eco labelling consequences in general equilibrium a graphical assessment international environmental groups propose to implement new standards of forest management through programs that certify producers who meet criteria to enhance biodiversity or sustainability these producers could earn an eco label that identifies their products for consumers we consider whether a market economy might generate feedbacks that produce undesirable side effects as consumers respond to price changes while the general case is ambiguous the theoretical framework shows the potential that certification may lead to a reallocation of land toward less ecologically sustainable uses with the possibility of sufficient impact to diminish global biodiversity or sustainability of forest products

the optimal management of north sea herring abstract a discrete time dynamic bioeconomic model for a fish resource is developed the objective is maximization of discounted net revenues subject to changes in stock size the model of population dynamics is described by a delay difference equation natural growth and recruitment are related to stock size with recruitment taking place with a time lag conditions characterizing the optimal stock level are derived the model is applied to north sea herring estimates of the optimal stock level are given and optimal trajectories derived due to the schooling behaviour of herring it is shown that open access may cause stock extinction

interactions between monetary and fiscal policy rules the fiscal stability pact for emu implies that constraints on fiscal policy facilitate inflation control in this paper we identify two stable policy regimes when monetary policy seeks to raise real interest rates in response to excess inflation a self stabilising fiscal policy is required to ensure model stability a fiscal policy which does not by itself ensure fiscal solvency constrains monetary policy to be relatively passive however in simulations we conclude that the central bank does not need to seek on this account the degree of debt stabilisation that appears to be implied by the fiscal stability pact

on the dynamics of renewable resource harvesting and pollution control the paper presents a dynamic partial equilibrium model which combines optimal renewable resource harvesting and optimal pollution control pollution accumulates as a slowly decaying stock and is assumed to affect the growth and the quality of the renewable resource stock the aim is to maximize a social welfare functional which gives the present value of the difference between natural resource benefits and pollution control costs the existence uniqueness and the dynamic properties of the steady states are investigated the analysis also gives a general result concerning the steady state of any two state variable optimal control problems

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

empirical studies of financial innovation lots of talk little action this paper reviews the extant empirical studies of financial innovation adopting broad criteria we could find only somewhat more than two dozen studies and since some financial innovations are examined by more than one study they cover only seventeen phenomena especially striking is the fact that only two studies offer tests of the broad hypotheses concerning the environmental conditions spurring financial innovation e g regulation taxes unstable macroeconomic conditions and ripe technologies that have been advanced in descriptive articles we offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare among our suggested culprits is an absence of accessible data we urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

stock market conditions and monetary policy in a dsge model for the u s abstract this paper investigates the interactions between stock market fluctuations and monetary policy within a dsge model for the u s economy first we design a framework in which fluctuations in households financial wealth are allowed but not necessarily required to exert an impact on current consumption this is due to the interaction in the financial markets of long time traders holding wealth accumulated over time with newcomers holding no wealth at all importantly we introduce nominal wage stickiness to induce pro cyclicality in real dividends additional nominal and real frictions are modeled to capture the pervasive macroeconomic persistence of the observables employed to estimate our model we fit our model to post wwii u s data and report three main results first the data strongly support a significant role of stock prices in affecting real activity and the business cycle second our estimates also identify a significant and counteractive response of the fed to stock price fluctuations third we derive from our model a microfounded measure of financial slack the stock price gap which we then contrast to alternative ones currently used in empirical studies to assess the properties of the latter to capture the dynamic and cyclical implications of our dsge model the behavior of our stock price gap is consistent with the episodes of stock market booms and busts occurred in the post wwii as reported by independent analyses and closely correlates with the current financial meltdown typically employed proxies of financial slack such as detrended log indexes or growth rates show limited capabilities of capturing the implications of our model consistent index of financial stress cyclical properties of the model as well as counterfactuals regarding shocks to our measure of financial slackness and monetary policy shocks are also proposed

optimal monetary policy and financial stability in a non ricardian economy this paper develops a model with discontinuous asset market participation in which all agents are infinitely lived and non ricardian and where heterogeneity among market participants implies financial wealth effects on aggregate consumption derivation of a welfare based loss function shows that financial stability arises as an additional and independent target besides infl ation and output stability evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal even absent inefficient supply shocks some fluctuations in output and infl ation are optimal as long as they reduce financial instability ignoring the heterogeneity among market participants in this economy may lead monetary policy to induce substantially higher welfare losses

on the joint determination of biological and economic systems abstract scarce natural resources and our choices to protect or develop them make ecological and economic systems jointly determined human choices affect nature nature affects human choices this essay considers whether a dynamic model that integrates details of an economic system and an ecosystem with explicit feedback links between them yields significantly different results than does ignoring these links we focus on the case of exotic invaders that put native species at risk in yellowstone national park the results suggest that integration does matter in each scenario cutthroat trout populations differ in both magnitude and survival rates depending on whether feedback is allowed between the two systems

the performance of internet based business models evidence from the banking industry the initial internet bank startups tended to underperform branching bank startups this suggested that internet only business models were not economically viable for banks however firms that pioneer new business models may benefit substantially from experience as they grow older and firms that use automated production technologies may benefit from scale effects as they grow larger econometric analysis of internet only bank startups finds strong evidence of the latter but not the former effect the results suggest that internet only banking success depends on attaining sufficient scale and strong management practices

