strategic segmentation of a market abstract when competing firms target information towards specific consumers through direct marketing activities complete segmentation of markets can result we analyze a two stage duopoly where prior to price competition each firm targets information to specific consumers and only consumers informed by a firm can buy from it this has the effect of endogenously determining market segments in a model of sales in equilibrium pure local monopoly emerges firms target and sell to mutually exclusive market segments when the cost of marketing approaches zero market shares reflect relative production efficiency equal shares when firms are symmetric this may not be the case when marketing cost is high

debt regimes and the effectiveness of monetary policy abstract this paper develops a medium scale non linear model of the us economy our proposed model a threshold vector autoregression with stochastic volatility assumes that changes in government debt to gdp ratios drive the transition between regimes capturing low and high debt regimes the introduction of hierarchical priors enables us to flexibly shrink the empirical model towards the moments implied by a dynamic stochastic general equilibrium model in the empirical application we analyze regime specific monetary policy shocks our findings indicate that the effect of monetary policy is less pronounced in high debt regimes pointing towards differences in the underlying monetary policy transmission mechanisms forecast error variance decompositions enable us to shed further light on the relative importance of monetary policy shocks within different debt regimes in terms of explaining the variance of forecast errors

structural interpretation of vector autoregressions with incomplete identification revisiting the role of oil supply and demand shocks traditional approaches to structural vector autoregressions vars can be viewed as special cases of bayesian inference arising from very strong prior beliefs these methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves we use this approach to revisit the importance of shocks to oil supply and demand supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates supply shocks lead to a reduction in global economic activity after a significant lag whereas shocks to oil demand do not

identifying a forward looking monetary policy in an open economy i identify a forward looking monetary policy function in a forecast augmented var foavar model by using forecasted macroeconomic variables in addition to the realized variables used in a standard var i find that forecasted variables play a greater role than realized variables in a central bank s policy decisions i also find that a contractionary policy shock in the foavar generates impulse responses of macroeconomic variables that are consistent with the predictions of economic theory while the same shock causes a price puzzle and a delayed overshooting response of the exchange rate in the standard model

measuring monetary policy in a small open economy with managed exchange rates the case of taiwan author affiliation tai kuang ho department of economics national chung cheng university 168 university rd min hsiung chia yi 62102 taiwan ecdtkh ccu edu twkuo chun yeh department of economics national chung cheng university 168 university rd min hsiung chia yi 62102 taiwan ecdkcy ccu edu tw acknowledgment the authors thank jurgen von hagen jin lung lin hung jen wang ruey yau and participants of the 2006 meeting of macro econometrics analysis in taiwan the research seminar of the central bank of the republic of china taiwan and the 18th annual ec2 conference in faro portugal for helpful comments and suggestions hung jen wang kindly shared with us his net foreign assets data the authors thank co editor kent kimbrough and two anonymous referees for their insightful comments and suggestions financial support from taiwan s national science council nsc 95 2415 h 194 007 is acknowledged 1 introductionin this article we use the sign restrictions method and specify a set of sign restrictions to identify monetary policy shocks in a small open economy most existing studies have adopted the recursive cholesky approach to identify monetary policy shocks this identification scheme may be appropriate for a large and relatively closed economy such as the united states it is however much less likely to be valid for a small open economy cushman and zha 1997 for a closed economy the monetary transmission mechanism is viewed as operating through the interest rate in the short run a contraction in monetary policy is expected to increase the interest rate and thus depress private consumption and investment this justifies the conventional practice to identify monetary policy shocks as innovations in the short term interest rates however things are different for a small open economy for a small open economy whose monetary authorities intervene heavily in the foreign exchange market the effects of monetary policy operate through both the interest rate and the stock of foreign reserves a contraction in monetary policy can take the form of either an increase in the interest rate or a decumulation of foreign reserves this is the starting point of our identification of monetary policy shocks for a small open economy we employ the sign restrictions methodology proposed by uhlig 2005 to implement our identification scheme the sign restrictions framework of uhlig 2005 provides a conceptually clear way to impose identification conditions and to facilitate the comparison of our identification scheme to the other alternatives cushman and zha 1997 and berument 2007 also consider the identification of monetary policy shocks for a small open economy taking canada and turkey respectively for their empirical studies cushman and zha 1997 employ a structural vector autoregression var approach and include a broad set of foreign variables along with the domestic variables those authors structural var relies on three conditions to identify monetary policy shocks first foreign variables are block exogenous to domestic variables second domestic monetary policy reacts contemporaneously to the interest rate monetary aggregate and exchange rate but not to real gross domestic product gdp and price level third the exchange rate can respond contemporaneously to all domestic and foreign variables these conditions allow simultaneous interaction among the monetary policy and a variety of domestic and foreign variables which is absent in the recursive cholesky approach a common feature of our identification scheme and that of cushman and zha 1997 is that both of us allow simultaneous interaction between the interest rate and exchange rate foreign reserves the differences are first that we do not include foreign variables in our var model so that the exogeneity of foreign variables with respect to domestic variables will not be an identifying condition in our case

new evidence on the puzzles results from agnostic identification on monetary policy and exchange rates abstract past empirical research on monetary policy in open economies has found evidence of the delayed overshooting puzzle and the forward discount puzzle we revisit the effects of monetary policy on exchange rates by applying uhlig s uhlig h 2005a what are the effects of monetary policy on output results from an agnostic identification procedure journal of monetary economics 52 2 381 419 identification procedure that involves sign restrictions on the impulse responses of selected variables in a first step we leave the response of the exchange rate agnostically open and find sizeable evidence for both puzzles in a second step we additionally rule out the delayed overshooting by construction our results indicate that the forward discount puzzle is robust even without delayed overshooting

forecasting macro variables with a qual var business cycle turning point index one criticism of vector autoregression var forecasting is that macroeconomic variables tend not to behave as linear functions of their own past around business cycle turning points a large amount of literature therefore focuses on nonlinear forecasting models such as markov switching models which only indirectly capture the relation with turning points this article investigates a direct approach to using information on turning points from the national bureau of economic research nber chronology to model and forecast macroeconomic data our qual var model includes a truncated normal latent business cycle index that is negative during nber recessions and positive during expansions we motivate our forecasting exercise by demonstrating that if starting from a linear specification a truncated normal variable is an omitted variable then forecasts of the remaining variables will become nonlinear functions of their own past we apply the qual var model to recursive out of sample forecasting and find th

