the fisher hypothesis and the forecastability and persistence of inflation abstract for the period 1860 to 1939 the simple correlation of the u s commercial paper rate with the contemporaneous inflation rate is 0 17 the corresponding correlation for the period 1950 to 1979 is 0 71 this paper attributes this apparent change in the fisher relation to differences in the stochastic process of inflation rather than a change in any structural relationship between interest rates and expected inflation contrary to recent claims in the literature there is little evidence of inflation non neutrality in data from the pre world war i period

north south standards harmonization and international trade recent years have seen a surge in economic integration agreements eias and the development of non tariff measures ntms as a consequence a growing number of eias include provisions on ntms however little attention has been given in the literature to the effects of ntm liberalization in the context of eias in this paper we focus on provisions for technical regulations and analyze whether the north south harmonization of technical barriers affects international trade using a gravity equation it tests whether as a result of the deep integration associated with standards provisions included in the eia the southern partners trade expands with the north but at the expense of their trade with non bloc southern partners empirical results provide strong support for this conjecture moreover harmonization on the basis of regional standards negatively impacts the exports of developing countries to the north

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

do central bank forecasts influence private agents forecasting performance versus signals focusing on a set of central banks that publish their internal macroeconomic forecasts in real time enables one to shed light on the expectations channel of monetary policy the main contribution of this paper is to assess whether central bank forecasts influence private forecasts the response is positive for inflation forecasts in sweden the uk and japan to disentangle the sources of influence of central banks two concepts are proposed endogenous influence which is due to more accurate central bank forecasts and exogenous influence which is due to central bank signals on either future policy decisions or private information original empirical evidence on the central bank forecasting performance relative to private agents is provided and estimates show that in sweden more accurate inflation forecasts generate specific central bank influence that is different from the influence from signals the publication of forecasts may therefore refer to two central banking strategies that aim to shape private expectations forecasting or policymaking

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

note performance evaluation of state owned enterprises a process perspective state owned enterprises soes have become important instruments of social and economic policy in industrialized mixed economies and in developing countries the use of soes as instruments of public policy and the resulting clashes between these enterprises and private firms on the one hand and government and other controllers on the other are causing concern public committees in different countries as well as international organizations have been searching for positive theory for guidance in handling the multitude of problems related to these enterprises theoretical models have made important contributions to the formalization of certain problems and the classification of the information needed to solve them unfortunately these theoretical models have had little relevance for the solution of important real problems much of the research on soes is concerned with how these enterprises should behave and what should be the product of their operations almost no research has been done on why soes function as they do the paucity of knowledge about the operation of soes stems both from insufficient research effort and from the concern of researchers with formal structures and products of these organizations and not with management behavior or with decision processes the purpose of this paper is to call for research beyond the confines of traditional economics using the tools of management science to obtain insights into the difficult but salient problems of soes

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

a quantitative comparison of sticky price and sticky information models of price setting i estimate sticky price and sticky information models of price setting for the united states via maximum likelihood techniques reaching several conclusions first the sticky price model fits best and captures inflation dynamics as well as reduced form equations once hybrid behavior is allowed second the importance of hybrid behavior in sticky price models is potentially consistent with a role for some information imperfections such as sticky information as a complement to nominal price rigidities finally the favorable results herein for the hybrid sticky price model when evaluated by statistics that summarize the relative fit of different models is consistent with the existing literature that is both supportive and dismissive of such models as this literature has largely ignored fit in evaluating such models many previous studies have focused on ancillary issues such as the standard errors associated with certain parameters or granger causality tests that may not provide much information about sticky price models

the impact of regulations on agricultural trade evidence from the sps and tbt agreements according to world trade organization rules countries may adopt regulations under the agreements on sanitary and phyto sanitary sps and technical barriers to trade tbt we analyze the structure of these measures in agricultural trade the inventory approach suggests that european countries have among the lowest coverage ratios of all oecd countries using a gravity equation we also estimate their stringency our results suggest that they significantly reduce developing countries exports to oecd countries but do not affect trade between oecd members furthermore european imports are more negatively influenced by sps and tbts than imports of other oecd countries

revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model this paper uses a gravity model to assess ex post regional trade agreements the model includes 130 countries and is estimated with panel data over the period 1962 1996 the introduction of the correct number of dummy variables allows for identification of vinerian trade creation and trade diversion effects while the estimation method takes into account the unobservable characteristics of each pairs of trade partner countries the endogeneity of some of the explanatory variables as well as a potential selection bias in contrast to previous estimates results show that regional agreements have generated a significant increase in trade between members often at the expense of the rest of the world

