assessing demand artifacts in consumer research an alternative perspective in a recent insightful article on demand artifacts in consumer research t a shimp e m hyatt and d j snyder using a 1989 article by j j kellaris and a d cox as backdrop provided an appraisal of demand artifacts in this article we critically evaluate some of the assumptions and conclusions of shimp et al s analysis of the extent to which demand artifacts might explain the 1982 results of g j gorn as analyzed by kellaris and cox in addition we offer some useful suggestions for minimizing demand problems

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

a critique of darley and lim s alternative perspective this reply challenges w k darley and j s lim s conclusions that an earlier article of ours misleads consumer researchers about the role and treatment of demand artifacts and that our analysis regarding g j gorn s experiments are flawed we also question darley and lim s proposals for minimizing demand artifacts

are sale signs less effective when more products have them we analyze data from a variety of sources including historical data from a women s clothing catalog a field study in that catalog survey responses to catalog stimuli and grocery store data for frozen juice toothpaste and tuna the analysis yields three conclusions first sale signs are less effective at increasing demand when more items have them second total category sales are maximized when some but not all products have sale signs third placing a sale sign on a product reduces the perceived likelihood that the product will be available at a lower price in the future but the effect is smaller when more products have sale signs by ruling out alternative hypotheses the findings suggest that moderation of the sale sign effect is in part due to reduced credibility when they are used on more products the credibility argument is motivated in part by a recent paper that presented an equilibrium model predicting that customers who lack knowledge of market prices rely on point of purchase sale signs to help evaluate posted prices anderson and simester 1998 the model predicts that sale signs increase demand but that the increase is smaller when more products have them this moderating effect regulates how many sale signs stores use and makes customer reliance on these cues an equilibrium strategy to evaluate whether the number of sale signs moderates their effectiveness we compare demand for items with sale signs when varying the number of sale signs on other products for this comparison we use two datasets describing demand for products in a women s clothing catalog the first dataset describes customer orders for the same set of items across three sequential issues of the catalog the second dataset is a field test conducted by mailing different versions of the catalog to randomly selected customer samples reassuringly although the datasets do not share the same limitations the findings are consistent and indicate that sale signs are less effective when more products have them in addition to the credibility explanation there are at least two alternative explanations for this result first using a sale sign to make a product more attractive may lead to substitution of demand from other sale items within a store and so demand may vary even if there is no change in the credibility of the sale signs to discriminate between the substitution and credibility explanations we evaluate whether total category demand is maximized when some but not all products in the category have sale signs the credibility explanation implies that adding another sale sign will eventually decrease total category sales when many items already have sale signs in contrast if adding a sale sign to an item leads solely to substitution from other products within or outside the category we will not observe a decrease in total category demand we test the total category sales prediction using grocery store scan data describing total category demand for frozen juice toothpaste and canned tuna the findings reveal that in all three categories there is a significant reduction in aggregate demand a second alternative explanation is that sale signs focus customer attention on products with these cues distinguishing between the attention and credibility explanations is a difficult task they both imply that sale signs deliver less information when there are too many sale signs the credibility argument predicts that this occurs because the signs are noticed but not believed the attention explanation predicts that the signs are less likely to be noticed when attention is diluted by a large number of sale signs to discriminate between the credibility explanation and this attention effect we use survey measures to evaluate a third hypothesis this hypothesis predicts both that placing a sale sign on a product reduces the perceived likelihood that the product will be available at a lower price in the next period and that this effect is smaller when more items have them in an attempt to control for the attention effect we focus subjects attention on a set of focal items under these conditions it is unlikely that subjects overlook sale signs on these items more important the likelihood of overlooking sale signs on the focal items is unlikely to depend on how many other items also have sale signs the results confirm both that the presence of a sale sign reduced subjects expectations that an item would be available at a lower price in the future and that this effect is smaller when more items have sale signs