entry deterrence in stackelberg perfect equilibria this paper examines entry deterrence in a duopoly where the postentry game is stackelberg it is argued that in reality firms can use a broader range of precommitments than is allowed for in the literature this paper permits such precommitments and analyzes the perfect equilibria it also allows for the fact that there may be fixed costs associated not only with entry but with beginning production several interesting possibilities are explained including the existence of excess capacity and the holding of inventories even in the absence of any uncertainty copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

a theory of interlinked rural transactions this paper argues that the interlinking of labor output and credit contracts often observed in rural economies can be regarded as an attempt to improve allocative efficiency in the face of moral hazard it advances an economic explanation of the phenomenon which is rooted in the view that prevalent modes of transaction of which interlinked contracts are an example are shaped by technological considerations interlinking is shown to be an efficient economic response to unequally distributed information arising from the uncertainty which characterizes subsistence agriculture all pareto efficient allocations require a combination of wage cum output sharing with consumption credit contracts the analytical framework set up to demonstrate the results is used to examine the response of the contractual parameters to changes in i the returns to alternative occupations available to tenant laborers ii the cost of credit to the village economy and iii the riskiness of cultivation the analysis concludes that public policy to alleviate rural poverty must recognize the relationships between technological considerations and modes of transaction in the absence of a complete set of markets

inference in structural vector autoregressions when the identifying assumptions are not fully believed re evaluating the role of monetary policy in economic fluctuations abstract point estimates and error bands for svars that are set identified are only justified if the researcher is persuaded that some parameter values are a priori more plausible than others when such prior information exists traditional approaches can be generalized to allow for doubts about the identifying assumptions we use information about both structural coefficients and impacts of shocks and propose a new asymmetric t distribution for incorporating information about signs in a nondogmatic way we apply these methods to a three variable macroeconomic model and conclude that monetary policy shocks are not the major driver of output inflation or interest rates

the expectations theory works for monetary policy shocks in practice the expectations theory of the term structure is employed extensively in monetary policy analysis despite its empirical failure this paper performs a conditional test of the theory that is directly relevant to monetary theory and policy it finds that the theory holds quite well conditional on identified monetary policy shocks but fails conditional on aggregate supply shocks that prompt an immediate jump in prices it also finds that policy responses to movements in the term structure play an important role in uncovering evidence for the theory as predicted by mccallum 1994 monetary policy and the term structure of interest rates nber working paper series no 4938

the eects of fiscal policy and its interactions with monetary policy in brazil this paper analyzes the eects of fiscal policy shocks on the dynamics of the economy and the interaction between fiscal and monetary policy using structural vector autoregressions svars we test the fiscal theory of the price level for brazil analyzing the response of public sector liabilities to primary surplus shocks for the hybrid identification we find that it is not possible to distinguish empirically between ricardian monetary dominance and non ricardian fiscal dominance regimes however using sign restrictions there is some evidence that the government followed a ricardian monetary dominance regime from january 2000 to june 2008

location choice product proliferation and entry deterrence within a slightly modified version of hotelling s model we reconsider the claim that the threat of entry induces existing firms to produce a larger number of products than they would otherwise we show that entry deterrence although optimal need not be achieved through product proliferation in some cases the incumbent monopolist resorts to an entry deterring strategy based on location choice rather than product proliferation we also show that in some cases the number of products chosen by the incumbent facing the threat of entry is strictly greater than the minimum number required to deter entry

regime switching approach to monetary policy effects even though monetary policy has kept interest rates at historically low levels the japanese economy has experienced long lasting recessions since the 1990s in this paper japanese data are employed to conduct an empirical analysis of changes in the effects of monetary policy on the real economy it is found that monetary policy effects vary depending on the phase of the business cycle and the lending attitudes diffusion indices more precisely policy effects are larger in recession but diminish in extreme recession and monetary policy is more effective when lenders attitudes are severe but less effective when they are excessively severe

the effect of a specialized versus a general upper secondary school curriculum on students performance and inequality a difference in differences cross country analysis countries differ in their academic upper secondary school systems whereby some require their students to choose a specialization track from a set of areas typically natural sciences economic sci

does school tracking affect equality of opportunity new international evidence this paper investigates whether the interaction between family background and secondary school tracking affects human capital accumulation a widely shared view is that more tracking reinforces the role of parental privilege and thereby reduces equality of opportunities this may occur for several reasons including peer effects more talented students are gathered together teacher sorting better teachers prefer teaching better students differences in curricula academic oriented schools like the german gymnasium the french lycee the british grammar school or the italian liceo teach abilities that increase the probability of entering college and or differences in resource endowment compared to the current literature which focuses on early outcomes such as test scores at 13 and 15 years old we look at later outcomes including literacy dropout rates college enrolment employability and earnings while we do confirm the common view that school tracking reinforces the impact of family background when looking at educational attainment and labour market outcomes we do not confirm the same results when studying its impact on literacy and on the job training overall school tracking has an ambiguous effect in our sample of countries on the one hand and consistently with the previous literature tracking has a detrimental impact on educational attainment because it prevents some individuals from further progressing to the tertiary level of education the diversion effect on the other hand the curricula offered in vocational schools seem more effective in promoting further training and adult competences the specialization effect thereby reducing the impact of parental background on these two outcomes thus reducing the extent of student tracking either by raising the age of first selection or by reducing the number of tracks available may be appropriate for increasing intergenerational mobility in educational attainment but may increase social exclusion for people from disadvantaged backgrounds giorgio brunello and daniele checchi

gdp nowcasting application and constraints in a small open developing economy despite data limitations an attempt is made to find out if a gdp nowcasting model can provide reliable forecasts for a small open economy two competing bayesian vector autoregressive models are tested rigorously to obtain the optimal model by minimizing in sample forecasting errors the main finding of this study is that gdp nowcasting can produce reliable results for a small open economy despite the unavailability of sufficient data sets and the lack of high frequency indicators

