectations however only in the case when the monetary incentives for lying are fixed at a moderate level

rehabilitation decisions in rental housing an empirical analysis abstract housing policy makers show increased interest in encouraging rehabilitation of the existing housing stock but little is known about what factors influence the decision to invest particularly in rental housing making policy design difficult this paper presents an empirical analysis of individual landlords housing rehabilitation decisions in one housing market the analysis tests hypotheses about the impacts of detailed neighborhood structure and site characteristics on each owner s investment activity findings support the general hypothesis that economic returns to investment have a major effect on rehabilitation decisions identify some other important circumstances and suggest which among many specific policy levers should be effective

optimal horizons for inflation targeting abstract in this paper we investigate the problem of selecting an optimal horizon for inflation targeting in the united kingdom since there are two key ways of thinking about an optimal horizon we look at optimal horizons for both of these interpretations in addition to see whether our results are robust in the face of model uncertainty we compute optimal horizons for two different models with divergent structural and dynamic characteristics

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

renovation and mobility an application of the theory of rationing as pollak 10 argues there is a broad class of economic problems where consumers cannot choose the quantities of all goods freely i e some goods are rationed or preallocated in pollak s terms straight quantity rationing is an obvious example in some of these problems consumers can choose whether or not to accept a ration clearly in the absence of other considerations a consumer would never choose to allow his consumption of some goods to be restricted sometimes however he may have an incentive to do so public schools provide a fixed quantity of education for free tenants in public housing must accept the quantity of housing that is offered to them but their rent is subsidized many workers allow their employers to determine hours of work in return for higher wages this paper examines a somewhat different example of the behavior of a consumer who is free to accept or reject a ration it considers a homeowner who finds that he has too little housing perhaps because his income has risen his tastes have changed or his family has grown the consumer must choose between moving to a different home or renovating his present home interest rates have risen and if he decides to move he must surrender his fixed rate mortgage at a favorable interest rate but renovating rather than moving also involves a cost housing services are produced by combining many different types of inputs some of which can be increased through renovation and some of which cannot a consumer can add another room without moving for example but he cannot expand his backyard or make his neighborhood more convenient the consumer must therefore balance the benefits of keeping a low interest rate loan against the welfare cost of the ration on those kinds of inputs which cannot be increased without moving 2 this topic has become increasingly important as current mortgage rates have risen

performance of inflation targeting based on constant interest rate projections monetary policy is sometimes formulated in terms of a target level of inflation a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon these requirements lead to constant interest rate cir instrument rules using the standard new keynesian model it is shown that some forms of cir policy lead to both indeterminacy of equilibria and instability under adaptive learning however some other forms of cir policy perform better we also examine the properties of the different policy rules in the presence of inertial demand and price behaviour

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

strategic information revelation we analyze the problem in which agents have non public information and are to play an asymmetric information game the agents may reveal some or all of their information to other agents prior to playing this game revelation is via exogenously specified certifiable statements the equilibria resulting from various revelation strategies are used to determine equilibrium revelation of information sufficient conditions are provided for complete revelation of all private information a number of examples are provided illustrating when revelation will or will not occur in commonly analyzed games many economic problems are characterized by the presence of both strategic behaviour on the part of individuals and by asymmetric information models encompassing both of these characteristics have been used successfully to examine questions in many fields usually using the concept of bayesian nash equilibrium as the solution concept typically the agents information is given exogenously and is fixed throughout the analysis modelling the information structure as static is appropriate for some problems but not for all in particular situations that are inherently dynamic most economic encounters allow for some interchange between the agents before the outcome is settled irrevocably in such circumstances it is possible that at least one or more of the agents possessing non public information may be able to reveal part or all of his information to one or all of the other agents in the economy during the course of their contact to the extent that such a communication is believed by the other agents the priors of the other agents will change and we will have what is in essence a new asymmetric information game new in

inflation targeting as constrained discretion this paper suggests a simple framework for modeling inflation targeting as constrained discretion although it is widely claimed that inflation targeting has been successful in maintaining low and stable inflation an announcement of an inflation target does not by itself mean that central bankers are precommiting to how they conduct monetary policy in comparison to the assumption of many theoretical studies central banks conduct monetary policy in a discretionary fashion and rarely precommit to a rule in reality therefore the central bank in this paper is modeled as discretionary yet faced with a constraint that an average of future inflation over a certain horizon should be kept on or near the preannounced target level it is natural to add this constraint to the central banker s optimization problem since inflation targeting involves one way or another an evaluation of the performance over a certain horizon so it is argued that the better outcome of inflation targeting does not come from a commitment but from constrained discretion this paper also sheds some light on optimal targeting horizon