home bias and high turnover dynamic portfolio choice with incomplete markets why do investors trade a lot in foreign assets and hold so little of them in their portfolios this paper shows that both observations can arise naturally in the presence of nondiversifiable nontraded consumption risk when each country specializes in production preferences exhibit consumption home bias and asset markets are incomplete using a general equilibrium two country two sector tradable and nontradable model of the world economy with production i show that low diversification occurs because variations in relative prices i increase the riskiness of foreign assets and ii facilitate risk sharing across countries large and volatile capital flows are necessary to take advantage of international risk premia differentials that occur in response to productivity changes in the nontradable sector i characterize the optimal portfolio holdings the evolution of the investment opportunity set the risk premium and the dynamics of capital flows using a new methodology for solving dynamic general equilibrium models with incomplete markets and portfolio choice

learning monetary policy and asset prices this working paper should not be reported as representing the view s of the imf the views expressed in this working paper are those of the author s and do not necessarily represent those of the imf or imf policy working papers describe research in progress by the author s and are published to elicit comments and to further debate

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

determinacy stock market dynamics and monetary policy inertia we study equilibrium determinacy in a new keynesian model where the central bank responds to asset prices growth unlike taylor type rules that react to asset prices the proposed alternative does not harm dynamic stability and in certain cases promotes determinacy by inducing interest rate inertia

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

real balance effects and monetary policy i introduction modern literature on monetary policy rules employs new keynesian optimizing models that do not explicitly include monetary aggregates see e g rotemberg and woodford 1997 clarida et al 1999 taylor 1999 in these models the demand for output derives from the log linearization of the standard euler equation characterizing household s saving decisions the real money stock does not enter the is relation and therefore monetary policy affects output and inflation only through its effect on the real interest rate when the nominal interest rate is the policy instrument it is not necessary to specify a money market equilibrium condition see romer 2000 the practice of neglecting monetary aggregates in monetary policy analysis has recently been questioned by meltzer 1999 mccallum 2001 and nelson 2002 2003 in particular mccallum 2001 points out that although no explicit term involving money appears in the standard new keynesian setup long run inflation can still be pinned down by the economy steady state nominal money growth rate moreover mccallum 2000 2001 andres et al 2001 kremer et al 2003 woodford 2003 ireland 2004a and collard and dellas 2005 analyze the case in which the resources used by consumers in conducting transactions are modeled by a nonseparable function of consumption and real money balances meltzer 1999 2001 argues that changes in real monetary base generate effects on real aggregate demand not summarized by the real interest rate on short term securities nelson 2003 emphasizes the role of money in the transmission mechanism both as a proxy for a whole spectrum of rates of return and as an indicator variable which contains information about the state of the economy the main aim of the present article is to provide additional microfoundations for an explicit role for money in the current macroeconomic debate in particular i derive a real balance effect that explicitly enters the is relation within an optimizing general equilibrium framework of the new keynesian type according to de scitovszky 1941 haberler 1946 pigou 1943 and patinkin 1965 a change in real money balances has an impact on the real financial wealth of consumers and therefore affects consumption and output notably this effect is not considered in traditional models there is in fact empirical evidence showing that real monetary base growth is a significant determinant of consumption and output gap in both the united states and in the united kingdom see chari et al 1995 meltzer 1999 nelson 2002 the present article extends the dynamic stochastic new keynesian setup with money in the utility function by introducing overlapping generations as modeled by yaari 1965 and blanchard 1985 there are good reasons to base the demand side of the economy on a discrete time stochastic monetary version of the yaari blanchard model first this kind of extension allows one to maintain the main characteristics of the so called new neoclassical synthesis that is forward looking behavior of optimizing agents and incomplete nominal adjustment of prices featured in new keynesian theories goodfriend and king 1997 second the derivation of the real balance effect does not require nonseparability in the utility function thus the implications are analytically more tractable 1 third my framework is more general because it includes the immortal representative agent setup as a particular case my analysis attempts to examine whether the presence of an explicit real balance effect in the is relation helps evaluate the role for money in designing monetary policy rules i focus on basic issues concerning the design of monetary policy rules specifically i investigate whether it is necessary for monetary policy to overreact to inflation by raising the nominal interest rate by more than the observed increase in inflation to rule out equilibrium multiplicity

monetary policy and stock prices in an open economy this paper studies monetary policy in a two country perpetual youth model where agents can invest their wealth in both stock and bond markets in our economy the foreign country is financially dominant in the sense that it hosts the only active equity market where all agents also residents of the home country can trade stocks of listed foreign firms we show that contrary to what happens in a closed economy the central bank in the economy endowed with an active stock market should grant a dedicated response to movements in stock prices driven only by local productivity shocks moreover we show that the other central bank should also optimally respond to stock price movements in the other economy as they affect the budget constraint of domestic residents optimal monetary policy pursuing price stability requires dedicated response to stock price dynamics driven by productivity shocks in addition to what implied by the simple existence of the terms of trade channel of policy transmission determinacy of rational expectations equilibria and approximation of the optimal policy by simple monetary rules are also investigated