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

poverty and inequality under income and price dispersions many policies simultaneously affect the distribution of prices and incomes in the economy moreover a bias may occur when there is a stochastic relationship between prices and incomes and this relationship is being ignored it is therefore important to dispose of an analytical framework for welfare analysis that could account for changes in this joint distribution how can the joint influences of price and income distributions on poverty and inequality indicators be analysed we offer a method to deal with this problem by using parametric formulae of poverty and inequality measures we propose statistical indicators for the levels variabilities and a statistical link of price indices and nominal living standards these indicators are consistent with an approximation of the problem based on a bivariate lognormal distribution of price indices and nominal living standards our analysis provides hints about the social welfare impact of economic shocks or policies affecting levels variabilities and correlation of prices and incomes intuitive insights are obtained while using arithmetic means and variances instead does not lead to illuminating results the role of price and income variabilities for poverty and inequality is more complex than generally expected with the possibility of several variation regimes empirical investigation of these statistics would guide social policies

what does the bank of japan do to east asia abstract in recent policy debates some have argued that expansionary monetary policy in japan can increase real output in japan and in japan s neighbors while others have warned that it is a beggar thy neighbor policy in this paper we estimate structural vector autoregressions to assess the effects of japanese monetary policy shocks we find that the effects of japanese monetary policy shocks on macroeconomic variation in east asia have been modest and difficult to reconcile with the beggar thy neighbor view we estimate that the asian crisis was preceded by expansionary monetary policy shocks in japan but we fail to find support for the view that these shocks contributed to the crisis

global prediction of recessions abstract we present evidence that global vectorautoregressive gvar models produce more accurate recession forecasts than country specific time series models in a bayesian framework this result holds for most countries and forecast horizons as well as for several country groups

bayesian prior elicitation in dsge models macro vs micropriors abstract bayesian approaches to the estimation of dsge models are becoming increasingly popular prior knowledge is normally formalized either directly on deep parameters values microprior or indirectly on macroeconomic indicators e g moments of observable variables macroprior we introduce a non parametric macroprior which is elicited from impulse response functions and assess its performance in shaping posterior estimates we find that using a macroprior can lead to substantially different posterior estimates we probe into the details of our result showing that model misspecification is likely to be responsible of that in addition we assess to what extent the use of macropriors is impaired by the need of calibrating some hyperparameters

the transmission of us systemic financial stress evidence for emerging market economies abstract we provide empirical evidence that us systemic financial stress shocks us sfsss are an important driver of economic dynamics and fluctuations in emes applying a structural vector autoregression we analyze the international transmission of us sfsss to eight emes using monthly data from 1999 to 2012 us sfsss are identified as unexpected changes in the financial conditions index of the federal reserve bank of chicago findings indicate that a typical emerging market real economy experiences similar negative effects to those seen in the us real economy in response to us sfsss for international transmission our results emphasize that financial interconnectedness with the us is important relative to trade relations the analyzed cases of latin american economies suggest that indirect linkages are also important for transmitting the negative effects of us sfsss in general us sfsss act as a crucial driver of volatility in the emerging world also at business cycle frequencies

clientelization and fragmentation in backward agriculture forward induction and entry deterrence abstract this paper considers a case of fragmented duopoly basu and bell 1991 where firms have a captive segment each and compete in the remaining contested segment in a standard cournot fashion we study a two stage game in the first period the existing firm chooses the size of the captive segment incurring some cost of course and then both the firms choose quantities to sell in the second stage given a small fixed cost relevant to the contested segment the second stage game has three possible equilibria two corner and the interior one these induce a proliferation of subgame perfect nash equilibria in the whole game we use a version of forward induction rationality to refine this set we find the unique equilibrium where the existing firm has monopoly over the entire market some applications and extensions are suggested

a prior for impulse responses in bayesian structural var models this article develops a comprehensive approach to formally introduce the prior for impulse responses into the bayesian structural var svar models with considerable attention paid to careful prior specification furthermore we present an efficient algorithm to estimate the svar with a gaussian prior for impulse responses using simulation methods we also illustrate our methodology using an example in which we verifiy some facts concerning the impact of monetary policy shock on the economy

information frictions and real exchange rate dynamics abstract real exchange rates are highly volatile and persistent i provide a novel structural explanation for these facts using a model with dispersed information among firms when producers face strategic complementarities in price setting uncertainty about competitors beliefs results in sluggish price adjustment that can generate large and long lived real exchange rate movements i estimate the model using data from the us and euro area and show that it successfully explains the unconditional volatility and persistence of the real exchange rate the model also accounts for the persistent and hump shaped real exchange rate behavior conditional on nominal disturbances documented by a structural var about 50 of this persistence is due to the inertial dynamics of higher order beliefs

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

financial and fiscal interaction in the euro area crisis this time was different abstract this paper highlights the anomalous characteristics of the euro area twin crises by contrasting the aggregate macroecosnomic dynamics in the period 2009 2013 with the business cycle fluctuations of the previous decades we report three novel stylised facts first the contraction in output was marked by an anomalous downfall in private investment and an increase in households savings while consumption and unemployment followed their historical relation with gdp second households and financial corporations debts and house prices deviated from their pre crisis trends while non financial corporations debt followed historical regularities third the jumps in the public deficit gdp and debt gdp ratios in 2008 2009 were unprecedented and so was the fiscal consolidation that followed our analysis points to the financial nature of the crisis as a likely explanation for these facts importantly the anomalous increase in public debt is in large part explained by extraordinary measures in support of the financial sector which show up in the stock flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors

interconnections between eurozone and us booms and busts using a bayesian panel markov switching var model summary the proposed panel markov switching var model accommodates changes in low and high data frequencies and incorporates endogenous time varying transition matrices of country specific markov chains allowing for interconnections an efficient multi move sampling algorithm draws time varying markov switching chains using industrial production growth and credit spread data several important data features are obtained three regimes appear with slow growth becoming persistent in the eurozone turning point analysis indicates the usa leading the eurozone cycle amplification effects influence recession probabilities for eurozone countries a credit shock results in temporary negative industrial production growth in germany spain and the usa core and peripheral countries exist in the eurozone copyright 2016 john wiley sons ltd