consumer learning in a turbulent market environment modeling consumer choice dynamics after a product harm crisis abstract the authors empirically study consumer choice behavior in the wake of a product harm crisis which creates consumer uncertainty about product quality they develop a model that explicitly incorporates the impact of such uncertainty on consumer behavior assuming that consumers are uncertain about the mean product quality level and learn about product quality through the signals contained in use experience and the product harm crisis and also that consumers are uncertain about the precision of the signals in conveying product quality and update their perception of this precision over time they estimate this model using a scanner panel data set that includes consumer purchase history before during and after a product harm crisis that affected kraft foods australia s peanut butter division in june 1996 the proposed model fits the data better than the standard consumer learning model which assumes consumers are uncertain about product quality level but the precision of information in conveying p

on the information content of asymmetric fomc policy statements evidence from a taylor rule perspective i introduction since 1983 the federal open market committee fomc has included in its policy directives a statement indicating conditional expectations about the future although the specific language used to communicate expectations has evolved over the years the bias statement has persistently been interpreted as an indicator of the likely direction of future changes in the committee s federal funds rate target and has therefore been carefully monitored by fed watchers and other financial market participants as the fomc has enhanced its efforts to communicate its policy intentions to the public in recent years the contemporary version of the bias statement has been subject to considerable discussion and scrutiny from 2000 through 2002 the fomc s postmeeting press releases included a statement referring to the balance of risks in the foreseeable future paralleling the federal reserve s dual objectives of price stability and maximum sustainable economic growth the statements took the form of stating that the concerns of fomc members about prospective economic developments are tilted toward either inflation pressures or economic weakness in 2003 the committee expanded this balance of risks language further to identify separate risk assessments for both inflation and real economic activity when it was adopted the language of the balance of risks statement was intended to be more general than the previous statements of policy bias to avoid giving the impression that the statements directly signaled impending changes in the funds rate target nevertheless as was the case with the earlier language the balance of risks statement has tended to be interpreted as indicating likely future policy moves in this article i examine the question of whether such an interpretation might be warranted as an empirical matter in particular i examine the information content of asymmetric policy statements for predicting future fomc policy actions using monthly dummy variables to indicate the prevailing direction of policy asymmetry over a sample period of 1984 2002 the time series approach facilitates the use of a monthly data set for conditioning the information content of the bias statement on macroeconomic variables thought to be of importance to policy makers in particular i use inflation and output data to estimate a baseline taylor rule specification for policy and test whether the bias statement provides any additional information for forecasting changes in the fomc s federal funds rate target the evidence presented here shows that the statements of policy asymmetry do indeed convey information that is useful for forecasting changes in the funds rate target the information content in the bias statement has been a statistically significant factor for predicting changes in the funds rate target over the sample period even after controlling for responses to policy variables in the taylor rule equation in light of this finding i estimate an alternative specification in which the variables representing asymmetry are interacted with the parameters of the estimated taylor rule equation from this perspective statements of policy bias are associated with a greater or lesser degree of responsiveness to inflation and output data during the sample period considered here variation in the committee s responses to inflation data has evidently been the predominant factor for explaining the predictive power of asymmetric policy statements this is particularly true for the first half of the sample period in which the fomc was actively pursuing a policy of disinflation ii the asymmetric policy statement and its interpretation a brief history from 1983 until 1997 statements of an asymmetric bias were included in the fomc policy directive as a note that greater reserve restraint or lesser reserve restraint either would or might be acceptable during the intermeeting period depending on emerging economic circumstances

