growth and unemployment this paper analyses the effects of growth on long run unemployment using a search model of equilibrium unemployment where growth arises explicitly from the introduction of new technologies that require labour reallocation for their implementation the analysis uncovers and compares between two competing effects of growth on unemployment the first is a capitalisation effect whereby an increase in growth raises the capitalised returns from creating jobs and consequently reduces the equilibrium rate of unemployment the second is a creative destruction effect whereby an increase in growth reduces the duration of a job match thereby raising the equilibrium level of unemployment both directly by raising the job separation rate and indirectly by discouraging the creation of job vacancies this paper asks the question of how the rate of economic growth affects unemployment in the long run the main consideration that leads us to think that this is an interesting question has to do with the re allocative aspect of growth in the long run faster economic growth must come from a faster increase in knowledge to the extent that the advancement of knowledge is embodied in industrial innovations it is likely to raise the job destruction rate through automation skill obsolescence and the bankruptcy associated with the process of creative destruction in short increased growth is likely to produce an increased rate of job turnover and the search theories of lucas and prescott 1974 and pissarides 1990 imply that an increased rate of job turnover will result in a higher natural rate of unemployment this conclusion is also consistent with the empirical results of davis and haltiwanger 1990 which show that periods of high unemployment tend to be periods of high job turnover at the establishment level it suggests the possibility of a positive longrun tradeoff between growth and unemployment at least over some range there has been relatively little attention paid to our question in the literature on longrun determinants of unemployment for example the recent empirical examination by layard nickell and jackman 1991 of unemployment rates among oecd countries did not even consider the rate of economic growth as a possible explanatory variable this is consistent with the seminal theoretical work of phelps 1968 which implies that the natural rate of unemployment is independent of the rate of productivity growth the only

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

the predictive content of the output gap for inflation resolving in sample and out of sample evidence this paper evaluates potential explanations for the sometimes poor forecasting performance of the phillips curve one explanation is that out of sample metrics are noisy or equivalently have relatively low power another potential explanation is instability in the coefficients of the model to assess these forces this paper compares sample forecasting results to results from bootstrap simulations of models that either assume stability or allow breaks in the coefficients of the model this analysis indicates that a significant portion of the weakness of the out of sample evidence is attributable to power limitations but instabilities in the coefficients on the output gap also play a role

the influence of collective action on the demand for voluntary climate change mitigation in hypothetical and real situations in this experiment we investigate determinants of the individual demand for voluntary climate change mitigation subjects decide between a cash prize and an allowance from the eu emissions trading scheme for one ton of co2 that will be deleted afterwards we vary the incentives of the decision situation in which we distinguish between real monetary incentives and a hypothetical decision situation with and without a cheap talk script furthermore decisions were implemented either as purely individual or as a collective action using majority voting we observe a significant hypothetical bias in the demand for voluntary climate change mitigation in case of the individual decision situation this bias is caused solely by subjects with low income collective decision making affects demand positively in the hypothetical decision situation only

optimal taylor rules when targets are uncertain abstract we analyze the optimal taylor rule in the standard new keynesian model when output and inflation are imperfectly observed when the central bank observes inflation and the output gap with error the optimal taylor rule features tempered responses so as not to impart unnecessary volatility to the economy if the taylor rule is expressed in terms of estimated output and inflation it is optimal to respond infinitely strongly to estimated deviations from the targets because filtered estimates are based on current and past observations such taylor rules appear to exhibit interest rate smoothing even though the monetary authority has no explicit preference for smooth interest rates under such a taylor rule the estimates of inflation and the output gap are perfectly negatively correlated in the data these gaps are slightly positively correlated suggesting that the central bank is systematically underreacting to estimated inflation and the output gap

trend fundamentals and exchange rate dynamics we estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the us dollar the empirical model is based on the assumption that both countries monetary policy strategies may be well described by taylor rules with a time varying inflation target a time varying natural rate of unemployment and interest rate smoothing the estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered the model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment authors abstract