forecasting government bond yields with large bayesian vector autoregressions abstract we propose a new approach to forecasting the term structure of interest rates which allows to efficiently extract the information contained in a large panel of yields in particular we use a large bayesian vector autoregression bvar with an optimal amount of shrinkage towards univariate ar models the optimal shrinkage is chosen by maximizing the marginal likelihood of the model focusing on the us we provide an extensive study on the forecasting performance of the proposed model relative to most of the existing alternative specifications while most of the existing evidence focuses on statistical measures of forecast accuracy we also consider alternative measures based on trading schemes and portfolio allocation we extensively check the robustness of our results using different datasets and monte carlo simulations we find that the proposed bvar approach produces competitive forecasts systematically more accurate than random walk forecasts even though the gains are small

monopoly power and distribution in fragmented markets the case of groundwater using data from pakistan s punjab the authors examine monopoly power in the market for groundwater irrigation water extracted using private tubewells a market characterized by barriers to entry and spatial fragmentation simple theory predicts that tubewell owners should price discriminate in favor of their own share tenants and this analysis of individual groundwater transactions over an 18 month period confirms such price discrimination and among those studied tubewell owners and their tenants use considerably more groundwater on their plots than do other farmers the authors also provide evidence that monopoly pricing of groundwater leads to compensating albeit small reallocations of canal water which farmers exchange in a separate informal market despite the substantial misallocation of groundwater a welfare analysis show that monopoly pricing has limited effects on equity and efficiency in the long run a policy aimed at eliminating monopoly pricing would do little to help the poorest farmers

political accountability and the room to maneuver a search for a causal chain many studies of the room to maneuver make no provision for popular evaluation of policy they assert rather than demonstrate popular satisfaction with policy choices and macroeconomic outcomes the authors present a framework that explicitly models channels for popular preferences to influence policies and outcomes results for economic policy making in britain do not support the room to maneuver thesis in the authors sample 1981 to 1997 the british government was responsive to changes in political evaluations and its policy choices effectively fed back into popular evaluations of government policy however this accountability mechanism worked outside the real economy shifts in popular evaluations induced changes in policy but had no impact on inflation and economic growth government capacity to shape macroeconomic outcomes was limited and popular influence over economic policy was ineffectual this form of accountability probably existed because british citizens had difficulty gauging the real impacts of their government s policies

ecb monetary policy and the dmdollar exchange rate evidence from a bayesian var since the start of the european monetary union emu in january 1999 the dm has depreciated considerably against the currencies of major industrial countries whether there is a systematic failure of vector autoregressive var models fitted to the pre emu period to predict forward looking variables in the year 1999 is investigated conditional forecasts are used in order to capture the potential effects of real shocks and to assess the ecb s reaction to these shocks the findings suggest that neither real shocks nor the actual ecb policy reaction can explain the exchange rate devaluation this points to important effects of increased uncertainty following the regime shift resulting in an increased risk premium in the foreign exchange market

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

identifying the role of risk shocks in the business cycle using stock price data i introduction the finance literature on the forecastibility of stock returns has concluded that stock market movements are by and large not because of changes in the expected future cash flow of firms but are primarily because of changes in the risk premium that is how the expected cash flows are discounted by stock market participants cochrane 2011 1 these changes in risk premia also have important implications for real variables in the economy especially for consumption and investment an increase in the risk premium prompts households to reduce current consumption as they start to discount expected future income more heavily more importantly changes in the required return on equity alter the cost of capital of corporations when they finance new investment for firms that rely on external debt to finance marginal investment a lower stock price translates into lower net worth and therefore a higher cost of borrowing bernanke gertler and gilchrist 1999 similarly firms that rely on new equity issues are able to raise less funds from each new share when their stock price is lower even for firms that finance investment exclusively through internal funds i e retained earnings plus depreciation allowance the required return on existing shares reveals the opportunity cost of internally financed investment tobin 1969 tobin and brainard 1977 this is because at least in principle these funds can be returned to existing shareholders as dividends and new funds can then be raised from the markets through new equity shares for which investors would demand a risk premium figure 1 omitted in the aggregate u s corporations are predominantly financed through equity the dotted line in figure 1 plots the credit market liabilities of u s non financial corporations as a percent of the sum of equity and credit market liabilities in their balance sheets 2 by this measure debt financing accounts for about a third of total financing averaged over the whole sample and equity financing accounts for about two thirds the solid line in figure 1 provides an alternative measure which takes into account all financial liabilities including items such as trade payables but nets out financial assets to obtain a measure of net debt mcgrattan and prescott 2005 now debt financing accounts for only 15 of total financing in the post war period and its importance has declined in the last two decades note that both of these series are stock measures as opposed to flow measures that is they refer to financing of all past investments and do not necessarily reflect how corporations are financing investment at the margin these measures can also be biased against debt financing because most debt items are recorded on a book value basis in the flow of funds but equity is recorded on a market value basis to overcome these caveats i consider the flow components of sources of funds i e internal funds net new equity and net new debt as a share of corporate tangible investment in figure 2 several patterns emerge first the ratio of internal funds to gross capital expenditures has been close to 1 throughout the post war period in other words at least in the aggregate u s corporate investment has been by and large financed internally second new equity issuance has not been an important source of financing in fact net new stock issues have been mostly negative in the latter part of the sample this mainly reflects the preference of corporations to distribute resources to shareholders through stock buybacks rather than ordinary dividend payments because of the preferential tax treatment of long term capital gains third net new debt has contributed to about a third of aggregate financing assuming that the discrepancy in the flow account is distributed proportionally to each financing component as internal funds and net new stock issues are fairly reliable data series we can reasonably lump the rather large discrepancy item in the ffa data with net debt