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

bare promises an experiment abstract is truth value of a statement what lying aversion is all about we propose an experimental test and find only limited support in this context with bare promises we also test for guilt aversion and again find only limited support

guilty conscience and incentives with performance assessment errors this study examines the effects of guilty conscience on incentive in the situation where an agent performance assessment has errors there are two types of assessment error undervaluation and overvaluation in overvaluation agents will not correct the assessment because their wages would then decrease although agents will want their undervaluation corrected principals will not correct the error due to increased wage cost hence correcting errors is complicated however this type of selfish behavior by agents and principals produces feelings of guilt particularly when others trust them in this situation a high incentive is desirable for conscientious people with a strong sense of guilt or for nonconscientious people who do not feel guilt but it is undesirable for intermediate type people who are conscientious only to a certain extent jel d03 d82 j41

racial earnings differentials and performance pay this paper presents an information model in which workers receiving output based pay experience less racial earnings discrimination than those receiving time rates and supervisory evaluations tests using the national longitudinal survey of youth reveal no racial wage differential among male workers paid output based pay while confirming a significant differential among those paid time rates in addition the racial wage differential among those receiving bonus pay usually based on supervisory evaluations tends to be larger than for those not receiving such bonuses while both racial earnings differences and payment methods have generated enormous literatures the two subjects rarely interact this paper argues that the observed racial earnings gap should be narrower among those receiving output based pay such as piece rates and commissions when discriminating in earnings the intensity of racial preferences must be greater when an owner or manager confronts a standardized measure of productivity than when effort is subjectively evaluated and those evaluations are used to set earnings more important use of a standardized measure of productivity makes the practice of discrimination more transparent and this improved information increases the probability of detection the increased probability of detection raises the expected cost of racial discrimination and should be associated with a reduction in its extent our empirical estimates confirm that output based pay is associated with reduced racial earnings discrimination

black white earnings ratios the role of cohort size effects abstract while black white earning ratios have been rising over time across cohorts there is some evidence that they have been dropping over time within cohorts of recent entrants to the labor market this has coincided with the entry of the large baby boom cohorts into the labor market this paper examines the role of race differences in cohort size effects on black white earnings ratios for male high school graduates using current population survey data in larger cohorts the black white earnings ratio is lower at entry and falls as the cohort progresses through the career consistent with recent evidence

interest rates income and home improvement decisions abstract the demand for additional housing is modeled demonstrating that higher interest rates make home improvements more attractive relative to moving when homeowners hold fixed rate mortgages technological constraints on home improvements make improving less attractive relative to moving when incomes have risen empirical evidence using cross sectional data is presented suggesting that the probability of making home improvements is positively related to increases in the current interest rate and negatively related to increases in income an explanation is offered for the recent rise in home improvement expenditures in the face of slower economic growth and higher mortgage interest rates

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

are central banks projections meaningful central banks projections i e forecasts conditional on a given interest rate path are often criticized on the grounds that their underlying policy assumptions are inconsistent with the existence of a unique equilibrium in many forward looking models the present paper describes three alternative approaches to constructing projections that are not subject to that criticism using a standard new keynesian model as a reference framework yet and even though they imply an identical path for the interest rate the three approaches are shown

inflation targeting some extensions previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks consequences of model uncertainty and effects of interest rate smoothing and stabilization model uncertainty output stabilization and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target the conditional inflation forecast is the natural intermediate target during inflation targeting the optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action jel classification e42 e52 e58

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

impact of the worker s employment probability on wage rates the employment probability is a significant determinant of the worker s wage rate expecially in the presence of employers hiring discrimination several tests suggest that the omission of this variable in the wage regression may lead to misspecification

why do people keep their promises an experimental test of two explanations numerous psychological and economic experiments have shown that the exchange of promises greatly enhances cooperative behavior in experimental games this paper seeks to test two theories to explain this effect the first posits that individuals have a preference for keeping their word the second assumes that people dislike letting down others payoff expectations according to the latter account promises affect behavior only indirectly because they lead to changes in the payoff expectations attributed to others i conduct an experiment designed to distinguish between and test these alternative explanations the results demonstrate that the effects of promises cannot be accounted for by changes in payoff expectations this suggests that people have a preference for promise keeping per se