how forward looking is optimal monetary policy we calculate optimal monetary policy rules for several variants of a simple optimizing model of the monetary transmission mechanism with sticky prices and or wages we show that robustly optimal rules can be represented by interest rate feedback rules that generalize the celebrated proposal of taylor 1993 optimal rules however require that the current interest rate operating target depend positively on the recent past level of the operating target and its recent rate of increase in a way that is characteristic of estimated central bank reaction functions but not of taylor s proposal we furthermore find that a robustly optimal policy rule is almost inevitably an implicit rule that requires the central bank to use a structural model to project the economy s evolution under the contemplated policy action however calibrated examples suggest that optimal rules place less weight on projections of inflation or output many quarters in the future than do rules often discussed in the literature on inflation targeting or in the current practice of inflation forecast targeting central banks

when preferences for a stable interest rate become self defeating monetary policymakers often seem to have preferences for a stable interest rate in addition to stable inflation and output in this paper we investigate the implications of having an interest rate level term in the loss function when the policymaker lacks commitment technology we show that such preferences may become self defeating in the sense that they generate a less stable interest rate than in the case without preferences for interest rate stability

optimal interest rate rules and inflation stabilization versus price level stabilization abstract this paper compares the properties of interest rate rules such as simple taylor rules and rules that respond to price level fluctuations called wicksellian rules in a basic forward looking model by introducing appropriate history dependence in policy wicksellian rules perform better than optimal taylor rules in terms of welfare robustness to alternative shock processes and are less prone to equilibrium indeterminacy a simple wicksellian rule augmented with a high degree of interest rate inertia resembles a robustly optimal rule i e a monetary policy rule that implements the optimal plan and that is also completely robust to the specification of exogenous shock processes

price level targeting with evolving credibility abstract global learning dynamics for price level targeting plt monetary policy are analyzed and compared to inflation targeting in a nonlinear new keynesian model domain of attraction of target steady state is a new robustness criterion for policy regimes robustness of plt depends on whether a known target path is incorporated into learning credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts evolving through reinforcement learning initial credibility and target price are key factors influencing performance model results are in line with the swedish experience of price stabilization in1930 s

estimating the natural rate of unemployment and testing the natural rate hypothesis how should one measure the natural rate of unemployment this paper proposes a systems procedure as an alternative to nairu the natural rate is treated as an unobserved state variable in a system that includes measurement equations for the unemployment rate the rate of wage growth and the rate of inflation the model is derived from a version of the wage bargaining model of blanchard and embodies a version of the natural rate hypothesis the model is estimated by embedding the kalman filter within the full information maximum likelihood procedure for us data the estimated model implies substantial post war variation in the natural rate and a negative but weak effect of inflation surprises on unemployment copyright 1999 john wiley sons ltd

cross sectional efficiency and labour hoarding in a matching model of unemployment we study positive and normative aspects of steady state equilibrium in a market where firms of endogenous size experience idiosyncratic shocks and undergo a costly search process to hire their workers the stylized model we propose highlights interactions between job security provisions and sectoral shocks in determining the natural rate of unemployment the allocation of labour and the extent of labour hoarding and rationalizes cross sectional asymmetries of gross employment flows at the firm level in our model where productivity and search costs are dynamically heterogeneous across firms decentralized wage bargains imply important cross sectional inefficiencies which overshadow the static search inefficiencies on which simpler models focus

real implications of the zero bound on nominal interest rates if monetary policy succeeds in keeping average inflation very low nominal interest rates may occasionally be constrained by the zero lower bound the degree to which this constraint has real implications depends on the monetary policy feedback rule and the structure of price setting policy rules that make the price level stationary lead to small real distortions from the zero bound if policy imparts persistence into the inflation rate the real implications of the zero bound are large in the presence of backward looking price setting and small if prices are set to maximize profits