disneyland monopoly interlinkage and usurious interest rates abstract interlinkage between labour and credit markets is interpreted as a consequence of a monopolistic moneylender s attempt to extract consumer s surplus from the borrower by levying a two part tariff this analogy enables us to draw on the literature on non linear pricing to high light issues in agrarian structure the consequence of policy interventions like taxes and minimum wage legislation is studied it is shown that the moneylender will charge usurious interest rates if wages are rigid downwards or there is a tax on agricultural income or borrowers have heterogeneous preferences some geometry for analysing interlinkage is developed and used for deriving some of the results

on the short term predictability of exchange rates a bvar time varying parameters approach abstract in this paper we propose a bayesian vector autoregressive model with time varying parameters bvar tvp to examine the short term predictability of exchange rates an important contribution of the paper is the application of the bvar tvp model for the first time to daily data using information from financial markets another contribution is the production of forecasts in real time at the very short horizon of one trading day ahead typically used by traders and investors in financial markets we employ financial criteria and recently developed statistical tests to assess the exchange rate predictability we find that the bvar tvp model outperforms the random walk for all exchange rates these forecast gains are due primarily to the time variation of coefficients and secondly to information from other financial markets it is shown that international investors could have made statistically significant excess profits if they had followed an inter day trading strategy based on the buy sell signals generated by the model s one day ahead exchange rate forecasts even after allowing for transaction costs and risk factors

have standard vars remained stable since the crisis small or medium scale vars are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism this requires the var parameters to be stable over the evaluation and forecast sample or to explicitly consider parameter time variation the earlier literature focused on whether there were sizable parameter changes in the early 1980s in either the conditional mean or variance parameters and in the subsequent period till the beginning of the new century in this paper we conduct a similar analysis but focus on the effects of the recent crisis using a range of techniques we provide substantial evidence against parameter stability the evolution of the unemployment rate seems particularly different relative to its past behavior we then discuss and evaluate alternative methods to handle parameter instability in a forecasting context while none of the methods clearly emerges as best some techniques turn out to be useful to improve the forecasting performance

the role of oil prices in the forecasts of south african interest rates a bayesian approach this paper considers whether the use of real oil price data can improve upon the forecasts for the nominal interest rate in south africa we employ bayesian vector autoregressive models that make use of various measures of oil prices and compare the forecasting results of these models with those that do not make use of this data the real oil price data is also disaggregated into positive and negative components to establish whether this would improve upon the forecasting performance of the model the full dataset includes quarterly measures of output consumer prices exchange rates interest rates and oil prices where the initial in sample period extends from 1979q1 to 1997q4 we then perform recursive estimations and one to eight step ahead forecasts over the out of sample period 1998q1 to 2014q4 the results suggest that the models that include information relating to oil prices outperform the model that does not include this information when comparing their out of sample properties in addition the model with the positive component of oil price tends to perform better than other models over the short to medium horizons then lastly the model that includes both the positive and negative components of the oil price provides superior forecasts over longer horizons where the improvement is large enough to ensure that it is the best forecasting model on average hence not only do real oil prices matter when forecasting interest rates but the use of disaggregate oil price data may facilitate additional improvements

credit and sharecropping in agrarian societies this paper considers a model of linkage between land labor and credit transactions in the context of sharecropping the paper s objectives are a to derive and characterize the equilibrium in a model of a land scarce labour abundant economy under sharecropping given an infinitely elastic supply of identical sharecroppers at a reservation utility and b to demonstrate that in an imperfect market a landlord may offer credit to his tenant sometimes even at a subsidized rate of interest without necessarily insisting that the sharecropper borrow only from him precluding an involuntary linkage between credit and land transations it has been demonstrated that regardless of the presence or absence of linkage or any other control by the landlord as long as he can vary the size of the plot given to a tenant and there are enough potential tenants in equilibrium contracts a tenants utility under sharecropping will be the same as that which he could have obtained as a full time wage laborer this result implies that policies other than land reform will not affect the welfare of tenants

how to solve the price puzzle a meta analysis the short run increase in prices following an unexpected tightening of monetary policy constitutes a frequently reported puzzle yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed we collect about 1 000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results our ndings indicate publication selection in favor of the intuitive response of prices to a tightening the estimates depend systematically on study design when misspecications are

common drifting volatility in large bayesian vars the general pattern of estimated volatilities of macroeconomic and financial variables is often broadly similar we propose two models in which conditional volatilities feature comovement and study them using u s macroeconomic data the first model specifies the conditional volatilities as driven by a single common unobserved factor plus an idiosyncratic component we label this model bvar with general factor stochastic volatility bvar gfsv and we show that the loss in terms of marginal likelihood from assuming a common factor for volatility is moderate the second model which we label bvar with common stochastic volatility bvar csv is a special case of the bvar gfsv in which the idiosyncratic component is eliminated and the loadings to the factor are set to 1 for all the conditional volatilities such restrictions permit a convenient kronecker structure for the posterior variance of the var coefficients which in turn permits estimating the model even with large datasets while perhaps misspecifi

the transmission of international shocks a factor augmented var approach the empirical literature on the transmission of international shocks is based on small scale vars in this paper we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism and revisit the anomalies that arise in the empirical literature we propose a factor augmented var favar that extends the model in bernanke boivin and eliasz 2003 to the open economy the main results can be summarized as follows first the dynamic effects on the uk economy of an unanticipated fall of short term interest rates in the rest of the world are real house price inflation investment gdp and consumption growth peak after one year wages peak after two years cpi and gdp deflator inflation peak during the third year second a positive international supply shock makes the distribution of the components of the uk consumption deflator negatively skewed third in response to a domestic monetary shock we find no evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies

the sources of financial crises pre and post fed evidence this paper investigates the generation and the propagation mechanism of currency demand and supply shocks before and after world war i the structural determinants of the variability of stock prices and interest rates and the changes introduced by the creation of the fed on the dynamics of the system it is shown that in the pre 1914 era external monetary shocks interacted with a seasonal demand for money to produce financial crises the fed helped to prevent crises by insulating the u s economy from external shocks a structural vector autoregressive model provides evidence for these claims copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