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

black white life cycle earnings differences and the vintage hypothesis a longitudinal analysis a common finding of virtually all previous studies of black white earnings differences is that the earnings of white males appear to rise at a more rapid rate with each additional year of work experience or with age than do the earnings of black workers this finding has been noted by economists since at least the mid 1950 s when morton zeman called

inflation targeting a new framework for monetary policy he world s central bankers and their staffs meet regularly in venues from basle to washington to share ideas and discuss common problems perhaps these frequent meetings help explain why changes in the tactics and strategy of monetary policymaking such as the adoption of money growth targets in the 1970s the intensification of efforts to reduce inflation in the 1980s and the recent push for increased institutional independence for central banks tend to occur in many countries more or less simultaneously whatever their source major changes in the theory and practice of central banking are of great importance for both individual countries and the international economy in this article we discuss a new strategy for monetary policy known as inflation targeting which has sparked much interest and debate among central bankers and monetary economists in recent years this approach is characterized as the name suggests by the announcement of official target ranges for the inflation rate at one or more horizons and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy other important features of inflation targeting include increased communication with the public about the plans and objectives of the monetary policymakers and in many cases increased accountability of the central bank

the effect on black white wage differences of differences in the quantity and quality of education using data from the national longitudinal survey of youth for the years 1979 88 the author examines the extent to which black white differences in educational attainment educational quality and unmeasured individual ability can explain black white wage differences an analysis that corrects for both selectivity and ability biases inherent in estimating the education wage relationship shows that the main source of the black white wage differential is the racial difference in the quality rather than quantity of schooling in fact the author concludes closing the racial gap in the basic skills learned in school could reduce the wage differential by two thirds

household life cycle stages transitions and product expenditures data from the u s bureau of labor statistics consumer expenditure survey provide empirical verification of changes in household spending across a wide variety of products as households pass from one stage of the household life cycle to another three spending patterns emerged 1 a generalized inverted u pattern with spending rising sharply as households shift from young single to young married then remaining relatively high and falling sharply at the older married and or older single stages 2 generally increasing expenditures across stages until the last one or two stages and 3 generally decreasing expenditures across the life cycle expenditures are especially influenced by the presence of young children in the household

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

the case for forecast targeting as a monetary policy strategy at central banks around the world forecasts have come to play an increasingly important role both in policy deliberations and in communications with the public the most striking examples are the bank of england sweden s riksbank norway s norges bank and the reserve bank of new zealand all of which conduct policy on the basis of a procedure sometimes referred to as inflation forecast targeting svensson 1997 1999 under this approach the central bank constructs quantitative projections of the economy s expected future evolution based on the way in which it intends to control short term interest rates and public discussion of those projections is a critical part of the way in which the bank justifies the conduct of policy to the public what accounts for the appeal of a forecast targeting approach and should it be adopted more widely or more explicitly i begin by reviewing the long running debate between the proponents of monetary rules intended to ensure confidence in the value of money over time and the proponents of discretionary monetary policy aimed at stabilizing the real economy i will argue that inflation forecast targeting represents a powerful synthesis of the two approaches in particular it is an improvement both over simpler rules such as targeting a monetary aggregate and over weaker versions of inflation targeting i shall also argue that a much more extensive communication policy is crucial to escaping from the limitations of the traditional alternatives of rigid rules or rudderless discretion i will then explore some common questions that arise about inflation forecast targeting should only the inflation forecast matter and if not in what way should forecasts of other economic variables affect policy decisions what assumptions about the course of future policy should be used in constructing the quantitative projections that are presented to the public finally given that economic forecasts

housing consumption over the family life cycle an empirical analysis the family life cycle has long been an important element in the analysis of household consumption and earnings patterns housing studies have however given surprisingly little attention to the concept using a sample of recent house purchasers from perth western australia this paper analyses the pattern of housing consumption and location over the family life cycle together with the financial position of the household the results indicate that marriage partnering and initial schooling are the significant stages contrary to some recent work we find clear evidence of reduced space consumption once child rearing is completed and for the presence of income constraints within life cycle stages wealth and income are found to be more important in explaining housing consumption than the family life cycle concept

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

a hierarchical model of housing choice the main objective of this paper is the construction of an expanded model of housing choice that includes not only tenure choice which has traditionally been the subject of analysis but also other housing characteristic choices in this model the probability of the household making a given tenure choice is estimated at the first level of a choice hierarchy the family s choices over dwelling size and quality are then estimated at succeeding levels of that hierarchy conditionally on the choices which precede them these conditional probabilities can be combined with the probability of tenure choice to produce eight joint probabilities of housing choice in addition for a particular household or group of households we can determine the effect of a change in any of the systems variables on the probability of the families making a given housing choice in the empirical section it is demonstrated that this model provides much greater insight than the conventional tenure choice study regarding the effects o

house extensions and housing market adjustment a case study of wokingham this paper identifies possible explanations of house extension based on the literature relating to house improvement and the decision to move house extension both as a form of housing market adj