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

warm glow giving earned money and the option to take giving in dictator games has been shown to vary with the nature of the endowment earned vs house money and the action space give only vs the option to give or take this article is the first to test if these factors similarly affect warm glow giving alone there is no reason that one would expect the same outcomes given that the motivations for warm glow giving are different from the motivations for total warm glow plus purely altruistic giving we find that warm glow giving to charity or philanthropic institutions in a real donation experiment increases when the endowment is earned the option to take does reduce warm glow giving to charity but significant giving remains our results suggest that donating earned income creates greater utility than donating an equal amount from a windfall gain and that warm glow comes not merely from the act of giving but also from the characteristics of the recipient jel c90 d64 h41

equilibrium unemployment job flows and inflation dynamics this paper develops a general equilibrium model to explain a set of facts regarding job flows unemployment and inflation dynamics it integrates a theory of equilibrium unemployment into a monetary model with nominal price rigidities the labor market displays matching frictions and endogenous job destruction the model can explain the cyclical behavior of unemployment job creation job destruction and the joint fluctuations of the labor input along both the extensive and the intensive margin conditional on a shock to monetary policy allowing for variation of the labor input at the extensive margin leads to a significantly lower elasticity of marginal costs with respect to output this helps to explain the sluggishness of inflation and the persistence of output after a monetary policy shock

on the desirability of nominal gdp targeting this paper evaluates the welfare properties of nominal gdp targeting in the context of a new keynesian model with both price and wage rigidity in particular we compare nominal gdp targeting to ination and output gap targeting as well as to a conventional

does the government crowd out private donations new evidence from a sample of non profit firms abstract during the 1980s government grants to non profit organizations declined dramatically and the price of private donations increased given there are different costs associated with government grants and private donations to non profits it is important to study the relationship between these two sources and determine whether government grants crowd out private donations i take a fresh look at the issue of crowd out and improve upon the literature by exploiting a panel data set that links private donations to non profit firms with the government grants they received i study 430 non profit shelter human services and other similar types of organizations that were in operation between 1982 and 1992 i find private donations to these non profits effectively do not change with changes in government grants after controlling for firm heterogeneity and political and economic factors under an ols specification in a 2sls specification after controlling for possible endogeneity of the government grants the estimated crowd out is significantly different from zero and one dollar on average the estimated crowd out is 50 cents

a theory of impact philanthropy this article develops a new model of altruism called impact philanthropy an impact philanthropist is someone who wants to personally make a difference while that motive is straightforward its logical implications are significantly different from other models of philanthropy for example the contributions of other donors can reduce an impact philanthropist s charitable fulfillment as a result cooperation among impact philanthropists can reduce aggregate giving in addition impact philanthropy can lead to a codependent relationship between givers and receivers in which both benefit from the other finally the model suggests a conflict between charitable organizations and its donors concerning the allocation of charitable gifts in particular a charitable organization prefers to spread a donor s contribution across many goods whereas a donor prefers to target his or her contribution at a specific good d 2003 elsevier b v all rights reserved

adaptive learning and the use of forecasts in monetary policy abstract this paper investigates monetary policy design when central bank and private sector expectations differ private agents learn adaptively the central bank has a possibly misspecified model of the economy successful implementation of optimal policy using inflation targeting rules requires the central bank to have complete knowledge of private agents learning behavior if the central bank mistakenly assumes private agents to have rational expectations when in fact they are learning then policy rules frequently lead to divergent learning dynamics however if the central bank does not correctly understand agents behavior stabilization policy is best implemented by controlling the path of the price level rather than the inflation rate

financial frictions and policy cooperation a case with monopolistic banking and staggered loan contracts abstract do financial frictions call for cross border policy cooperation this paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks for monetary policy using the linear quadratic lq framework we show that policy cooperation yields long run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle as usually found in models with price rigidities the ramsey optimal steady states differ between cooperation and noncooperation such gains from cooperation arise irrespective of capital account liberalization

wicksellian rules and the taylor principle some practical implications in this paper we derive and compare the determinacy regions of price level targeting rules wicksellian rules and taylor rules in a standard new keynesian model we conclude that wicksellian rules do not require the taylor principle to hold in order to induce determinacy our results have two implications first in a univariate setting the estimation of simple taylor rules when the true rule is wicksellian can lead to the erroneous conclusion that the equilibrium is indeterminate second indeterminacy is ruled out when using system based methods but it can be concluded that the central bank is less averse to inflation movements than it actually is

