rankings methodology for international comparisons of institutions and individuals an application to economics in australia and new zealand abstract the objectives of this paper are threefold first we critically survey and analyse the different methodologies that have been adopted in the rankings literature second using journal articles included in the econlit database and on the basis of two criteria one based on citations and the other on perceptions of journal quality we rank economics teaching departments in australia and new zealand for 1988 2002 and 1996 2002 and for individual academic economists for the periods 1988 2002 1988 1995 and 1996 2002 furthermore we identify individual star performers and recognize them in a designated hall of fame for 1988 2002 third our methodology enables us to make international comparisons on total and per capita bases previous multi country ranking studies in economics do not rank economics departments they provide rankings based on total publications in economics in universities regardless of whether the economists are in the economics departments or in other departments thus no rankings on per capita bases are provided we correct this shortcoming by providing total and per capita rankings and analysing the correlations between total and per capita rankings this is the first study to examine whether the size of the economics department matters with regard to productivity

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

a model of target changes and the term structure of interest rates abstract we investigate the effects of short term rate targeting by the federal reserve on the term structure of interest rates and make contributions at two levels using a new series of interest rate targets made available by the federal reserve bank of new york we develop a family of models that highlight the implications of discrete changes in interest rate targets for the term structure of interest rates we show that spreads between short term rates and the overnight federal reserve funds rate are mainly driven by expectations of changes in the target not by the transitory dynamics of the overnight rate around the target hence the bias in tests of the expectations hypothesis that we document can be mainly attributed to the erroneous anticipation of future changes in monetary policy our modeling assumptions and newly available data make it possible to extract a series of market expectations of the next target change which are compared with a series of realized target changes

the cyclical behavior of prices abstract the procyclical behavior of prices has been a staple of business cycle lore since the work of the early nber business cycle researchers this paper reexamines that empirical fact the aggregate data do not support procyclical price movements as a stable feature of the business cycle the only episode where it is a robust feature of the data is the period between the two world wars particularly the period of the great depression

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

a joint model for the term structure of interest rates and the macroeconomy we present and estimate a continuous time term structure model that incorporates observable macroeconomic variables and latent variables with a clear macroeconomic interpretation our model is able to accurately describe the joint dynamics for us macroeconomic variables and the yield curve however the observable variables do not explain the long end of the term structure central tendencies of these macroeconomic variables do a much better job in this respect these unobservable factors also play an important role in the description of the interest rate policy rule both observable and non observable factors determine the risk premia and hence bond excess holding returns copyright 2006 john wiley sons ltd

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

testing the multilateral version of purchasing power parity an application to burma and jordan under the sdr peg 1981 5 this paper derives the multilateral version of the classical purchasing power parity ppp hypothesis as it applies to the determination of the price level in a small open economy under a basket peg arrangement this is tested under the assumption of constant market clearing as well as that of slow price adjustment in the non traded good sector the result based on burma and jordan the currencies of which were pegged to the special drawing right sdr during 1981 5 supports the validity of the hypothesis namely that the price level in such an economy is determined by the currency share weighted average of the price levels in those countries whose currencies are included in the chosen basket

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

evaluating the productive performance of uk universities as cost constrained revenue maximizers an empirical analysis the study presents an empirical analysis of the relative revenue efficiency of uk universities in providing teaching and research with government policies pressurizing the largely public funded universities to secure efficiency in both input usage and output revenue university producers are modelled as cost constrained revenue maximizers taking explicit account of the quality of research output the methodology uses linear programming techniques to construct nonparametric cost indirect production frontiers and to compute revenue efficiency relative to these frontiers revenue efficiency is then decomposed into its output allocative and technical components further analysis investigates the sources of allocative and technical inefficiencies

a survey of the literature on the optimal peg abstract it is widely agreed that floating is not an appropriate exchange rate policy for most developing countries but in a world of generalized floating the question of exchange rate policy is not resolved by deciding to peg rather than to float it is also necessary to decide to what to peg this is the question of the optimal peg on which a significant literature has emerged since 1976 the present paper provides a survey of that literature section 2 summarizes the principal papers section 3 compares the objectives and rules advocated by different authors section 4 evaluates the alternative approaches arguing that in general the peg should be chosen to stabilize the nominal trade weighted effective exchange rate section 5 considers whether this criterion points to the sdr as a satisfactory peg

stop go monetary policy we propose and estimate several discrete choice models of monetary policy decision making that feature time varying inertia the models permit us to account for three stylized facts characterizing monetary policymaking in the united states 1 target interest rates are gradually adjusted in small discrete movements 2 there are some long stretches of time in which rates are repeatedly moved and 3 there are other long stretches in which the policy rate does not change our models are used to account for the fed s failure to adopt promptly an easier policy stance during the recession of 2001 they are also used to explain delay in tightening the policy stance during the 2003 2006 period that featured a bubble in house prices and was followed by a financial crisis in 2008

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

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

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

policy regime changes judgment and taylor rules in the greenspan era this paper investigates policy deviations from linear taylor rules motivated by the risk management approach followed by the fed during the greenspan era we estimate a nonlinear monetary policy rule via a logistic smoothing transition regression model where policy makers judgment proxied by economically meaningful variables drives the transition across policy regimes we find that ignoring judgment induced nonlinearities while estimating taylor rules has remarkable costs in terms of fit above 250 bps in 10 quarters although linear taylor rules describe well the broad contours of monetary policy they fail to detect relevant policy decisions driven by policy makers judgment

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

inflation targeting some extensions previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks consequences of model uncertainty and effects of interest rate smoothing and stabilization model uncertainty output stabilization and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target the conditional inflation forecast is the natural intermediate target during inflation targeting the optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action jel classification e42 e52 e58

changes in the federal reserve s inflation target causes and consequences this paper estimates a new keynesian model to draw inferences about the behavior of the federal reserve s unobserved inflation target the results indicate that the target rose from 1 1 4 percent in 1959 to over 8 percent in the mid to late 1970s before falling back below 2 1 2 percent in 2004 the results also provide some support for the hypothesis that over the entire postwar period federal reserve policy has systematically translated short run price pressures set off by supply side shocks into more persistent movements in inflation itself although considerable uncertainty remains about the true source of shifts in the inflation target jel e31 e32 e52

the comovement between real activity and prices in the g7 in this paper we study the short run and long run comovement between prices and real activity in the g7 countries during the postwar period using var forecast errors and frequency domain filters we find several patterns of the correlation coefficients that are robust across countries and time periods typically the correlation coefficients at long run horizons are significantly negative and the correlation coefficients at short run horizons are substantially higher additionally there is evidence of positive correlation at short run forecast horizons for some countries

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

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

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

ranking and clustering of the faculties of commerce research performance in australia there is a growing policy focus in australian higher education on quantitative research performance assessment however most of the analysis has addressed aggregate performance at the institutional level an approach inconsistent with recent policy emphasis on diversity among universities and one that ignores performance variations across disciplines using averaged and all available data for 2000 2004 cluster analysis is used to classify australian commerce faculties into groups that exhibit similar research performance measured by publication phd completion and secured competitive research grant funding we also use factor analysis to generate full multidimensional rankings within the resulting two or three clusters it is found that in terms of total research output with the exception of adelaide all the group of 8 go8 members plus university of technology sydney and griffith always belong to clusters a however when research performance is expressed in per academic staff terms an additiona

the flexible exchange basket a macroeconomic analysis abstract this paper constructs and analyzes a multi country stochastic equilibrium framework suitable for analyzing the behavior of an economy which pursues a flexible exchange basket policy the framework is general enough to accommodate the special cases of a multilateral floating exchange rates and b rigid basket regimes an important issue that is addressed in the present framework involves the composition of the optimal flexible basket versus that of the corresponding rigid basket such an investigation is carried out for various patterns of multilateral trade for various types of structural disturbances and for alternative optimality criteria

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

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

a basket peg policy operational issues for developing countries abstract while many developing countries have recently adopted a basket peg there has been little discussion of the operational aspects of such an exchange rate policy this paper will discuss major operational issues that are unique to the implementation of a basket peg policy including the choice of a valuation method the provision of forward facilities the frequency of exchange rate quotations public disclosure of the basket composition the width of margins and the frequency of adjustment in the basket it is argued that in the resolution of many of these issues the trade off between rules and discretion becomes the determining principle

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

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

the new keynesian monetary model does it show the comovement between gdp and inflation in the u s abstract this paper analyzes the performance of alternative versions of the new keynesian monetary nkm model in replicating the comovement observed between output and inflation following den haan 2000 the comovement between output and prices journal of monetary economics 46 3 30 we analyze comovement by computing the correlations of var forecast errors of the two variables at different forecast horizons the empirical correlation is negative and marginally significant for the one ahead forecast horizon but the correlations are non significant for the other forecast horizons studied in contrast a simple nkm model under a standard parameterization provides a high and significant negative comovement at all forecast horizons however a generalized version including habit formation and a forward looking taylor rule is able to mimic the observed weak comovement at medium and long term forecast horizons

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

more on the speed of adjustment in inventory models when empirical stock adjustment models of manufacturers inventories of finished goods are estimated there appear to be two local minima in the sum of squared residuals functions at one local minimum the estimated adjustment speed is typically quite high at the other it is typically quite low furthermore finding two sets of estimates that fit the data almost equally well does not appear to be a quirk of this particular application rather it stems from a fundamental identification problem that afflicts partial adjustment models of all kinds in the specific context of manufacturers inventories of finished goods the estimation procedure employed by maccini and rossana seems to pick out the solution with rapid adjustment and high serial correlation in the disturbances whereas the solution with slow adjustment and little serial correlation is more often the global minimum this abstract was borrowed from another version of this item

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

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

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars