monetary policy rules in the open economy effects on welfare and business cycles abstract this paper computes welfare maximizing taylor style interest rate rules in a business cycle model of a small open economy the model assumes staggered price setting and shocks to domestic productivity to the world interest rate to world inflation and to the uncovered interest rate parity condition optimized policy rules have a pronounced anti inflation stance and entail significant nominal and real exchange rate volatility the country responds to an increase in external volatility by holding more foreign assets the policy rule affects the variance and the mean of consumption the effect on the mean matters significantly for welfare

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

paradoxical positions the methodological contributions of feminist scholarship the goal of this paper is to consider the contributions of feminist activism and interdisciplinary scholarship to economic institutional methodology by further extending the historical institutional analysis of key categories such as the self ownership of labour model of locke smith and marx the paradoxical position of women can be avoided a greater understanding of the reification of concepts like property and the economy and the role of gender in naturalizing them will help to expand the narrow role of economics discourse in the articulation of feasible economic policies and objectives for human development

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

simple monetary policy rules and exchange rate uncertainty abstract we analyze the performance and robustness of some common simple rules for monetary policy in a new keynesian open economy model under different assumptions about the exchange rate model adding the exchange rate to an optimized taylor rule that responds to cpi inflation gives only small improvements in terms of economic stability in most model configurations the taylor rule is also slightly more robust to uncertainty about the exchange rate model than are rules that respond to the rate of exchange rate depreciation our results thus indicate that the taylor rule is sufficient to stabilize a small open economy also under exchange rate model uncertainty

timing and real indeterminacy in monetary models an increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy policy is typically conducted in terms of directives for the nominal interest rate this paper uses a discrete time money in the utility function model to demonstrate how seemingly minor modifications in the trading environment result in dramatic differences in the policy restrictions needed to ensure real determinacy these differences arise because of the differing pricing equations for the nominal interest rate

monetary policy and the exchange rate the british monetary authorities began the decade with a commitment to a policy of decelerating monetary growth as the centrepiece of their economic strategy a policy of outright benign neglect towards the exchange rate was a stated accompaniment by the end of 1990the centrepiece of policy was adherence to the exchange rate mechanism of the ems albeit initially within the wider band option although the commitment to counter inflationary policy objectives and to a nominal anchor as a means of achieving these remained the same the anchor had been changed at the intermediate target level there had been a revolution

the role of the exchange rate in monetary policy rules for a country that chooses not to permanently fix its exchange rate through a currency board or a common currency or some kind of dollarization the only alternative monetary policy that can work well in the long run is one based on the trinity of i a flexible exchange rate ii an inflation target and iii a monetary policy rule while not often put into this threepart format the desirability of such a monetary policy in an open economy is in my view the clear implication of three corresponding strands of recent monetary research i research on fixed exchange rates regimes including the influential 1995 article the mirage of fixed exchange rates by maurice obstfeld and kenneth rogoff and the many analyses of the breakdown of fixed exchange rate regimes in the late 1990 s ii research on the practical success with inflation targeting by ben bernanke et al 1999 and iii research on the benefits of simple monetary policy rules see e g taylor 1999a this clear policy implication however does not end the debate about how exchange rates should be taken into account in formulating monetary policy even if one excludes capital controls and sterilized exchange market intervention from consideration because they are not effective or attractive ways to de link exchangerate movements from the domestic interest rate a crucial question remains how should the instruments of monetary policy the interest rate or a monetary aggregate react to the exchange rate should policymakers avoid any reaction and focus instead on domestic indicators such as inflation and real gdp or is the rule of thumb that a substantial appreciation of the real exchange rate furnishes a prima facie case for relaxing monetary policy as characterized by obstfeld and rogoff 1995 p 93 a better monetary policy rule or perhaps policymakers should heed the obstfeld rogoff warning that substantial departures from ppp purchasing power parity in the short run and even over decades make such a policy reaction to the exchange rate undesirable more generally if one accepts the trinity concept of monetary policy in an open economy then what is the role of the exchange rate in the monetarypolicy rule

optimal monetary policy in open versus closed economies an integrated approach in clarida et al 1999 hereafter cgg we presented a normative analysis of monetary policy within a simple optimization based closedeconomy framework we derived the optimal policy rule and among other things characterized the gains from commitment also we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice in this paper we show how our analysis extends to the case of a small open economy openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation how to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration here we show that under certain conditions the monetary policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier hence all our qualitative results for the closed economy carry over to this case openness does affect the parameters of the model suggesting quantitative implications though the general form of the optimal interest rate feedback rule remains the same as in the closedeconomy case for example how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness in addition openness gives rise to an important distinction between domestic inflation and consumer price inflation as defined by the cpi to the extent that there is perfect exchange rate pass through we find that the central bank should target domestic inflation and allow the exchange rate to float despite the impact of the resulting exchangerate variability on the cpi kosuki aoki 1999 gali and tommaso monacelli 2000

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

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

the role of exchange rate in inflation targeting the case of turkey the role of the exchange rates in emerging market economies that have adopted inflation targeting it is a critical and contentious issue in the relevant literature this article investigates whet

how important is precommitment for monetary policy we quantify the welfare differential between precommitment and discretionary monetary policy in three estimated models of the u s economy by calculating the permanent deviation of inflation from target that in welfare terms is equivalent to moving from discretion to precommitment using a range of reasonable central bank preference parameters this inflation equivalent ranges from 0 05 to 3 6 percentage points with a mid point of either 0 15 or 1 1 5 percentage points depending on the model in addition to the degree of forward looking behavior we show that the existence of transmission lags and or information lags is crucial for determining the welfare gain from precommitment

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 during asset and commodity price booms the recent global economic crisis originated in the midst of a commodity price boom that had triggered sharp increases in inflation in many world countries the crisis also came in the context of a rally in asset prices and large domestic imbalances in the united states this paper uses a small open economy dynamic stochastic general equilibrum dsge model to design the correct monetary policy response to a protracted supply shock and examines how that response would change when many become credit constrained like in a credit crunch and when spending of those who can still borrow becomes very sensitive to the interest rates because of overleveraging using a version of the model with kalman learning the paper also evaluates the implications of a loss of target credibility showing how rules must be adjusted when the authorities commitment to the inflation target has been eroded the appropriate response to future evolutions of the price of oil including to large downward corrections from the current level is also evaluated copyright 2010 oxford university press

fertility intra generational redistribution and social security sustainability incorporating heterogeneity in preference to having children into an overlapping generations model of a small open economy we examine the effects of changes in the size of pay as you go payg social security on fertility choices of individuals and population growth of the economy it is shown that payg social security will raise population growth by increasing the number of individuals who have children and the number of children parents have if the system involves redistribution between retirees with different contributions whereas if it has no redistribution payg social security does not affect the fertility decisions of individuals fecondite redistribution intra generationnelle et durabilite de la securite sociale incorporant l heterogeneite des preferences pour avoir des enfants dans un modele d une petite economie ouverte avec des generations qui se chevauchent on examine les effets de changements dans l importance de la securite sociale par repartition sur les choix de fecondite des individus et sur la croissance de la population dans l economie on montre que cette forme de securite sociale augmente la croissance de la population en accroissant a la fois le nombre de personnes qui ont des enfants et le nombre d enfants que les parents choisissent d avoir si le systeme implique une redistribution entre les gens a la retraite qui ont fait des contributions differentes alors que si le regime n implique aucune redistribution le regime de securite sociale par repartition n affecte pas les decisions de fecondite des individus

partial adjustment and staggered price setting this paper compares taylor style staggered price setting to partial adjustment of prices or calvo staggering in a small optimizing is lm model in contrast to the overwhelming perception in the literature the models are not similar for most parameterizations in particular the dynamic response of the economy to shocks is quite different in the two models and the welfare cost of price rigidity is eight or more times larger in the calvo model than in the taylor model for typical calibrations suggestions for calibrations under which the models are more similar are also presented

monetary policy rules for an open economy the most popular simple rule for the interest rate due to taylor 1993a is meant to inform monetary policy in economies that are closed on the other hand its main open economy alternative i e ball s 1999 rule based on a monetary conditions index mci may perform poorly in the face of specific types of exchange rate shocks and thus cannot offer guidance for the day to day conduct of monetary policy in this paper we specify and evaluate a comprehensive set of simple monetary policy rules that are suitable for small open economies in general and for the united kingdom in particular we do so by examining the performance of a battery of simple rules including the familiar taylor rule and mci based rules a la ball this entails comparing the asymptotic properties of a two sector open economy dynamic stochastic general equilibrium model calibrated on united kingdom data under different rules we find that an inflation forecast based rule ifb i e a rule that reacts to deviations of expected inflation from target is a good simple rule in this respect when the horizon is adequately chosen adding a separate response to the level of the real exchange rate contemporaneous and lagged appears to reduce the difference in adjustment between output gaps in the two sectors of the economy but the improvement is only marginal importantly an ifb rule with or without exchange rate adjustment appears robust to different shocks in contrast to naive or ball s mci based rules

children of a policy revolution the introduction of universal child care and its effect on fertility what role does affordable and widely available public child care play for fertility we exploit a major german reform generating large temporal and spatial variation in child care coverage for children under the age of three our precise and robust estimates on birth register data reveal that increases in public child care have significant positive effects on fertility the fertility effects are more pronounced at the intensive than at the extensive margin and are not driven by changes in the timing of births or selective migration our findings inform policy makers concerned about low fertility by suggesting that universal early child care holds the promise of being an effective means of increasing birth rates

does the reserve bank of australia follow a forward looking nonlinear monetary policy rule abstractthe conventional monetary policy rule describes a simple linear relationship between the domestic interest rate inflation rate and output gap an important extension to this rule is to inc