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

price level versus inflation targeting abstract this paper shows that price level targeting outperforms inflation targeting in the standard new keynesian model under the assumption that the central bank is forced to operate in an environment characterized by discretion in the benchmark case with no persistence in the shocks the commitment solution can be fully replicated intuitively price level targeting introduces history dependence and a stationary level of prices both of which are prominent features of the commitment solution

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

robust monetary policy with competing reference models abstract the existing literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model in this paper we show that such rules may perform very poorly in the more general case in which non nested models represent competing perspectives about controversial issues such as expectations formation and inflation persistence using bayesian and minimax strategies we then consider whether any simple rule can provide robust performance across such divergent representations of the economy we find that a robust outcome is attainable only in cases where the objective function places substantial weight on stabilizing both output and inflation in contrast we are unable to find a robust policy rule when the sole policy objective is to stabilize inflation we analyze these results using a new diagnostic approach namely by quantifying the fault tolerance of each model economy with respect to deviations from optimal policy

legislative bargaining with teams abstract we study legislative bargaining with two person teams versus individuals teams come closer to the predictions of the stationary subgame perfect equilibrium passing minimum winning coalitions mwcs more often and having significantly more proposer power the increase in proposer power results from increased numbers of mwcs along with increased proposer power within an mwc we investigate the driving forces behind teams coming closer to the theoretical predictions the results favor their greater insightfulness as opposed to being more aggressive or more selfish

evaluating the performance of the search and matching model abstract does the search and matching model fit aggregate u s labor market data while the model has become an important tool of macroeconomic analysis recent literature pointed to some significant failures in accounting for the data this paper aims to answer two questions i does the model fit the data and if so on what dimensions ii does the data fit the model i e what are the data which are relevant to be explained by the model the analysis shows that the model fits certain specifications of the data on many dimensions though not on all this includes capturing the high persistence and high volatility of most of the key variables the negative co variation of unemployment and vacancies and the behavior of the worker job finding rate a key role in this fit is played by the convexity of hiring costs and the stochastic properties of the separation rate the latter is a major component of the rate discounting the future value of the job worker match the paper offers a workable empirically grounded version of the model for the analysis of aggregate u s labor market dynamics

raiding opportunities and unemployment this article studies the impact of raiding opportunities in a labor market in which worker abilities differ recruiting firms can either raid an elsewhere employed worker of known ability by bidding up his wage or go through costly search to find a good worker among the unemployed in equilibrium all types of workers experience unemployment high ability workers involuntarily the raiding opportunities give rise to involuntary unemployment without changing the basic properties of the competitive model and thus suggest new implications of various institutional parameters on unemployment in particular unemployment compensation minimum wages wage taxation and search requirements

conditional cooperation and voluntary contributions to public goods we compare a partners condition where the same small group of subjects plays a repeated publi c good game to a strangers condition where subjects play this game in changing group formations subjects in the partners conditi on contribute from t he first period on significantly more to the publi c good than subjects in the strangers conditi on in the strangers conditi on contributions show a continual decay whil e in the partners conditi on contributions fluctuate on a high level until t hey decrease in the final periods we interpret subjects behavior in terms of conditional cooperation which is characterized by both future oriented and reactive behavior