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

has ecb communication been helpful in predicting interest rate decisions an evaluation of the early years of the economic and monetary union we examine the usefulness of communication by the european central bank for predicting its policy decisions during the early years of the european economic and monetary union using ordered probit models based on the taylor rule we find that statements on the main refinancing rate and future inflation are significantly related to interest rate decisions at the same time an out of sample evaluation shows that communication based models do not outperform models based on macroeconomic data in predicting decisions both types of models have difficulty in predicting changes in the main refinancing rate

misplaced childhood when recession children grow up as central bankers abstract we examine how much an early i e childhood experience of recession influences the behavior of central bankers we develop a model of decision making by a committee whose leader and members exhibit recession aversion due to their personal experience the model reveals that recession aversion could lead to a reluctance of the policymaker to increase policy rates in a panel multinomial logit model for nine major central banks analyzed over the period 1999 2015 we find that growing up in a recession influences monetary policy making central bankers early personal experiences of recessions shape their policy reactions increasing the willingness to cut policy rates with policy relevant magnitudes the results are robust to alternative behavioral hypotheses accounting for a number of control variables or sample variation

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

dynamics of the federal funds target rate a nonstationary discrete choice approach we apply a discrete choice approach to model the empirical behaviour of the federal reserve in changing the federal funds target rate the benchmark of short term market interest rates in the us our methods allow the explanatory variables to be nonstationary as well as stationary this feature is particularly useful in the present application as many economic fundamentals that are monitored by the fed and are believed to affect decisions to adjust interest rate targets display some nonstationarity over time the chosen model successfully predicts the majority of the target rate changes during the time period considered 1994 2001 and helps to explain strings of similar intervention decisions by the fed based on the model implied optimal interest rate our findings suggest that there is a lag in the fed s reaction to economic shocks during this period copyright 2004 john wiley sons ltd

taylor rules omitted variables and interest rate smoothing in the us abstract we test for the presence of interest rate smoothing in forward looking taylor rules in first differences we also consider financial and asymmetric preferences indicators we find that interest rate smoothing is not induced by an omitted variable bias

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

starting from a blank page semantic similarity in central bank communication and market volatility abstract central banks often draft press releases announcing monetary policy decisions starting from the previous release this makes it straightforward to see how the content has evolved but may make substantial updates harder to interpret as markets learn to expect only minor updates using variation in the drafting process at the bank of canada this paper finds that similar press releases reduce market volatility whereas volatility rises when substantial changes occur after sequences of similar statements a comparison over time and across central banks shows that market sensitivity to similarity adjusts to the drafting practice of central banks

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

monetary policy shifts and long term interest rates the pure expectations hypothesis peh serves as the benchmark model for the relationship between yields on bonds of different maturities when coupled with rational expectations however empirical renderings of the model fail miserably i explore the possibility that failure to account for changes in monetary policy regime explains much of the failure of the peh estimating changing monetary regimes in conjunction with the peh significantly improves its performance the predicted spread between the long and short rates is highly correlated with the actual spread the standard deviation of the theoretical spread is nearly identical to that of the actual spread

market failure government failure and the private supply of public goods the case of climate controlled walkway networks two opposing models of public goods undersupply are those of market failure and government failure empirical work on the relative explanatory power of these two frameworks has been limited by the scarcity of acceptable data the case of climate controlled walkways in major urban cores is a rare instance where such difficulties can be overcome we investigate the supply of ccws in 55 large city cores in north america we find that 1 ccw networks are well supplied by market forces when 2 such forces are not frustrated by government policy we also find evidence that 3 rules based regimes dominate discretion based regimes these results are consistent with the position that the government failure paradigm is a viable alternative to the traditional market failure paradigm

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

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

unrealistically optimistic consumers a selective hypothesis testing account for optimism in predictions of future behavior we propose that when predicting future behavior consumers selectively but unwittingly test the hypothesis that they will behave ideally this selective hypothesis testing perspective on unrealistic optimism suggests that estimates of future behavior should be similar to those made by individuals who assume that conditions will be ideal moreover consumers who initially provide estimates assuming that conditions will be ideal should recognize that the world is not ideal and so should test a more realistic hypothesis in line with these predictions we find that ideal world estimates e g in an ideal world how often will you exercise next week do not differ from standard estimates e g how often will you exercise next week we also find that individuals who initially estimate their behavior in an ideal world subsequently make more realistic predictions