mending the broken link heterogeneous bank lending rates and monetary policy pass through abstract we analyse the pass through of monetary policy measures to lending rates to households and firms in the euro area using novel bank level datasets banks characteristics such as the capital ratio exposure to domestic sovereign debt percentage of non performing loans and stability of funding structure are responsible for the heterogeneity in the pass through of conventional monetary policy changes the location of a bank is irrelevant non standard measures reduce lending rate heterogeneities banks located in financially stressed countries and with weak balance sheets are most affected banks lending margins have fallen considerably

does exchange rate management affect the causality between exchange rates and oil prices evidence from oil exporting countries abstract the bi directional causality between exchange rates and oil prices of oil exporting countries has been widely investigated since the oil crisis in the 1970s the classical theoretical framework assumes that countries adopt free floating exchange rate arrangements and empirical studies seldom consider exchange rate restrictions when investigating oil exporters that always manage exchange rates to address these limitations this study designs a comparative analysis for three groups of oil exporting economies that adopt different foreign exchange rate policies the analysis aims to examine whether and how intervention behavior may distort the causal relationship between exchange rates and oil prices we first show the non linear causality relationships for countries with free floating exchange rate arrangements in both long and short terms then we establish how the managed floating policy can eliminate the impact of oil prices on exchange rates in bull markets but fail to prevent exchange rate depreciation in bear markets in bear markets a negative non linear feedback from exchange rates to oil prices prevails in these countries however contrary to common wisdom the strict soft pegged exchange rate arrangement cannot remove all the linkages between exchange rates and oil prices a small but significant response of exchange rates toward oil prices is detected for kuwait and saudi arabia a similar effect for kazakhstan is only found in bear markets in addition this study re investigates the relationship between exchange rate and the domestic currency price of oil the conclusions are similar except that the relationship is weakened in free floating countries but strengthened in managed floating countries during the bear market periods

measuring the effects of dollar appreciation on asia a favar approach abstract exchange rate shocks have mixed effects on economic activity in both theory and empirical var models in this paper we extend the empirical literature by considering the implications of a positive shock to the u s dollar in a factor augmented vector autoregression favar model for the u s and three large asian economies korea japan and china the favar framework allows us to represent a country s aggregate economic activity by a latent factor generated from a broad set of underlying observable economic indicators to control for global conditions we also include in the favar a global conditions index which is another latent factor generated from the economic indicators of major trading partners we find that a dollar appreciation shock reduces economic activity and inflation not only for the u s economy but also for all three asian economies this result which is robust to a number of alternative specifications suggests that in spite of their disparate economic structures and policy regimes the dollar appreciation shock affects the asian economies primarily through its impact on u s aggregate demand and this demand channel dominates the expenditure switching channel that affects a country s export competitiveness

fragmented duopoly a conceptual and empirical investigation where wireline distribution networks compete each network typically has some customers over which it competes and others for which it is the sole provider this paper conceptually and empirically assesses the effects of such competition on market prices demand and service quality for cable television service the results suggest that the effectiveness of competition in lowering prices is contingent on the degree of system overlap in particular in equilibrium an increase in overlap substantially reduces prices the conceptual model of fragmented duopoly developed in the paper may be useful in analyzing emerging competition in other network distribution industries

signalling effects of monetary policy we develop a dynamic general equilibrium model in which the policy rate signals the central bank s view about macroeconomic developments to price setters the model is estimated with likelihood methods on a u s data set that includes the survey of professional forecasters as a measure of price setters inflation expectations this model improves upon existing perfect information models in explaining why in the data inflation expectations respond with delays to monetary impulses and remain disanchored for years in the 1970s u s monetary policy is found to signal persistent inflationary shocks explaining why inflation and inflation expectations were so persistently heightened the signalling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s

the recent boom bust cycle the relative contribution of capital flows credit supply and asset bubbles abstract we use an estimated open economy dsge model with financial frictions for the us and the rest of the world to evaluate various competing explanations about the recent boom bust cycle we find that the savings glut hypothesis is insufficient for explaining all aspects of the boom in the us relatively strong tfp growth and expansionary monetary policy are also not able to explain fully the volatility of corporate and in particular residential investment we identify bubbles in the stock and housing market as crucial concerning the downturn in 2008 2009 the fall in house prices and residential investment only plays a minor role mortgage defaults have more explanatory power especially in a specification of the model with a segregated equity market finally the bursting of the stock market bubble was at least as important in this recession as in 2001 because of various negative shocks hitting the economy at the same time in 2008 2009 and continued positive technology growth not only the real interest rate declined but inflation fell rapidly and left insufficient room for monetary policy to play a similar stabilising role as in previous recessions

financial intermediaries instability and euro area macroeconomic dynamics abstract fitting a markov switching structural vector autoregression to euro area data we show that after taking into account heteroskedasticity the differences in the behavior of the economy between tranquil and financial distress periods e g great recession and sovereign debt crisis reflect variations in the transmission mechanism when and only when a period of financial distress occurs disruptions in financial intermediation trigger adverse effects for the real economy and turn out to be the primary source of business cycle fluctuations finally we provide strong evidence that ecb interventions in the financial sector had beneficial effects on the real economy during the sovereign debt crisis

fragmented duopoly theory and applications to backward agriculture abstract the central aim of this paper is to provide a formal description of the idea of market fragmentation which is so widely used to describe markets in backward agriculture we begin by describing a fragmented duopoly in which each seller has a captive set of customers and there is a non captive set who may buy from either seller the nash cournot equilibria of the system are analyzed and then the model is generalized to allow for the endogenous determination of the captive sets the subgame perfect equilibrium of the model provides a useful background for studying familiar topics like fragmentation interlinkage and disguised unemployment from a new point of view

large time varying parameter vars a nonparametric approach in this paper we introduce a non parametric estimation method for a large vector autoregression var with time varying parameters the estimators and their asymptotic distributions are available in closed form this makes the method computationally efficient and capable of handling information sets as large as those typically handled by factor models and factor augmented vars favar when applied to the problem of forecasting key macroeconomic variables the method outperforms constant parameter benchmarks and large parametric bayesian vars with time varying parameters the tool can also be used for structural analysis as an example we study the time varying effects of oil price innovations on sectoral u s industrial output we find that durable consumer goods and durable materials which together account for slightly more than one fifth of total industrial output play a key role in explaining the changing interaction between unexpected oil price increases and u s business cycle fluctuations