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

a neoclassical model of the phillips curve relation this paper integrates the modern theory of unemployment with a limited participation model of money and asks whether such a framework can produce correlations like those associated with the phillips curve as well as realistic labor market dynamics the model incorporates both monetary and real shocks the response of the economy to monetary policy shocks is consistent with recent evidence about the impact of these shocks on the economy

an accurate measurement of the crowd out effect income effect and price effect for charitable contributions in the past empirical research on charitable contributions has focused on two issues estimating the income and price elasticities of contributions and estimating the extent to which government funding crowded out private contributions the two fundamental problems in all these studies are the differences in the underlying conceptual models and the use of imperfect data for empirical analysis this paper addresses both of these problems

environmental policy and the equilibrium rate of unemployment abstract this paper integrates environmental policy instruments with the theory of equilibrium unemployment we investigate the question of whether a low equilibrium rate of unemployment and a high quality of the environment are complementary policy goals or must be traded off it turns out that an interval exists for a tax on emissions where the two goals are indeed complementary the tax stimulates the emergence of an abatement sector which provides pollution control and vacancies for the job seekers for constrained efficiency the policy maker operates five instruments to internalize the environmental and the search externalities a tax on emissions employment subsidies and recruiting allowances for the polluting industries are sufficient to implement the first best the optimal emission tax is an increasing function of the workers bargaining strength for labor markets where workers have a strong bargaining position the optimal pollution tax may easily exceed the pigouvian tax

charity donations in the uk new evidence based on panel data abstract this paper presents a set of panel data estimates for 159 of the most prominent uk charities for the period 1983 1990 in evaluating alternative specifications we settle on a fixed effects estimation social welfare charities are shown to fund raise short of the point at which net revenues are maximized whereas health and overseas charities are found to net revenue maximize religious charities maximize total revenues estimates of price and fund raising elasticities are presented for charities overall and for four cohorts for alternative income sources no evidence of crowding out is found

average inflation targeting and interest rate smoothing abstract we study the welfare implication of average inflation targeting as a simple interest rate rule in which the monetary authority adjusts its short term policy rate in response to the output gap as well as average inflation deviation from its target instead of reacting to the contemporaneous inflation rate as in a taylor type rule we find that the welfare improvement achieved by switching to average inflation targeting from a standard taylor rule is modest with a high degree of interest rate smoothing whereas it is significant without interest rate smoothing we show that average inflation targeting is welfare improving in the same way as interest rate smoothing by making the conduct of monetary policy history dependent thus the high degree of monetary policy inertia in the estimated interest rate rules in many advanced economies implies that the welfare gain from adopting the average inflation targeting rule would be minimal

medium term money neutrality and the effective lower bound conventional wisdom suggests that medium term money neutrality imposes strong limitations on the effects of monetary policy the point of this paper is that models with medium and long term money neutrality are prone to generate nonexistence of equilibria at the effective lower bound elb on interest rates nonexistence is suggestive of sharp output contractions so called contractionary black holes at the elb paradoxically the case for expansionary monetary policy at the elb is even stronger in models that feature near money neutrality the results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the elb

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

macroeconomics and methodology probabilistic reasoning is essential to discourse in economics this is true in any discipline in which as in economics data collection is constrained and beliefs about the phenomena being studied are crucial to decisions that cannot be delayed some economists have recently turned away from form probabilistic inference in part because of legitimate discontent with the prescriptions of specialized econometricians however this turning away has gone in mutually inconsistent directions and is in the long run unsustainable it should be more widely recognized that careful applied work in macroeconomics using steadily advancing probabilistic modeling techniques has been steadily increasing

theory ahead of language in the economics of unemployment this paper discusses from the perspective of modern theories of unemployment several unemployment concepts that have been used over the years it argues that many of these concepts are of limited value and are dominated by a few simple concepts that are basic in the analysis of stochastic general equilibrium models

an experimental test of warm glow giving abstract this paper reports the results of an experimental test of the warm glow hypothesis a participant is presented with the opportunity to contribute from her own endowment to a charity of choice the experiment is designed so that a pure altruist has no incentive to donate the amount the designated charity will receive is preset any contribution by the participant crowds out dollar for dollar giving by the proctor we find that participants on average donated 20 of their endowments and that approximately 57 of the participants made a donation