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

improving monetary policy models abstract if macroeconomic models are to be useful in policy making where uncertainty is pervasive the models must be treated as probability models whether formally or informally use of explicit probability models allows us to learn systematically from past mistakes to integrate model based uncertainty with uncertain subjective judgment and to bind data based forecasting together with theory based projection of policy effects yet in the last few decades policy models at central banks have steadily shed any claims to being believable probability models of the data to which they are fit here we describe the current state of policy modeling suggest some reasons why we have reached this state and assess some promising directions for future progress

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

slack in the state owned enterprise an evaluation of the impact of soft budget constraints abstract in this paper slack in resource utilization is estimated using data envelopment analysis for a sample of 67 indian state owned 63 private sector and 27 foreign owned enterprises on a comparative basis the study is cross sectional and carried out for the year 1991 to assess how far the operation of soft budget constraints has had an impact on the economic performance of indian firms particularly operated as state owned enterprises specifically the presence of debt capital provided primarily by government owned financial institutions is strongly and negatively related to performance the results show that if firms turn out to be all equally efficient then average materials costs human capital usage costs costs associated with other operating items and physical capital usage by each state owned enterprise sampled can be reduced by rs 203 million rs 201 million rs 53 million and rs 255 million respectively if existing levels of inputs are used efficiently then the average addition to the value of output by each state owned enterprise can rise by rs 693 million the analyses reveal significant slack in resource utilization in indian state owned firms resulting from soft budget constraints and the implications of the existence of slack are discussed

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

why are professional forecasters biased agency versus behavioral explanations professional forecasters may not simply aim to minimize expected squared forecast errors in models with repeated forecasts the pattern of forecasts reveals valuable information about the forecasters even before the outcome is realized rational forecasters will compromise between minimizing errors and mimicking prediction patterns typical of able forecasters simple models based on this argument imply that forecasts are biased in the direction of forecasts typical of able forecasters our models of strategic bias are rejected empirically as forecasts are biased in directions typical of forecasters with large mean squared forecast errors this observation is consistent with behavioral explanations of forecast bias

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

non tariff measures specific trade concerns and tariff reduction this paper studies the determinants of the recent proliferation of specific trade concerns raised at the wto on non tariff trade measures ntms with a focus on sanitary and phytosanitary sps and technical barriers to trade tbts even though ntms are imposed de jure to protect consumers from unhealthy products they increase trade costs de facto so when tariff protection lowers ntms become effective barriers to trade and the exporting countries can complain at the dedicated committee at the wto stcs therefore we study whether stcs are raised by exporting countries as a consequence of tariff reductions in importing countries that is when non tariff measures become barriers to trade using a recent database on stcs over the period 1996 2010 we find empirical evidence that sps and tbt concerns are raised by exporting country as a consequence of importer s tariff cut

evaluating point and density forecasts of dsge models this paper investigates the accuracy of point and density forecasts of four dsge models for inflation output growth and the federal funds rate model parameters are estimated and forecasts are derived successively from historical u s data vintages synchronized with the fed s greenbook projections point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods despite their common underlying new keynesian modeling philosophy forecasts of different dsge models turn out to be quite distinct weighted forecasts are more precise than forecasts from individual models the accuracy of a simple average of dsge model forecasts is comparable to greenbook projections for medium term horizons comparing density forecasts of dsge models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts

product quality and sustainability the effect of international environmental agreements on bilateral trade this paper addresses the impact of sustainability in production on international trade in particular it examines the effect of the international tropical timber agreement itta on tropical timber trade the empirical analysis is based on a gravity equation in a difference in difference setting which is estimated by a panel heckman s selection model this accounts for the potentially systematic selection of trading partners into timber trade activity we then conduct a comprehensive comparative static analysis solving the structural gravity model with and without the itta this allows us to determine the trade impact of an itta induced increase in sustainability for participating as well as for third countries we find that countries participating in the itta exhibit a significant and substantial increase in trade intensity ranging from 4 to 6 furthermore we observe that this effect is more pronounced for smaller member countries non itta countries are confronted with reduced tropical timber flows

modeling inflation dynamics a critical review of recent research in recent years a broad academic consensus has arisen around the use of rational expectations sticky price models to capture inflation dynamics these models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen and moreover are perceived to be robust to the lucas critique in a way that earlier econometric models of inflation are not we review the principal conclusions of this literature concerning 1 the ability of these models to fit the data 2 the importance of rational forward looking expectations in price setting and 3 the appropriate measure of inflationary pressures we argue that existing rational expectations sticky price models fail to provide a useful empirical description of the inflation process especially relative to traditional econometric phillips curves of the sort commonly employed for policy analysis

managerial autonomy of state owned enterprises determining factors the present paper reports on managerial autonomy of state owned enterprises soes or its reverse the control which is exerted by government and supervising public authorities on soes first it examines the types of control applied using evidence from a sample of 110 greek soes the paper identifies certain distinct dimensions of control related to strategic business boundary issues pricing decisions resource acquisition and mobilisation issues second environmental and organisational determinants of the control intensity are identified results broadly suggest that the intensity of control as perceived by enterprise managers is i positively related to dependence on the state for resources to enterprise size and to political visibility i e social orientation of product market strategy and ii negatively related to market competition and demand unpredictability an interpretation of the results is attempted drawing on wider organisational social and economic theories policy implications are discussed

exchange rate predictability the main goal of this article is to provide an answer to the question does anything forecast exchange rates and if so which variables it is well known that exchange rate fluctuations are very difficult to predict using economic models and that a random walk forecasts exchange rates better than any economic model the meese and rogoff puzzle however the recent literature has identified a series of fundamentals methodologies that claim to have resolved the puzzle this article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up to date thorough empirical analysis overall our analysis of the literature and the data suggests that the answer to the question are exchange rates predictable is it depends on the choice of predictor forecast horizon sample period model and forecast evaluation method predictability is most apparent when one or more of the following hold the predictors are taylor rule or net foreign assets the model is linear and a small number of parameters are estimated the toughest benchmark is the random walk without drift

on credible monetary policy and private government information credible and optimal monetary policies are considered in environments in which the government observes a signal that is correlated with the state of the economy when the signal is public information it is optimal for monetary policy to be conditioned upon it the extent to which such conditioning should occur when the signal is the private information of the government depends upon the government s incentives to misrepresent information it is shown that in some cases the ramsey policy is incentive compatible in others it is not in the latter cases policy must be constrained to be incentive compatible this may result in penalty phases along the equilibrium path following apparent mistakes by the policy maker it may result in the optimal monetary policy making no use of the signal journal of economic literature classification numbers c73 e52 e58

harmonisation and globalisation of intellectual property culture this paper explores the relationship between the two sides of intellectual property culture in an international context namely the harmonisation of its protection and the globalisation of its creation to this end we explore the role of intellectual property rights ipr protection in the recent surge in the internationalisation of patents that originates from the newly emerging economies the aim is to capture the outreach of the northern intellectual property culture to the south and the south north globalisation of the resulting intellectual property that emerges in the south global bilateral patent data are used to investigate the location specificity of ipr enforcement for the emergence of this phenomenon we find that the harmonisation of ipr protection encourages foreign patenting activities of southern innovators our findings suggest that a global convergence of ipr protection can stimulate the production and the internationalisation of intellectual property in the south as the north and the south grow closer in terms of levels of development a harmonised institutional structure becomes more adequate as they increasingly share similar markets