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

impact of state and civil institutions on the operation of rural market and nonmarket configurations abstract the approach undertaken in this study is based on the concept of configurations configurations are shaped by specific combinations of characteristics of the following elements the item transacted the actors and the underlying physical technological cultural and policy environment configurations can be either market or nonmarket configurations in turn transactions are endogenously determined within given configurations the impact of government intervention on the performance of a number of prototypical rural configurations and agrarian institutions such as the food and cash crops market configurations the farm household sharecropping and the rural official and unofficial credit markets is evaluated critically

bayesian methods for dynamic multivariate models if dynamic multivariate models are to be used to guide decisionmaking it is important that probability assessments of forecasts or policy projections be provided when identified bayesian vector autoregression var models are presented with error bands in the existing literature both conceptual and numerical problems have not been dealt with in an internally consistent way in this paper the authors develop methods to introduce prior information in both reduced form and structural var models without introducing substantial new computational burdens their approach makes it feasible to use a single large dynamic framework for example twenty variable models for tasks of policy projections copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

unconventional economic policies and sentiment an international assessment this paper estimates using bayesian and global vars the spillover effects of unconventional fiscal and monetary policies implemented in the united states and in the eurozone during the last decade consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass through of economic policies to the real sector in times of crisis and zero lower bound interest rates in particular the signalling channel plays an important role in successful unconventional economic policies moreover if unconventional economic policies have an impact abroad the effects are similar to those measured in the domestic country region consequently coordination and transparency are a prerequisite for ensuring short term growth after a global financial crisis

optimal price setting and inflation inertia in a rational expectations model abstract this paper presents and estimates a new keynesian monetary model for the us economy it proposes possible solutions to two problems in this model class the lack of inflation inertia and persistence in versions of these models that insist on rigorous microfoundations and rational expectations and the small contribution of technology shocks to business cycles price setting takes the form of optimal two part pricing policies formulated under conditions of upward sloping firm specific marginal cost curves furthermore this form of price setting applies not only to prices and wages but also to user costs of capital in this setting past inflation becomes a key determinant of current inflation even though price setting is entirely forward looking technology is modeled as a random walk with technology growth shocks that follow a highly persistent process the model is estimated by bayesian methods and performs significantly better than a bayesian var it generates inertial and persistent inflation and technology shocks account for a large share of business cycle variation

sharecropping and the interlinking of agrarian markets one of the often noted features of less developed agrarian economies is the existence of interlinkages among the land labor credit and product markets the landlord is often the supplier of credit he frequently purchases and markets the output of the tenant farmers and often sells raw materials and even consumption goods to his tenant farmers how can this phenomenon be explained what are the welfare consequences of attempts to restrict these practices which often seem to constitute restraints on free trade these are the questions to which this paper is addressed a general set of arguments applicable to both competitive and noncompetitive environments are presented to situations where all the terms of the contract are determined in an optimal way as well as to situations where many of the terms are specified institutionally section i examines interlinked credit and tenancy contracts section ii examines interlinked marketing and tenancy contracts section iii points out the possible interlinking between labor contracts and consumption goods markets and section iv presents the different equilibrium frameworks discussed in the paper such as monopoly monopsony competition and equilibria with surplus labor

real time forecasting with a mixed frequency var this article develops a vector autoregression var for time series which are observed at mixed frequencies quarterly and monthly the model is cast in state space form and estimated with bayesian methods under a minnesota style prior we show how to evaluate the marginal data density to implement a data driven hyperparameter selection using a real time dataset we evaluate forecasts from the mixed frequency var and compare them to standard quarterly frequency var and to forecasts from midas regressions we document the extent to which information that becomes available within the quarter improves the forecasts in real time this article has online supplementary materials

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

monetary transmission mechanisms in a small open economy a bayesian structural var approach abstract this paper develops a bayesian structural var model for canada in order to estimate the effects of monetary policy shocks using the overnight rate target as the policy instrument i allow the policy variable and other home and foreign variables to interact with each other contemporaneously the key finding is that monetary policy affects the real economy through both the market interest rate and the exchange rate i also find that the bank of canada responds to any home and foreign variables that embodies information about future inflation and that external shocks are an important source of output fluctuations

school tracking and intergenerational income mobility evidence from the finnish comprehensive school reform abstract this paper estimates the effect of a major education reform on intergenerational income mobility the finnish comprehensive school reform of 1972 1977 replaced the old two track school system with a uniform nine year comprehensive school and shifted the selection of students to vocational and academic tracks from age 11 to age 16 we estimate the effect of this reform on the intergenerational income elasticity using a representative sample of males born between 1960 and 1966 the identification strategy relies on a differences in differences approach and exploits the fact that the reform was implemented gradually across the country during a six year period the results indicate that the reform reduced the intergenerational income elasticity by 23 from the pre reform elasticity of 0 30 to post reform elasticity of 0 23

market based measures of monetary policy expectations a number of recent articles have used different financial market instruments to measure near term expectations of the federal funds rate and the high frequency changes in these instruments around federal open market committee announcements to measure monetary policy shocks this article evaluates the empirical success of a variety of financial market instruments in predicting the future path of monetary policy all of the instruments we consider provide forecasts that are clearly superior to those of standard time series models at all of the horizons considered among financial market instruments we find that federal funds futures dominate all the other securities in forecasting monetary policy at horizons out to six months for longer horizons the predictive power of many of the instruments we consider is very similar in addition we present evidence that monetary policy shocks computed using the current month federal funds futures contract are influenced by changes in the timing of policy actions tha

prices and living standards evidence for rwanda abstract we review the explanations of the statistical relationship between spatial price indices and real living standards then using data from several seasons in rural rwanda we show that these variables are negatively associated hinting at price discrimination against the poor in that case policies permanently improving of market functioning may simultaneously improve efficiency and equity moreover under a hypothesis of weak association of nominal living standards and price indices we derive simplified formulae for social welfare indicators these formulae depend only on a small number of sample statistics obtainable from separate publications for prices and living standards