unemployment getting the questions right in my opinion the form and conception of this conference exemplifies the right instinct for modern macroeconomics there is a fact a big unmistakable unsubtle fact essentially everywhere in the modern industrial capitalist world unemployment rates are much higher than they used to be two or three decades ago why is that if macroeconomics is good for anything it ought to be able to understand and explain that fact we should be able to produce a fairly convincing analytical account of the occurrence and persistence of unusually high unemployment rates you might think that to be a mere commonplace to what other sort of end would anyone organize a conference my experience however is that most high powered academic conferences are stimulated by purely technical developments or less often by ideological or political promotion rather than by the need to deal with an outstanding fact i do not blame anyone for this state of affairs we may not be blessed with many significant observations too big to be quibbled over and technical innovations do need to be thrashed out by experts anyway it is good to be faced by a brute fact that needs explanation it is what macroeconomics ought to be about i compliment the organizers also on a second aspect of the agenda the country by country organization of the papers we can all hope to learn something from cross country comparisons one of the few good ways we have to test analytical ideas is to see whether they can make sense of international differences in outcomes by appealing to international differences in institutional structure and historical environment the right place to start is within each country separately studied by someone who knows the peculiarities of its history and its data you might think that this too ought to be obvious but in fact the usual approach is just the opposite more often than not we fail to take institutional differences seriously one model is supposed to apply everywhere and always each country is just a point on a cross section regression or one among several essentially identical regressions leaving only grumblers to worry about what is exogenous and what is endogenous and whether simple parametrizations do justice to real differences in the way the economic mechanism functions in one place or another i have no way of knowing whether this organized effort will get anywhere in explaining high unemployment but it seems to be set up to give itself the best chance for better or worse probably for the better theoretical and empirical work are closely intertwined in macroeconomics scratch a macro theorist and you find a casual econometrician scratch a macro econometrician and you find a casual theorist usually you do not have to scratch very hard thus the discussion of the issues central to the conference has already hardened into certain characteristic forms there are questions already lying on the table that the individual country papers will be trying to answer i suspect that some

strategic thinking in public goods games with teams abstract we experimentally investigate team behavior in repeated public goods games and use team chat logs to study motives for contribution subjects are matched into two person teams and each team makes a joint decision in each period we compare teams with individuals and find similar overall contributions however initial contribution is higher and endgame effects are more pronounced for teams we examine strategic discussions within teams and find strong evidence of concern for repeated game effects and limited backward induction we also find evidence of confusion and explore its potential sources

heterogeneous job matches and the cyclical behavior of labor turnover abstract worker flows to and from unemployment simultaneously occur over the us business cycle and the size of the flows is positively linked to the unemployment rate unemployment flows and the unemployment rate are highly volatile persistent and countercyclical inflows lead the unemployment rate and the unemployment rate leads outflows over the business cycle the one sector stochastic growth model is augmented by matching frictions in the labor market and match specific productivity shocks that introduce ex post heterogeneous job matches matching frictions help generate the lead lag relationship between unemployment flows and the unemployment rate combined with heterogeneous job matches they generate endogenous unemployment flows and an unemployment rate whose dynamic characteristics match observed data

on the timing and efficiency of creative destruction we analyze the timing pace and efficiency of ongoing job reallocation that results from product and process innovation there are strong reasons why an efficient economy ought to concentrate both job creation and destruction during recessions when the opportunity cost of reallocation is lowest incomplete contracting between labor and capital can disrupt this synchronized pattern and decouple creation and destruction transactional difficulties also lead to technological sclerosis characterized by excessively slow renovation government incentives to production may alleviate high unemployment but exacerbate sclerosis in contrast creation incentives increase the pace of reallocation an optimal combination of both policies restores economic efficiency

partners in giving the crowding in effects of uk government grants abstract this study examines the determinants of voluntary donations to uk charities using empirical specifications that combine error component and simultaneous equations methods in a series of tests we identify the one way fixed effects endogenous representation for government grants as the best empirical model when this endogeneity is taken into account government grants cause significant crowding in for the full sample and the two largest cohorts price coefficients are negative and fund raising coefficients are positive religion charities are net revenue maximizers whereas other charity cohorts fund raise short of net revenue maximization