market distortions and government transparency in this paper we investigate how government transparency depends on economic distortions we first consider an abstract class of economies in which a benevolent policy maker is privately informed about the exogenous state of the economy and contemplates whether to release this information our key result is that distortions limit communication even if transparency is ex ante pareto superior to opaqueness it cannot constitute an equilibrium when distortions are sufficiently high we next confirm this broad insight in two applied contexts in which monopoly power and income taxes are the specific sources of distortions jel d82 e61

weaving together the normative and regulative roles of government how the norwegian sovereign wealth fund s responsible conduct is shaping firms cross border investments based on institutional theory i extend research on the regulative role of national government in society and suggest that government exerts important influences on firms actions through the diffusion of norms i suggest that the norwegian government by instituting an ethical council that publicly censors and certifies the cross border investments of the norwegian sovereign wealth fund government pension fund global contributes to the professionalization of responsible investment principles and thus plays a normative role in shaping firms investments employing a quasi natural experiment i find that focal norwegian firms are more likely to make responsible cross border investments following the formation of the council on ethics in 2004 and its associated censorship announcements further i find that the normative pressure for responsible investments is mediated by firms imitation or overlap with the norwegian sovereign wealth fund s investments however the mediated effect of normative pressure on responsible investments becomes weaker for government owned firms these findings highlight the importance of normative mechanisms through which government can influence firms behavior especially in contexts where regulatory authority may not hold moreover these findings reveal the interplay among the normative mimetic and regulative pressures and the heterogeneity in the extent to which firms within the same country demonstrate institutional isomorphism

pricing models a bayesian dsge approach for the u s economy this paper compares and estimates three pricing mechanisms in the context of a small dsge model of the u s economy we interpret our results as favoring the pricing mechanism presented in wolman 1999 wolman model over the new keynesian model with indexation gali and gertler 1999 smets and wouters 2004a and the sticky information model of mankiw and reis 2002 the key factor that explains the performance of the wolman model is that the data reject the key assumption of the new keynesian model that the firm s probability of price change is constant over time and independent of the contract s vintage our results also show that incorporating indexation in the new keynesian model represents a poor expedient in matching the autocorrelation function of the inflation process over the last 20 years

trade standards and poverty evidence from senegal summary in the debate on trade and poverty it is argued that standards act as trade barriers and cause marginalization of the poor this paper quantifies income and poverty effects of high standards trade and integrates labor market effects by using company and household survey data from the vegetable export chain in senegal we find that exports grew sharply despite increasing standards contributing importantly to rural incomes and poverty reduction tightening standards induced a shift from smallholder contract farming to integrated estate production altering the mechanism through which poor households benefit through labor markets instead of product markets

are daily financial data useful for forecasting gdp evidence from mexico this article evaluates the use of financial data sampled at high frequencies to improve short term forecasts of quarterly gdp for mexico the model uses both quarterly and daily sampling frequencies while remaining parsimonious in particular the mixed data sampling midas regression model is employed to deal with the multi frequency problem to preserve parsimony factor analysis and forecast combination techniques are used to summarize the information contained in a data set containing 392 daily financial series our findings suggest that the midas model incorporating daily financial data leads to improvements in quarterly forecasts of gdp growth over traditional models that either rely only on quarterly macroeconomic data or average daily frequency data the evidence suggests that this methodology improves the forecasts for the mexican gdp notwithstanding its higher volatility relative to that of developed countries furthermore we explore the ability of the midas model to provide forecast updates for gdp growth nowcasting

macroeconomic modeling for monetary policy evaluation we describe some of the main features of the recent vintage macroeconomic models used for monetary policy evaluation we point to some of the key differences with respect to the earlier generation of macro models and highlight the insights for policy that these new frameworks have to offer our discussion emphasizes two key aspects of the new models the significant role of expectations of future policy actions in the monetary transmission mechanism and the importance for the central bank of tracking of the flexible price equilibrium values of the natural levels of output and the real interest rate we argue that both features have important implications for the conduct of monetary policy