energy consumption and projected growth in selected caribbean countries this paper examines two issues that are central to the understanding of the need to increase efficiency in the use distribution and production of energy in the caribbean region the empirical results of this paper suggest the following first the three caribbean countries provide evidence of short run bi directional granger causality from energy consumption to real gross domestic product per capita second the forecasts with a bvar model indicate that significant growth in energy demand could be expected in haiti jamaica and trinidad and tobago until at least 2010 third the increased growth in energy consumption suggests the need for long term commitments from caribbean countries to undertake a series of policy economic market and research and development measures to advance the adoption and deployment of new energy technologies

an inquiry into quasi credit contracts the role of reciprocal credit and interlinked deals in small scale fishing communities in agrarian village societies beset with many hazards and uncertainties people evolve various means of coping with risk what is perhaps less known is that credit transactions can sometimes serve the function of reducing risk in such societies this article is concerned with examining several insurance motivated credit arrangements in small scale fishing communities a hunger insurance mechanism of reciprocal credit and a system of interlinked contracts aimed at insuring against risks in the spheres of labour and marketing relations will be extensively dealt with moreover the concept of triadic relationships will be shown to have special relevance in the case of traditional insurance arrangements aiming at controlling problems of moral hazard

fragility and the effect of international uncertainty shocks abstract when economic systems are fragile even modest shocks for example a shock to international capital movements can have strong negative effects on key macroeconomic fundamentals this paper proposes a large scale bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in g7 countries and shows that uncertainty increases fragility the factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance covariance matrix of the common factors to allow for first and second moment shocks we moreover assume that the uncertainty factor enters the var equation as an additional regressor our findings suggest that an international uncertainty shock has negative effects across all economies and variables under consideration leading to strong declines in output prices exports interest rates and equity prices the precise degree of fragility varies across countries a simple correlation exercise suggests that structural differences may be partially responsible for the observed differences

debt and stabilization policy evidence from a euro area favar abstract the euro area poses a unique problem in evaluating policy a currency union with a shared monetary policy and country specific fiscal policy analysis can be further complicated if high levels of public debt affect the performance of stabilization policy we construct a framework capable of handling these issues with an application to euro area data in order to incorporate multiple macroeconomic series from each country but simultaneously treat country specific fiscal policy we develop a hierarchical factor augmented var with zero restrictions on the loadings that yield country level factors monetary policy then responds to area wide conditions but fiscal policy responds only to its country level conditions we find that there is broad quantitative variation in different countries responses to area wide monetary policy and both qualitative and quantitative variation in responses to country specific fiscal policy moreover we find that debt conditions do not diminish the effectiveness of policy in a significant manner suggesting that any negative effects must come through other channels

shocks and government beliefs the rise and fall of american inflation working paper 2004 22 september 2004 abstract the authors use a bayesian markov chain monte carlo algorithm to estimate a model that allows temporary gaps between a true expectational phillips curve and the monetary authority s approximating nonexpectational phillips curve a dynamic programming problem implies that the monetary authority s inflation target evolves as its estimated phillips curve moves the authors estimates attribute the rise and fall of post world war ii inflation in the united states to an intricate interaction between the monetary authority s beliefs and economic shocks shocks in the 1970s altered the monetary authority s estimates and made it misperceive the tradeoff between inflation and unemployment that misperception caused sharp rise in inflation in the 1970s the authors estimates indicate that policy makers updated their beliefs continuously by the 1980s policy makers beliefs about the phillips curve had changed enough to account for fed chairman paul volcker s conquest of u s inflation in the early 1980s jel classification e3 e5 key words updating beliefs policy evaluation self confirming equilibrium nash inflation ramsey outcomes i introduction today many statesmen and macroeconomists believe that inflation can largely be determined by a government monetary authority then why did the federal reserve board preside over high us inflation during the late 1960s and the 1970s and why under paul volcker did it rapidly bring inflation down during the early 1980s this paper answers these questions by estimating a model that features a particular process that makes a procession of economic shocks induce the monetary authority to alter its model of inflation unemployment dynamics the phillips curve at each date t the monetary authority updates its beliefs about the phillips curve and then recomputes a first period action recommended by a phelps problem a discounted dynamic programming problem that minimizes the expected value of a discounted quadratic loss function of inflation and unemployment 1 the monetary authority pursues the same objectives at each date using the same structural model with only its estimates of that model changing over time 2 this model of the systematic part of inflation puts the monetary authority s beliefs about the phillips curve front and center 3 we assume that the monetary authority s model of the phillips curve deviates in two subtle but important ways from what it would be in a rational expectations model e g kydland and prescott 1977 the first deviation is that while the true phillips curve is like kydland and prescott s we assume that the monetary authority omits the public s expected rate of inflation from its phillips curve by itself this omission need not prevent the outcomes of our model from coinciding with those of kydland and prescott s nor need it imply that the government s model is wrong in a way that could be detected from even an infinite sample whether the monetary authority s model is wrong in a statistically detectable way depends on how we allow the monetary authority to reestimate the parameters of its model in particular if the monetary authority were to believe that the coefficients of its phillips curve are constant over time then its estimates would converge to ones that support a self confirming equilibrium sce after convergence its estimated phillips curve would correctly describe occurrences along the sce path for inflation and unemployment such an after convergence version of our model has little hope of explaining the rise and fall of us inflation that model would have inflation fluctuating randomly around a constant sce level that coincides with kydland and prescott s time consistent suboptimal i e excessive level 4 this outcome motivates our second subtle deviation from a rational expectations equilibrium

economic policy uncertainty and the supply of business loans abstract using a vector autoregressive framework of analysis we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty this contraction takes two main distinct forms on the one hand banks restrict their supply of spot funds which we document using flows of loans and term loan originations on the other hand banks also curtail their provision of liquidity insurance reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers drawing down on the lines at the peak of the responses we find that a one standard deviation increase in epu causes a contraction in the supply of business loans between 3 and 5 on the extensive margin