a constitutional interpretation of the firm when members of a firm make firm specific investments they will earn rents potential rent seeking on the part of the owner of the firm and other employees reduces the value of an employee s firm specific investment and as a result reduces the level of those investments in this context the firm can be thought of as a set of interdependent relationships where the actions of any one individual can affect the rents of all others the owner of the firm will desire to set up an institutional arrangement to protect the individual s property rights in specific investments as part of his effort to maximize profit establishing this institutional arrangement is similar to the establishment of a constitution by the state or other organization this constitution protects the property rights of the members of the firm and as a result encourages the creation of property that is the firm specific investments the constitution of a firm consists of a set of interdependent explicit and implicit contracts between the firm and its various members as well as mechanisms for enforcing and monitoring these contracts as a practical matter it is obvious that workers normally do not enjoy costless or near costless mobility and thus an ordinary at will employment contract may no longer be sufficient to induce workers to join a firm if in order to function productively within an enterprise individuals have to accumulate and pay for firm specific capital assets the simple neoclasical logic fails furubotn 1988 167

the behavior of interest rates implied by the term structure of eurodollar futures this paper considers an equilibrium model of the term structure that is determined by two stochastic factors a short term interest rate and a target level to which the short rate is expected to revert a kalman filter technique that uses a time series cross section of eurodollar futures prices is developed to estimate the parameters of the model the term structures of spot libor and eurodollar futures volatility are compared to that predicted by the model the empirical results indicate that the two factor specification represents a significant improvement over its one factor version copyright 1996 by ohio state university press

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 taylor rule and interest rates in the emu area abstract we demonstrate that average interest rates in the emu countries in 1990 98 with the exception of the period of exchange market turmoil in 1992 93 moved very closely with average output gaps and inflation as suggested by the taylor rule

does the fed act gradually a var analysis abstract the tendency for changes in the federal funds rate to be implemented gradually has been considered evidence of an interest rate smoothing objective for the federal reserve this paper investigates whether gradual funds rate movements can be explained by the dynamic structure of the economy and the uncertainty surrounding that structure without recourse to including an ad hoc interest rate smoothing argument in the fed s objective function in the absence of parameter uncertainty the optimal policy involves more aggressive movements in the funds rate than observed parameter uncertainty however limits the responsiveness of the interest rate as a result the optimal policy under parameter uncertainty can account for a considerable portion of the gradualism observed

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

does a bias in fomc policy directives help predict intermeeting policy changes since 1984 the fomc has issued directives indicating a bias toward easing or tightening this paper investigates the information content of these asymmetric directives for the likelihood of inter meeting changes in policy during the greenspan chairmanship if policy is measured by the change in the average daily federal funds rate after a directive is issued the results indicate that a bias predicts a significant change in the average funds rate if policy is measured qualitatively by whether the target for the federal funds rate changed a bias significantly affects the probability that the target will be changed

a critical appraisal of demand artifacts in consumer research especially since the publication of sawyer s instructive article on the topic consumer researchers have been concerned that demand artifacts significantly compromise the validity and generalizability of experimental findings in this article we provide an overview of the issues surrounding the demand artifacts controversy evaluate the preconditions for demand artifacts and offer a critique of suppositions about the consequences and appropriate control of demand artifacts kellaris and cox s critique of gorn s well known classical conditioning experiments provides the backdrop for much of the discussion