monetary policy and market interest rates this thesis contains four chapters each of which examines different aspects of the uncertainty facing monetary policymakers monetary policy and market interest rates investigates how interest rates set on financial markets respond to policy actions taken by the monetary authorities the reaction of market rates is shown to depend crucially on market participants interpretation of the factors underlying the policy move these theoretical predictions find support in an empirical analysis of the u s financial markets predicting monetary policy using federal funds futures prices examines how prices of federal funds futures contracts can be used to predict policy moves by the federal reserve although the futures prices exhibit systematic variation across trading days and calendar months they are shown to be fairly successful in predicting the federal funds rate target that will prevailafter the next meeting of the federal open market committee from 1994 to 1998 monetary policy with uncertain parameters examines the effects of parameter uncertainty on the optimal monetary policy strategy under certain parameter configurations increasing uncertainty is shown to lead to more aggressive policy in contrast to the accepted wisdom should central banks be more aggressive examines why a certain class of monetary policy models leads to more aggressive policy prescriptions than what is observed in reality these counterfactual results are shown to be due to model restrictions rather than central banks being too cautious in their policy behavior an unrestricted model taking the dynamics of the economy and multiplicative parameter uncertainty into account leads to optimal policy prescriptions which are very close to observed federal reserve behavior

does the federal reserve possess an exploitable informational advantage abstract this paper provides evidence that the federal reserve has an informational advantage over the public that can be exploited to improve activist monetary policy the informational superiority does not result from the fed having earlier access to publicly released financial data instead this advantage is generated by confidential supervisory knowledge about troubled non publicly traded institutions as a result this information can remain confidential for an extended period since these banks have neither the desire to fully disclose the extent of their financial troubles nor the requirement to do so the informational advantage is both statistically significant and economically important providing a potential justification for activist monetary policy

dsge models still useful in policy analysis this paper discusses the usefulness of dsge models in monetary and fiscal policy analysis while the recent crisis has exposed some weaknesses in these models i argue that dsge models currently have few contenders to replace them as core models in the policy process the prominent role for forward looking behaviour and their simplicity make dsge models very suitable for policy analysis in addition dsge models are flexible enough to be used for many purposes while other models are often more limited in terms of the questions they can address as a result i argue that improved dsge models modified to take the lessons of the recent crisis into account will remain as a workhorse tool in many policy institutions for a long time to come

forecast uncertainty ex ante and ex post u s inflation and output growth survey respondents who make point predictions and histogram forecasts of macro variables reveal both how uncertain they believe the future to be ex ante as well as their ex post performance macroeconomic forecasters tend to be overconfident at horizons of a year or more but overestimate i e are underconfident regarding the uncertainty surrounding their predictions at short horizons ex ante uncertainty remains at a high level compared to the ex post measure as the forecast horizon shortens there is little evidence of a link between individuals ex post forecast accuracy and their ex ante subjective assessments

a comparison of forecast performance between federal reserve staff forecasts simple reduced form models and a dsge model this paper considers the forecast performance of the federal reserve staff five atheoretical reduced form models and an estimated dynamic stochastic general equilibrium dsge model focusing on the late 1990s through 2001 our analysis finds that the dsge model and atheoretical models forecast real gdp growth better than the federal reserve staff during this period by an economically significant margin we find smaller differences across each method in the quality of inflation forecasts over this period these results provide some support to the notion that richly specified dsge models such the one used in this paper belong in the forecasting toolbox of a central bank rochelle m edge rochelle m edge frb gov michael t kiley michael t kiley frb gov and jeanphilippe laforte jean philippe laforte frb gov are affiliated with the macroeconomic and quantitative studies section at the board of governors of the federal reserve system this paper represents ongoing work in the section on developing dge models that can be useful for policy analysis nevertheless any views expressed in this paper remain solely those of the authors and do not necessarily reflect those of the board of governors of the federal reserve system or it staff all errors are our own