exchange rate determination under interest rate rules we propose a theory of exchange rate determination under interest rate rules in a two country model we first show that simple interest rate feedback rules can determine a unique and stable equilibrium without any explicit reaction to the nominal exchange rate we characterize how the behavior of the exchange rate and of the terms of trade depends in a critical way on the monetary regime chosen though not necessarily on monetary shocks we give a simple account of exchange rate volatility in terms of monetary policy rules we provide an explanation of the relation between nominal exchange rate volatility and macroeconomic variability in terms of the monetary regime adopted by monetary authorities

economies human capital and natural assets human capital concerns are used to structure links between the economy and the environment suggestions for empirical work to explore these structures are provided particular attention is devoted to connections between environmental hazards and influences upon parents decisions to invest in forming children s human capital

depletion of the environmental basis for renewable resources the economics of interdependent renewable and nonrenewable resources abstract this paper synthesizes familiar theories of nonrenewable and renewable resource economics in a two sector partial equilibrium analysis of efficient trade offs between renewable resource production and environmental development the irreversible impacts of coastal zone development provide a motivating example while development proceeds the efficient harvest of renewable resources may exceed the sustainable rate while development may involve several periods of growth and decline once development begins it proceeds without significant interruptions if a profitable renewable sector survives development ceases before exhausting all profitable opportunities interdependent stocks reduce distinctions between resource types because each sector exhibits features of the other

malmquist type indices in the presence of negative data an application to bank branches in this paper we develop an index and an indicator of productivity change that can be used with negative data for that purpose the range directional model rdm a particular case of the directional distance function is used for computing efficiency in the presence of negative data we use rdm efficiency measures to arrive at a malmquist type index which can reflect productivity change and we use rdm inefficiency measures to arrive at a luenberger productivity indicator and relate the two the productivity index and indicator are developed relative to a fixed meta technology and so they are referred to as a meta malmquist index and meta luenberger indicator we also address the fact that vrs technologies are used for computing the productivity index and indicator a requirement under negative data which raises issues relating to the interpretability of the index we illustrate how the meta malmquist index can be used not only for comparing the performance of a unit in two time periods but also for comparing the performance of two different units at the same or different time periods the proposed approach is then applied to a sample of bank branches where negative data were involved the paper shows how the approach yields information from a variety of perspectives on performance which management can use

voluntary eco labeling and the price premium international environmental organizations propose voluntary eco labeling as a market incentive to promote industry to operate in an ecologically sustainable and environmentally friendly manner a microeconomic analysis questions whether voluntary eco labeling will cause producer profits in a competitive industry to decline and whether eco labeling will necessarily generate different prices for labeled and unlabeled product using wood product as an example results identify conditions that may exist when firms lose profits even under a voluntary system and where existing production constraints may lead to a single price regardless of labeling

asset prices exchange rates and the current account this paper analyses the role of asset prices in comparison to other factors in particular exchange rates as a driver of the us trade balance it employs a bayesian structural var model that requires imposing only a minimum of economically meaningful sign restrictions we find that equity market shocks and housing price shocks have been major determinants of the us current account in the past accounting for up to 30 of the movements of the us trade balance at a horizon of 20 quarters by contrast shocks to the real exchange rate have been less relevant explaining about 9 and exerting a more temporary effect on the us trade balance our findings suggest that large exchange rate movements may not necessarily be the key element of an adjustment of today s large current account imbalances and that in particular relative global asset price changes could be a potent source of adjustment

is the internet delivery channel changing banks performance the case of spanish banks abstract in spite of the conspicuous use of the internet as a delivery channel there is a relative dearth of empirical studies that provide a quantitative analysis of the impact of the internet on banks financial performance this paper attempts to fill this gap by identifying and estimating the impact of the adoption of a transactional web site on financial performance using a sample of 72 commercial banks operating in spain over the period 1994 2002 the impact on banks performance of transactional web adoption takes time to appear the adoption of the internet as a delivery channel involves a gradual reduction in overhead expenses particularly staff marketing and it this effect is statistically significant after one and a half years after adoption the cost reduction translates into an improvement in banks profitability which becomes significant after one and a half years in terms of roa and after three years in terms of roe the paper also concludes that the internet is being used as a complement to rather than a substitute for physical branches

productivity shocks stabilization policies and the dynamics of net foreign assets in this paper we investigate the role of macroeconomic stabilization policies for the international transmission of productivity shocks and their eects on the external sector we develop a two country stochastic dynamic new keynesian perpetual youth model of the business cycle with incomplete international nancial markets our olg structure implies stationary net foreign asset dynamics and allows for a thorough analysis of the interaction of monetary policy with non balanced budget scal policy we derive the dynamic and cyclical properties of scal decit feedback rules and their implications for net foreign assets dynamics our results imply that the degree of scal discipline i e the extent to which the scal rule responds to debt dynamics is crucial for the dynamics of net foreign assets we show that under a counter cyclical scal rule with low