foldvary fred public goods and private communities the market provision of social services brookfield vt ashgate publishing 1994 288 pp 59 95 do public goods and services such as streets parks and dams have to be provided by government in public goods and private communities fred foldvary s innovative application of public choice and social choice theory to questions of urban economics shows how collective goods can be provided by agents in a market process rejecting the market failure hypothesis dr foldvary argues that an entrepreneur can provide collective goods by consensual community agreements instead of studying particular services as previous studies have done this book concerns itself with entire private communities a series of case studies demonstrate how real world communities such as walt disney world the reston association in virginia and the private neighbourhoods of saint louis are in fact financing their own public goods and services in accordance with this theory for such communities to rise and prosper the author contends government must eliminate zoning and many other restrictions as well as the taxation of private services after considering the implications of his work for urban economies at a time when many of america s cities are plagued by decay violence and poverty dr foldvary argues that prosperity can be restored to cities if private communities are allowed to develop as an original response to an urgent contemporary problem this well written book will be welcomed by social scientists policy makers and business leaders seeking solutions to problems of urban decay

are public goods really common pools considerations of the evolution of policing and highways in england figures omitted a series of property rights alterations made by the english government undermined individuals incentives to cooperate in the production of both policing and road maintenance ultimately leading to government production the result is more accurately characterized as a free access common pool than as a public good common pool analysis suggests an array of possible policy prescriptions involving the internalization of costs and benefits through privatization of rights in contrast the public goods concept appears to be simply an ex post justification for claiming that the only efficient policy is public provision of these services at zero money prices i introduction policing and highways are frequently cited as important examples of production of public goods and it is often contended that private provision of these public goods will not occur as in samuelson and nordhaus 1985 48 49 and 713 according to tullock 1970 83 84 and samuelson and nordhaus 1985 49 for instance private sector production of policing and or highways generates non exclusionary external benefits for which private suppliers are unable to charge thus creating free rider incentives and non cooperative behavior i offer an alternative explanation for this lack of cooperation however which fits the historical evolution of public policing and highways in england the fact is that public policing and highways evolved because of changes in property rights which undermined private incentives to cooperate in the provision these services indeed these services are like the television signals discussed by minasian 1964 in that different institutional arrangements create different incentives for the allocation of resources 1 however my presentation goes beyond simply providing two supporting examples for minasian s 1964 77 contention that the public goods concept is misleading by proposing a more appropriate analytical tool for at least some allocation issues labeled as public good free rider problems in the case of policing for example before english kings began to concentrate and centralize power individuals had rights to a very important private benefit arising from successful pursuit and prosecution victims received restitution effective collection of restitution required the cooperation of witnesses and of neighbors to aid in pursuit but anyone who did not cooperate with victims could not obtain similar support when victimized and therefore could be excluded from this very important benefit of law enforcement policing was carried out by neighborhood associations and free riding did not appear to be a problem because anyone who did not cooperate was ostracized by the group in other words policing was not a public good in medieval england the primary benefits were private and or internal to small groups and non contributors were excluded one consequence of the development of monarchical government was the creation of criminal law as a source of royal revenues criminalization took away the private right to restitution and significantly reduced the incentives to voluntarily cooperate in law enforcement a very different set of institutions evolved as a consequence today rights to many attributes of public policing can be accessed by anyone as in a common pool although effective public policing still requires a substantial commitment of private resources including victim and witness cooperation 2 incentives for individuals to underinvest in the commons are substantial relative to incentives to invest in the production of any private benefits that remain in other words policing is not a public good today either its publicly produced aspects are generally treated as free access common pools and private individuals underinvest in their maintenance as demonstrated below the same is true of highways it might be argued that non excludable public goods and free access common pools are simply two terms for the same concept

canadian interest rate setting the information content of canadian and u s central bank communication we explain canadian target rate decisions using macroeconomic variables as well as bank of canada and federal reserve communication indicators econometrically we employ an ordered probit model of a taylor rule to explain and predict 60 target rate decisions between 1998 and 2006 we find that communications especially speeches and testimony by canadian governing council members provide a significant and robust explanation of canadian target rate decisions however prior to the introduction of fixed announcement dates canadian communications contained more information on upcoming policy moves finally communications by the u s federal reserve bank which are much more frequent outperform our canadian communication indicators in explaining canadian interest rate decisions