monetary policy in a data rich environment abstract most empirical analyses of monetary policy have been confined to frameworks in which the federal reserve is implicitly assumed to exploit only a limited amount of information despite the fact that the fed actively monitors literally thousands of economic time series this article explores the feasibility of incorporating richer information sets into the analysis both positive and normative of fed policymaking we employ a factor model approach developed by stock j h watson m w diffusion indices journal of business economic statistics 2002 20 2 147 forecasting inflation 1999 journal of monetary economics 44 2 293 that permits the systematic information in large data sets to be summarized by relatively few estimated factors with this framework we reconfirm stock and watson s result that the use of large data sets can improve forecast accuracy and we show that this result does not seem to depend on the use of finally revised as opposed to real time data we estimate policy reaction functions for the fed that take into account its data rich environment and provide a test of the hypothesis that fed actions are explained solely by its forecasts of inflation and real activity finally we explore the possibility of developing an expert system that could aggregate diverse information and provide benchmark policy settings

monetary policy and the global housing bubble what caused the housing boom of the 2000s a number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run up in house prices in many countries however using a common statistical approach we find that monetary policy was not the main factor that should not be surprising although low interest rates raise house prices the increase in prices during the mid 2000s was much larger than the historical relationship between the two variables would suggest instead we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices this link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms jane dokko brian m doyle michael t kiley jinill kim shane sherlund jae sim and skander van den heuvel

to spray or not to spray pesticides banana exports and food safety how governments regulate food safety and environmental protection including pesticide residue levels has important implications for trade the world trade organization wto ministerial held in doha qatar in november 2001 included statements on standards and their impact on market access for developing countries these issues will continue to be important in trade policy dialogues it is assumed and evidence from recent analysis confirms that food safety standards can affect the ability of agricultural producers to meet regulatory standards set by importing countries the authors explore a fundamental question in food safety and environmental standards do regulations on pesticide have an effect on trade they examine regulatory data from 11 oecd importing countries and trade data from 19 exporting countries the results suggest that a 10 percent increase in regulatory stringency tighter restrictions on the pesticide chlorpyrifos leads to a decrease in banana imports by 14 8 percent this represents a significant impact on trade and affect prospects of developing countries who continue to rely on exports of agricultural commodities such as bananas the findings also suggest that the lack of consensus on international standards and divergent national regulations on pesticides is costly for example the authors estimate that if the world were to adopt a standard at a level of regulatory stringency suggested by codex the body charged with setting global standards in this area in contrast with one set at the level in place in the european union there would be a u s 5 3 billion loss in world exports

saving two in a billion quantifying the trade effect of european food safety standards on african exports abstract a growing concern over health risks associated with food products has prompted close examination of sanitary and phytosanitary standards in industrialized countries this paper quantifies the impact of a new harmonized aflatoxin standard set by the eu on food exports from africa we employ a gravity model to estimate the impact of changes in differing levels of protection based on the eu standard in contrast to those suggested by international standards the analysis is based on trade and regulatory survey data for 15 european countries and nine african countries between 1989 and 1998 our results suggest that the implementation of the new aflatoxin standard in the eu will have a negative impact on african exports of cereals dried fruits and nuts to europe the new eu standard which would reduce health risk by approximately 1 4 deaths per billion a year will decrease these african exports by 64 or us 670 million in contrast to regulation set through an international standard

regionalism in standards good or bad for trade regional agreements on standards have been largely ignored by economists and unconditionally blessed by multilateral trade rules the authors find theoretically and empirically that such agreements increase trade between participating countries but not necessarily with the rest of the world adopting a common standard in a region that is harmonization boosts exports of excluded industrial countries to the region but it reduces exports of excluded developing countries possibly because developing country firms are hurt more by an increase in the stringency of standards and benefit less from economies of scale in integrated markets mutual recognition agreements are more uniformly trade promoting unless they contain restrictive rules of origin in which case intra regional trade increases at the expense of trade with other especially developing countries the authors propose a modification of international trade rules to strike a better balance between the interests of integrating and excluded countries