robustly optimal instrument rules and robust control an equivalence result giannoni and woodford 2003a 2003b and hansen and sargent 2003 2004 have recently developed different notions of robust policy and both approaches have been applied in the context of optimal monetary policy in this note i demonstrate that both approaches lead to exactly the same implicit instrument rule for the policy maker in a standard forward looking new keynesian model despite the equivalence of the policy rules the two approaches predict different macroeconomic behavior because of difference assumptions about the formation of expectations

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

monetary policy when potential output is uncertain understanding the growth gamble of the 1990s abstract t he fed kept interest rates low and essentially unchanged during the late 1990s despite a booming economy and record low unemployment these interest rates were accommodative by historical standards nonetheless inflation remained low how did the fed succeed in sustaining rapid economic growth without fueling inflation and inflationary expectations in retrospect it is evident that the productive capacity of the economy increased yet as events unfolded there was uncertainty about the expansion of the capacity of the economy and therefore about the sustainability of the fed s policy this paper provides an explanation for the success of the fed in accommodating growth with stable inflation in the late 1990s it shows that if the central bank is committed to reverse policy errors it makes because of unwarranted optimism inflation can remain in check even if the central bank keeps interest rates low because of this optimism in particular a price level target which is a simple way to model a commitment to offset errors can serve to anchor inflation even if the public does not share the central bank s optimism about shifts in potential output the paper shows that price level targeting is superior to inflation targeting in a wide range of situations the paper also provides econometric evidence that in contrast to earlier periods the fed has recently put substantial weight on the price level in setting interest rates moreover it shows that cpi announcement surprises lead to reversion in the price level finally it provides textual evidence that alan greenspan puts relatively more weight on the price level than inflation

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

robust optimal policy in a forward looking model with parameter and shock uncertainty this paper characterizes a robust optimal policy rule in a simple forward looking model when the policymaker faces uncertainty about model parameters and shock processes we show that the robust optimal policy rule is likely to involve a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty thus parameter uncertainty alone does not necessarily justify a small response of monetary policy to perturbations however uncertainty may amplify the degree of super inertia required by optimal monetary policy we finally discuss the sensitivity of the results to alternative assumptions copyright 2007 john wiley sons ltd

strategic sophistication of individuals and teams experimental evidence many important decisions require strategic sophistication we examine experimentally whether teams act more strategically than individuals we let individuals and teams make choices in simple games and also elicit first and second order beliefs we find that teams play the nash equilibrium strategy significantly more often and their choices are more often a best response to stated first order beliefs distributional preferences make equilibrium play less likely using a mixture model the estimated probability to play strategically is 62 for teams but only 40 for individuals a model of noisy introspection reveals that teams differ from individuals in higher order beliefs

inter team contests with power differential abstract we investigate the impact of asymmetry on behavior in inter team contests in asymmetric environments one team has a greater probability of winning given the same contribution level unfair contests or has a lower cost of contributing uneven contests we explore how such asymmetries impact behavior asking how being advantaged or disadvantaged influences contributions we find both advantaged and disadvantaged teams contribute much more than theory predicts but in such a way that ex post winning probabilities of the contests are consistent with theoretical predictions at the individual level contributions are predicted by beliefs about own team and opponent team contributions the determinants of contribution by members of the disadvantaged team differ depending on the nature of asymmetry contributions by the disadvantaged team members are responsive to beliefs about contribution by opponents in unfair contests while in uneven contests they are responsive to beliefs about the contribution by teammates