overcoming the zero bound on interest rate policy the paper proposes three options for overcoming the zero bound on interest rate policy a carry tax on money open market operations in long bonds and monetary transfers a variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates a carry tax could be imposed on currency to create more leeway to make interest rates negative quantitative policy monetary transfers and open market purchases of long bonds could stimulate the economy by creating liquidity broadly defined a central bank needs more fiscal support than usual from the treasury to pursue quantitative policy at the interest rate floor

should central banks target consumer prices or the exchange rate in this article we consider two arguments suggesting that monetary authorities in an open economy should target output price inflation and not consumer price inflation the first suggests that output price inflation corresponds to the distortions caused by price rigidity the second shows how policy rules involving consumer price inflation can induce instability because of the feedback from interest rates to consumer price inflation via the exchange rate we examine both arguments in the context of an open economy which is subject to a range of shocks we show that both arguments remain robust but that there is a case for including a terms of trade or real exchange rate gap term in the authorities welfare function alongside the output gap and output price inflation

a budget based definition of poverty an approach to defining poverty through a basic needs budget bnb is presented which takes account of families differing needs for child care and transportation and of regional differences in housing costs taxes and noncash benefits from governmental and private sources are also accounted for the bnb poverty rate for single parents for 1989 is 47 percent compared to 39 percent under the official method almost a quarter of single parents holding full time jobs are counted as poor under the bnb method radical reduction in both the welfare rolls and the poverty rate would require government assurance of child care and medical care to single parents

taylor rules and the canadian us equilibrium exchange rate abstract this paper identifies the canadian us equilibrium exchange rate based on a simple structural model of the real exchange rate in which monetary policy follows a taylor rule interest rate reaction function the exchange rate is explained by relative output and inflation as observable variables and by unobserved equilibrium rates as well as unobserved transitory components in output and the exchange rate using canadian data over 1974 2009 we jointly estimate the unobserved components and the structural parameters using the kalman filter and bayesian technique we find that canada s equilibrium exchange rate evolves smoothly and follows a trend depreciation the transitory component is found to be very persistent but much more volatile than the equilibrium rate resulting in few but prolonged periods of currency misalignments

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

the american family and family economics abstract gary becker s path breaking treatise on the family 1981 subjected individuals decisions about sex marriage childbearing and childrearing to rational choice analysis the american family has changed radically in recent decades we survey these changes as well as the ongoing effort to understand partnering parenting and care of the elderly as results of maximizing choices made by individuals first we describe the recent changes in the american family the separation of sex marriage and childbearing fewer children and smaller households converging work and education patterns for men and women class divergence in partnering and parenting strategies and the replacement of family functions and home production by government programs and market transactions second we examine recent work in family economics that attempts to explain these changes third we point out some challenging areas for further analysis and highlight issues of commitment in two primary family relationships those b

social security and endogenous fertility pensions and child allowances as siamese twins abstract this paper analyses public pensions and child support in a model with endogenous fertility we show that the individual fertility choice may not coincide with the social optimum due to the existence of external effects of children on society as a whole the market outcome without government intervention is efficient however as the externalities exactly cancel out in that case if the government wants to redistribute towards the old it cannot replicate the command optimum by merely applying lump sum transfers but rather needs a child allowance scheme to effectively alter the number of offspring finally we analyse whether a pareto improving social security reform is possible it is shown that merely reducing the payg scheme cannot be pareto improving but the introduction of a child allowance scheme can be

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

income distribution in rice growing villages during the post green revolution periods the philippine case 1985 and 1998 this paper aims to examine changes in household income sources and its impact on household income distribution in the post green revolution periods in 1985 and 1998 in the rural philippines we found that there has been a structural shift of household income away from farm in favor of nonfarm labor income sources this finding indicates that rural development is being led by nonfarm sectors such a shift has resulted in an increase in household income inequality as the distribution of nonfarm income has become less equal over time and was markedly more unequal than that of farm income in 1998

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

solving for optimal simple rules in rational expectations models this paper presents algorithms that solve for optimal simple monetary policy rules in rational expectations models with precommitment and discretion the algorithms are applied to the models in fuhrer j money credit banking 29 1997 214 clarida et al j econ lit 37 1999 1661 and rudebusch econ j 112 2002 402 to examine the efficiency properties of operational policy rules we show that optimized taylor type rules preform well in these models but that aside from the fuhrer moore model this result is sensitive to whether the central bank can respond to current period shocks taylor type rules that are operational in the sense that they do not respond to current period information are found to be highly inefficient in the rudebusch model and in the clarida et al 1999 model

should inflation targeting central banks respond to exchange rate movements abstract this paper examines whether it is optimal for inflation targeting central banks to respond to exchange rate movements the paper finds that exchange rate movements can provide a signal on the developments in the economy that the central bank cannot perfectly observe the results suggest that when the degrees of exchange rate pass through and international financial integration are high it is optimal for the central bank to pay more attentions to exchange rate movements these results however depend on two conditions 1 the ability of the central bank to observe the true exchange rate process and 2 the number of real frictions in the model economy