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

privatization not the only answer abstract governments in many developing countries created state owned enterprises soes to produce goods or provide services the private sector seemed unwilling or unable to offer in many cases soes have turned out to be problem children at best inefficient and at worst unable to fulfill their original functions now the recommended solution to the problem of state owned enterprises is privatization but privatization is no more a solution to the problems of soes than soes were a solution to the problems they were created to solve the problem of soes is not ownership but rather a lack of explicit goals and objectives and an absence of organization cultures and systems that support and encourage fulfillment of those goals and objectives in some circumstances privatization may aid in fulfillment of an enterprise s goals and objectives because of the culture and systems it fosters in other cases not

measuring the accuracy of federal reserve forecasts markets across the world pay enormous attention to every economic forecast made by federal reserve governors particularly those from the chair this article develops a new way that the academic literature can assess the accuracy of these federal reserve forecasts in particular our proposed method allows for both general and specific predictions to be assessed while also accounting for the macroeconomic volatility that prevails at the time of the forecast to develop this measure we expand upon a methodology proposed by the wall street journal to score the accuracy of forecasts made by the fed our results show that alan greenspan was consistently the most accurate forecaster among fed governors while the most recent chair in our sample janet yellen has performed relatively poorly more generally we find that the chairs have become less accurate over time with their forecasts and have also tended to make fewer specific predictions

investment planning and arm s length control in a nationalised industry applying a relatively decentralised system of control which would keep state owned enterprises soe at arm s length from ministerial departments has been a stated policy for many governments around the world however the specific controls typically used for implementing this policy have seldom been successful the purpose of this paper is to review and evaluate certain of these controls drawing upon the british system of arm s length control of nationalised industries in order to delimit the problem the paper cuts across the government soe relationship from the perspective of investment planning using primary information from the capital investment process in a particular nationalised industry the paper searches for evidence on whether and in what ways existing controls have not been successful three types of controls are investigated 1 the economic and financial groundrules which are supposed to simulate a competitive business style efficiency these rules are often assumed to act as an invisible hand limiting direct government control 2 the direct investment review in the framework of the wider public sector expenditure survey in discussing the nature of this review the paper examines whether government approval of investment conforms to an incrementalist or muddling through model it further considers the role for incremental methods in controlling soe investment 3 the attempt to use corporate planning as a control instrument evidence from internal control processes within the enterprise and in particular the review of investment by a central executive is used in order to evaluate the above controls this serves to show the diffuse character of the planning process and the possibilities and limitations of using similar controls at the government level suggestions are put forward for strengthening these forms of control by modifying or reinforcing certain elements within the existing arm s length framework the paper would be useful for evaulating the difficulties involved in establishing some form of orderlines and formalisation in government soe relationships it shows some of the weaknesses associated with certain technocratic rules and solutions to public policy problems in this environment

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation

performance evaluation of state owned enterprises in theory and practice this study explores the goal orientation of state owned enterprises soes with a view to develop a behavioral theory of soes it is set in india where as in many other countries the government expects soes to promote the public interest rather than maximize profits the research design consisted in searching for patterns in the subjective evaluations of a set of indian soes by critical environmental actors senior bureaucrats and influential journalists the study attempted to get at each respondent s espoused theory for performance evaluation as well as his or her theory in use and compared both with official goals as well as the prescriptions of welfare economists five models of performance evaluation varying in criteria and weighting schemes were considered the results showed with surprising consistency that commercial profitability was the most important criterion that explained bureaucrats subjective evaluations lack of comprehensive information seemed to accentuate their reliance on profitability but not by very much for a minority of bureaucrats type 1 the more important explanation seemed to be their incorrect belief that soes could be judged like private firms official policy notwithstanding for the majority type 2 who espoused views consistent with official policy the explanation seemed to be conceptual confusion or double standards both types also behaved as if they would like soes to maximize profitability rather than just break even or earn a reasonable return some of these findings were true for responding journalists as well given these results managers of indian soes can be expected to seek profits not only to reduce financial dependence on government but also to gain a measure of external legitimacy recognizing the importance of profitability as a criterion in use they can be expected to propose strategies that would increase their firm s profitability and resist those that would reduce it regardless of official goals where managers are free to act independently profitability may prevail as the dominant decision criterion but where they are not the outcome may depend on more complex factors more generally the profit motive in soes may be as strong or stronger than it appeared to be in india in countries with a less sophisticated administrative systems or personnel b an official ideology more to the right than in socialist india and c a higher proportion of mixed enterprises the paper concludes with the implications of these findings for the design of performance evaluation systems at the government soe interface