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

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

has u s monetary policy tracked the efficient interest rate abstract interest rate decisions by central banks are universally discussed in terms of taylor rules which describe policy rates as responding to inflation and some measure of the output gap we show that an alternative specification of monetary policy in which the interest rate tracks the wicksellian efficient rate of return as the primary indicator of real activity fits the u s data better than otherwise identical taylor rules this result holds for a variety of specifications of the other ingredients of the policy rule including the output gap and of private agents behavior

the computational experiment an econometric tool an economic experiment consists of the act of placing people in an environment desired by the experimenter who then records the time paths of their economic behavior performing experiments that use actual people at the level of national economies is obviously not practical but constructing a model economy and computing the economic behavior of the model s people is such experiments are termed computational this essay specifies the steps in designing a computational experiment to address some well posed quantitative question the authors emphasize that the computational experiment is an econometric tool used in the task of deriving the quantitative implications of theory

robust monetary policy with imperfect knowledge we examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change and where private agents and the central bank possess imperfect knowledge about the true structure of the economy private agents rely on an adaptive learning technology to form expectations and update their beliefs based on incoming data policymakers follow an interest rate rule aiming to maintain price stability and to minimize uctuations of unemployment around its natural rate but are uncertain about the economy s natural rates of interest and unemployment we show that in this environment the scope for economic stabilization is signiflcantly reduced relative to an economy under rational expectations with perfect knowledge furthermore policies that would be optimal under perfect knowledge can perform very poorly when knowledge is imperfect e cient policies that take account of private learning and misperceptions of natural rates call for more aggressive responses to in ation that would be optimal under perfect knowledge we show that such policies not only improve performance in our baseline model but are also quite robust to potential misspeciflcation of private sector learning and the magnitude of variation in natural rates

ranking unemployment duration and wages it explores the implication of one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time this assumption ranking is contrasted with the assumption of random hiring no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching the joint behaviour of unemployment the distribution of unemployment durations and wages are characterized the implication that the re employment prospects of employed workers were they to become unemployed are better than those of the currently unemployed appears to have been an important feature of european unemployment experience in the 1980 s this paper examines the effects of the composition of unemployment on wage determination it explores one central assumption when firms receive multiple acceptable applications they hire the worker who has been unemployed for the least amount of time we refer to this assumption as ranking and contrast it throughout to the assumption of random hiring or no ranking by embodying this assumption in a model of the labour market with job creation destruction and matching we characterize the joint behaviour of unemployment the distribution of unemployment durations and wages ranking has a number of important implications first in addition to the obvious result that the exit rate from unemployment is a decreasing function of duration we show that the effect of duration is stronger the higher the rate of unemployment second with the wage depending on the distributions of prospective unemployment durations the presence of long term unemployed per se has little effect on wages third looking at the relation between the wage and the aggregate level of unemployment and comparing ranking to the case of no ranking the wage moves less with the level of unemployment but more with the change in unemployment put simply ranking and no ranking models show exactly the same aggregate unemployment slightly different long run responses of wages to unemployment and sharply different wage dynamics the paper is organized as follows section i characterizes the matching process and derives a matching function based on an urn ball process with vacancies as urns and applications by unemployed workers as balls thus the distribution of applications per vacancy depends on aggregate unemployment and vacancies vacancies with at least one acceptable application are filled when a vacancy receives more than one acceptable application firms use a rule to choose among applicants thus the rule determines who is hired but does not affect the number of hires section ii uses this matching function in a model of the labour market with continual job creation and destruction and characterizes the equilibrium values of unemployment vacancies and hires

the role of search frictions in the long run relationships between inflation unemployment and capital abstract this paper explores the long run relationships between inflation unemployment and capital accumulation by proposing a model with search frictions in both goods and labor markets this framework allows us to identify a negative extensive margin effect of inflation on the number of firms demanding capital and a positive intensive margin effect of inflation on the capital demanded per firm the two effects together generate a hump shaped relationship between long run inflation and aggregate capital these results are consistent with our empirical evidence from a cross section of 76 countries which suggests a non monotonic relationship between inflation and investment to gdp ratio in the long run our calibrated results are also consistent with empirical findings from the u s data on the effect of inflation on capital stock unemployment and the real interest rates

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate