Search

Causal estimation of the short‐term effects of tariff‐rate quotas (TRQs) on vegetable producer prices is hampered by the large variety and different growing seasons of vegetables and is therefore rarely performed. We quantify the effects of Swiss seasonal TRQs on domestic producer prices of a variety of vegetables based on a difference‐in‐differences estimation using a novel dataset of weekly producer prices for Switzerland and neighbouring countries. We find that TRQs increase prices of most vegetables by more than 20% above the prices in neighbouring countries during the main harvest time for most vegetables and even more than 50% for some vegetables. The effects are stronger for more perishable vegetables and for conventionally produced ones compared with organic vegetables. However, we do not find clear‐cut effects of TRQs on the week‐to‐week price volatility of vegetables although the overall lower price volatility in Switzerland compared with neighbouring countries might be a result of the TRQ system in place.

This article examines the benefits of CFA zone membership by estimating the effects of joining the CFA zone on short‐run business cycle indicators such as income per capita and inflation as well as long‐term economic indicators such as trade relations with France and foreign direct investment (FDI) in Mali. Using the synthetic control method, we show that Mali’s CFA membership has a positive effect on its income, inflation, and FDI but no discernible effect on trade relations with France. We conclude that joining the CFA zone can generate potential economic gains for countries seeking membership by fostering growth and providing price stability but does not necessarily increase trade relations with France even though the CFA is a former French colonial currency.

We investigate the optimal design and effectiveness of monetary and macroprudential policies in promoting macroeconomic (price) and financial stability for the South African economy. We develop a New Keynesian dynamic stochastic general equilibrium model featuring a housing market, a banking sector and the role of macroprudential and monetary policies. Based on the parameter estimates from the estimation, we conduct an optimal rule analysis and an efficient policy frontier analysis, and compare the dynamics of the model under different policy regimes. We find that a policy regime that combines a standard monetary policy rule and a macroprudential policy rule delivers a more stable economic system with price and financial stability. A policy regime that combines an augmented monetary policy (policy rate reacts to financial conditions) with macroprudential policy is better at attenuating the effects of financial shocks, but at a much higher cost of price instability. Our findings suggest that monetary policy should focus solely on its primary objective of price stability and let macroprudential policy facilitate financial stability on its own.

We propose a new flexible inflation targeting index, the economic stability index (ESI), that could enable the European Central Bank (ECB) to implement more effective monetary policy for the euro area (EA). This index incorporates separately weighed house prices and stock prices. Furthermore, by weighting the housing sector in both normal and bubble events, it enhances the forecasting ability and accuracy of this new index. We demonstrate the resilience of this index using a range of robustness checks with multiple empirical methods. Our index that is equipped with these forward‐looking variables enhances the ability to sense potential economic risks, whilst improving price stability and minimizing the output gap variance. This broader index may assist the ECB in addressing the challenges of the long‐term decline of neutral interest rates in many EA economies and the weakening of the inflation/unemployment relationship under the Philips curve. The complexity of the ECB relationship with different fiscal authorities prevents any changes without significant structural variance. The ECB, however, can use a stabilization tool with enhanced foreseeability such as this ESI to improve stability without making significant structural changes.

This study has analysed the role of the domestic economic environment and regional markets (Thailand, Japan, Hong Kong and China) in explaining the dynamics of Vietnamese stock market. In so doing, we employed a TVSVAR framework which accounts for time variations (in coefficients as well as in the variance-covariance matrix of innovations) on the data from July 2000 to December 2016. Our key findings suggested that the easing of monetary and credit conditions, stable and stronger currency and economic growth have played a significant and positive role in the development of the stock market in Vietnam. Inflation shocks did have a negative impact which implied that in policy setting the price stability is very important for the financial stability in Vietnam. The Vietnamese stock market is also heavily influenced by the regional markets, as there is strong evidence of co-movement. However, it was also witnessed that despite having a similar direction of impact and co-movement, different markets have an influence of different degrees and intensity on the Vietnamese stock market. Lastly, we also witnessed that as compared to the Global Financial Crisis, the recent periods showed comparatively lesser responsiveness. This could be associated with the intensive reaction during the period of financial turmoil as well as with an increase in the stability of the Vietnamese stock market as it matures.

In the context of the debate on the global imbalances, this study investigates the determinants of US trade balance in a Non-linear ARDL framework which accounts for the asymmetric and nonlinear effects of real effective exchange rate dynamics. Drawing on the data from 1994Q1 to 2018Q1, our key empirical findings suggest significant evidence of short and long-run asymmetries in the relationship between the real effective exchange rate, US trade balance and its determinants. An asymmetric cumulative dynamic multiplier analysis shows evidence of an asymmetric J-curve. Furthermore, we find that the price stability, productivity, domestic savings and fiscal deficit/discipline are crucial for the US trade balance in the short to long term. Empirical findings of this study contribute to the contemporary debate on the US trade deficit and have profound policy implications for the competitiveness of the US economy and its external balance.

This paper examines—post‐dollarization in Zimbabwe—the extent of price dispersion within Zimbabwe and between Zimbabwe and South Africa. We document the adjustment process, and the mechanisms of price adjustment after the introduction of the new currency system in Zimbabwe. We show that prices converged post‐dollarization. We argue that the fall in price dispersion is not a product or a Southern Africa region effect. Rather it is a Zimbabwe specific effect and given that price convergence happens quicker the closer the month is to the dollarization, we argue that the observed results are driven by the change in currency. Price dispersion happens faster between major cities and secondary cities, suggesting improvements in information and trade signals between major and secondary cities. These results suggest that the positive effects of a stable currency fall disproportionally on secondary cities, implying price stability not only has macroeconomic benefits, but also developmental benefits since secondary cities and rural areas are on average, poorer than main cities.

Since the beginning of the financial crisis in summer 2007, the European Central Bank (ECB) has redirected traditional monetary policy, based on interest rates, to an unconventional monetary policy focused on the quantitative expansion of its balance sheet. In this context, the present paper aims to assess the effectiveness of unconventional monetary policy instruments with regard to inflation and economic growth. To this end, the methodology is based on the estimation of a structural vector autoregressive model for the period 2007:Q1–2018:Q4, using four variables: EONIA, the total amount of assets on the ECB's balance sheet, the Eurozone inflation rate and the Eurozone economic growth rate. The results show a slight impact of the different balance sheet policies on inflation and economic activity behaviour, especially during the last year of the financial crisis. The robustness of these results is supported by the estimation of the same model replacing EONIA rates with shadow rates. Therefore, the results support the existence of monetary transmission for the period during which the unconventional monetary policy was developed as well as the effectiveness of the monetary policy adopted by the ECB in its commitment to price stability.

The analysis of monetary developments has always been a cornerstone of the ECB's monetary analysis and, thus, of its overall monetary policy strategy. In this respect, money demand models provide a framework for explaining monetary developments and assessing price stability over the medium term. It is a well‐documented fact in the literature that, when interest rates are at the zero‐lower bound, the analysis of money stocks become even more important for monetary policy. Therefore, this paper re‐investigates the stability properties of M3 demand in the euro area in the light of the recent economic crisis. A cointegration analysis is performed over the sample period 1983 Q1 and 2015 Q1 and leads to a well‐identified model comprising real money balances, income, the long‐term interest rate and the own rate of M3 holdings. The specification appears to be robust against the Lucas critique of a policy dependent parameter regime, in the sense that no signs of breaks can be found when interest rates reach the zero‐lower bound. Furthermore, deviations of M3 from its equilibrium level do not point to substantial inflation pressure at the end of the sample. Excess liquidity models turn out to outperform the autoregressive benchmark, as they deliver more accurate CPI inflation forecasts, especially at the longer horizons. The inclusion of unconventional monetary policy measures does not contradict these findings.

We study optimal monetary policy in a New‐Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with a credit channel and relationship lending in banking. We show that borrowers' bank‐specific (deep) habits give rise to countercyclical credit spreads, which, in turn, make optimal monetary policy depart substantially from price stability, under both discretion and commitment. Our analysis shows that the welfare costs of setting monetary policy under discretion (with respect to the optimal Ramsey plan) and of using simpler suboptimal policy rules are strictly increasing in the magnitude of deep habits in credit markets and market power in banking.

Under pressures related to economic growth and environmental protection, China is facing an increasingly severe “environment–health–poverty” trap risk. Fuel taxation is generally considered an effective policy to counter such a risk. Since 2009 China has raised the fuel tax rate many times to enhance tax reform. However, the effects of this policy remain unknown. Therefore, it is vitally important to estimate the impacts of China's current fuel taxation policy on environment, public health and the national economy. As the first attempt in existing literature on China, this paper builds a general equilibrium framework with the feedback effect of public health on economy. We find that that the fuel tax policy benefits the adjustment of the economic structure and improves human health; however, it is detrimental to economic growth, public welfare and price stability. In this sense, it plays a limited role in reducing the trap risk and might not be sustainable in the long term.

This article reviews what cryptocurrencies are, and it frames them within the context of historical monetary experiences and contemporary monetary economics. The article argues that, as pure fiduciary private money, cryptocurrencies are a bubble without a fundamental value and they will not provide, in general, optimal amounts of money or deliver price stability. Nevertheless, cryptocurrencies can play a role in improving the current means of payments and in disciplining central banks into providing better government‐run fiduciary monies.

This paper studies the positive and normative implication of extreme shocks for monetary policy. The analysis is based on a small-scale new Keynesian model with sticky prices and wages where shocks are drawn from asymmetric generalized extreme value (GEV) distributions. A nonlinear perturbation of the model is estimated by the simulated method of moments. Under both the Taylor and Ramsey policies, the central bank responds nonlinearly and asymmetrically to shocks. The trade-off between targeting a gross inaation rate above 1 as insurance against extreme shocks and strict price stability is unambiguously decided in favour of strict price stability.

De Loecker, Eeckhout, and Unger document that since 1980 aggregate markups in the U.S. economy have significantly increased from 21% above cost to 61% now. In light of this evidence, this paper revisits optimal fiscal and monetary policy recommendations of standard New Keynesian models and shows that under empirically relevant calibrations of market power they radically change: the optimal inflation rate becomes significantly positive and its optimal volatility sharply rises. Moreover, inflation behaves like a random walk in response to unexpected fiscal shocks. Thus, price stability ceases to be the optimal policy outcome.

The purpose of the present paper is to investigate forecasted inflation gap persistence using professionals’ survey-based data, differentiating between financial and non-financial sectors professionals. We derive the forecasted inflation gap persistence and using a state dependent model, we estimate the non-linear persistence coefficient of the inflation gap. We distinguish between the pre-Great Moderation, Great Moderation and Great Recession periods. Our main results indicate that whilst the estimates of persistence for GDP inflation largely confirm the results obtained using a linear model, for CPI inflation we find that there is strong evidence for state-dependence and time variation. By and large, the results are consistent with the price stability policy pursued in the Great Moderation period and perceived disinflationary pressures during the Great Recession period

In this paper the interest rate pass through is examined within its intermediate lag of action to shed light on the credibility of monetary policy in Jordan, where the reputation of low inflation is imported through a fixed exchange rate system to the U.S dollar. We use time series methods which allow us to test for asymmetric adjustment. The results are compared to that of two inflation targeting countries at time proceeding building the credibility of price stability domestically: New Zealand and the UK. The empirical findings suggest that the interest rate pass-through in Jordan is weak and slow. In addition, our results indicate the existence of non-competitive pricing behaviour in the market. Comparing the results to the two inflation targeters, the study suggests that Jordan needs to move to a more resilient exchange rate arrangement.

We analyze the impact of interest rate policy on financial stability in an environment where banks can experience runs on their short-term liabilities, forcing them to sell assets at fire-sale prices.

Central banks may face challenges in achieving their price stability goals when financial stability risks are present. There is, however, considerable heterogeneity among central banks with respect to how they manage these potential trade-offs.

We examine the effects of monetary and macroprudential policies in the Asia‐Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macroprudential policy actions, we show that tighter macroprudential policies used to contain credit growth also have a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policymakers, especially during times when low inflation coincides with buoyant credit growth.

On the Stability of Euro Area Money Demandand its Implications for Monetary PolicyFebruary 27, 2018AbstractWe employ a recent time-varying cointegration test to revisit the usefulness of long-runmoney demand equations for the ECB, addressing the issue of their instability by meansof a model evaluation exercise. Building on the results, we make a twofold contribution.First, we propose a novel stable money demand equation relying on two crucial factors:a speculative motive, represented by domestic and foreign price-earnings ratios, and aprecautionary motive, measured by changes in unemployment. Second, we use the modelto derive relevant policy implications for the ECB, since excess liquidity looks more usefulfor forecasting stock market busts than future inflation. Overall, this evidence pointsto (i) a possible evolution of the monetary pillar in the direction of pursuing financialstability and (ii) the exclusion of a sudden liquidity–driven inflationary burst after theexit from the prolonged period of unconventional monetary measures.

I incorporate an exchange rate target zone with intramarginal interventions in a small open economy model. Using the method of undetermined coefficients, I solve for the price level and the nominal exchange rate to determine how price shocks from the large economy affect the small open economy. The results show that the behaviour of inflation transmission within the band differs from the behavior of inflation transmission at the edge of the band of the target zone. Foreign shocks can affect local prices in both cases but the central bank can respond through market interventions within the band while it cannot do so at the edge. Near the edge of the band, a central bank has to intervene to stop the exchange rate from breaching the band. My model predicts that if the interventions are robust, then the exchange rate is mean reverting and an exchange rate target zone can insulate an economy from foreign price shocks. Based on the model, central bank interventions contribute to long‐run price stability in a target zone regime. Finally, I empirically test the model using unit root and cointegration tests, and present some policy implications.

The euro area economy is emerging from a very pronounced crisis which has added complexity to achieving the price stability objective. The ECB has implemented an array of monetary policy instruments which are working their way through the economy and are proving to be very effective in supporting the recovery. By acting as it has, the ECB has continued to show that it will always respond to its communicated reaction function and thereby, reassure the public of its commitment to its fulfilling its mandate.

By using data extracted from the political manifestos released by national political parties from 27 European Union countries over the 1990–2012 period, we estimate non-linear econometric models whose aim is to understand the determinants of cross-country political concern for the ‘stability culture’. This expression describes an economic policy perspective based on the aims of providing price stability, fiscally disciplined budgets and rules and procedures that favour public expenditure ceilings. Our findings reveal that parties' commitment to the ‘stability culture’ is determined by their ideological background and by the national macroeconomic situation in the pre-electoral year.

Summary We consider optimal control problems with ordinary differential equations that are coupled by shared, possibly nonconvex, constraints. For these problems, we use the generalized Nash equilibrium approach and provide a reformulation of normalized Nash equilibria as solutions to a single optimal control problem. By this reformulation, we are able to prove existence, and in some settings, exploiting convexity properties, we also get a limited number or even uniqueness of the normalized Nash equilibria. Then, we use our approach to discuss traffic scenarios with several autonomous vehicles, whose dynamics is described through differential equations, and the avoidance of collisions couples the optimal control problems of the vehicles. For the solution to the discretized problems, we prove strong convergence of the states and weak convergence of the controls. Finally, using existing optimal control software, we show that the generalized Nash equilibrium approach leads to reasonable results for a crossing scenario with different vehicle models.

Fiscal rules are necessary to protect monetary policy from the consequences of unsustainable or active fiscal policy on inflation. Monetary unions, like the EMU, require even stronger fiscal rules to avoid free riding by regional fiscal authorities on the common monetary policy. By contrast, in a fiscal federation, a federal government internalises the effect of active regional policies on the overall price level. Federal fiscal policy contributes to price stability either by enforcing fiscal rules or adjusting its own stance. Following Canzoneri et al. (2001), we test if federal and regional government in Germany behave in an active or passive way. We find evidence of a spillover effect of unsustainable policies on other regions. The German federal government offsets the effect on the price level by running passive policies. The Bundesbank prime objective of price stability is therefore endorsed by fiscal policy. The results have implications for the regulation of fiscal policies in the EMU. This article is protected by copyright. All rights reserved

Summary This paper reconsiders existence of worst-case Nash equilibria in noncooperative multi-player differential games, this, within an open-loop information structure. We show that these equilibria can be obtained by determining the open-loop Nash equilibria of an associated differential game with an additional initial state constraint. For the special case of linear-quadratic differential games, we derive both necessary and sufficient conditions for solvability of the finite planning horizon problem. In particular, we demonstrate that, unlike in the standard linear-quadratic differential game setting, uniqueness of equilibria may fail to hold. A both necessary and sufficient condition under which there is a unique equilibrium is provided. A sufficient existence condition for a unique equilibrium is derived in terms of a Riccati differential equation. Consequences for control policies are demonstrated in a simple debt stabilization game. © 2016 The Authors. Optimal Control Applications and Methods published by John Wiley & Sons, Ltd.

The role of money in the design and conduct of monetary policy has reemerged as an important issue in both advanced and developing economies, especially since the 2007 global financial crisis. A growing body of recent literature suggests that the causal relationship between money supply growth and inflation remains intact across countries and over time and that this relation is not conditional on the stability of the money‐demand function or whether money is endogenous or exogenous. Moreover, critical for a rule‐based monetary policy is the presence of a long‐run stable money‐demand function, rather than a short‐run money‐demand model that may exhibit instability for many reasons, including problems with estimating a money‐demand model with high‐frequency data. Provided that a stable money‐demand function exists, it could be useful to establish long‐run equilibrium relations among money, output, prices, and exchange rates, as the classical monetary theory suggests. Within this analytical framework, this paper addresses the question of whether money has any role in the conduct of monetary policy in Australia. The conventional wisdom is that the money‐demand function in Australia has been unstable since the mid‐1980s due to financial deregulation and reforms; this led to a change in the strategy of monetary policy for price stability in the form of inflation targeting that ignores money insofar as inflation and its control are concerned. This paper reports empirical findings for Australia, obtained from a longer quarterly data series over the period 1960Q1–2015Q1, which suggest that instability in the narrow‐money‐demand function in Australia was primarily due to the exclusion of variables which have become important in the deregulated environment since the 1980s. These findings are confirmed by an expanded form of the narrow‐money‐demand function that was found stable over the past two decades, although it experienced multiple structural breaks over the study period. The paper draws the conclusion that abandoning the monetary aggregate as an instrument of monetary policy in Australia, under a rule‐based monetary policy such as inflation targeting, cannot be justified by instability in the money‐demand function or even by lack of a causal link between money supply growth and inflation.

We propose a simple classroom experiment on speculative bubbles: the Bubble Game. This game is useful to discuss about market efficiency and trading strategies in a financial economics course, and about behavioral aspects in a game theory course, at all levels. The Bubble Game can be played with any number of students, as long as this number is strictly greater than one. Students sequentially trade an asset which is publicly known to have a fundamental value of zero. If there is no cap on asset prices, speculative bubbles can arise at the Nash equilibrium because no trader is ever sure to be last in the market sequence. Otherwise, the Nash equilibrium involves no trade. Bubbles usually occur with or without a cap on prices. Traders who are less likely to be last and have less steps of reasoning to perform to reach equilibrium are in general more likely to speculate.

Understanding inflation persistence in Angola is crucial because National Bank of Angola has approved in 2012 a new monetary policy operational framework which upgrades and expands the set of instruments to achieve its monetary goals. The purpose of this paper is to measure the degree of persistence of the headline, food, energy, underlying and 10% trimmed core inflations for Angola and to identify its implications for decision-making. Using both a traditional univariate method and non-parametric approach, our results suggest the presence of a statistically significant level of persistence in five inflation indicators for Angola. Moreover, the degree of persistence is similar both across the five inflation indicators and also across the sample period. Finally, our results also confirm that extracting the most volatile components of the headline inflation indicator does not generate a new inflation indicator that is less volatile and more persistent than the original. These results have important implications for the design, the implementations and the effectiveness of the monetary policy, specialty when under an inflation targeting regime. First, since shocks tend to temporarily deviate inflation from its trend value a permanent policy stance is required. Secondly, a low degree of persistence means that monetary policy aiming price stability can only be implemented in a favorable setting with a permanent policy stance. Moreover, a low degree of persistence means that inflation can be stabilized in a short period time following a shock. Finally results are also relevant for prediction and modeling purposes.

We consider n risk-averse agents who compete for liquidity in an Almgren–Chriss market impact model. Mathematically, this situation can be described by a Nash equilibrium for a certain linear quadratic differential game with state constraints. The state constraints enter the problem as terminal boundary conditions for finite and infinite time horizons. We prove existence and uniqueness of Nash equilibria and give closed-form solutions in some special cases. We also analyze qualitative properties of the equilibrium strategies and provide corresponding financial interpretations.

This paper introduces right-to-manage bargaining into a labor search model with sticky prices instead of standard efficient bargaining and examines the Ramsey-optimal monetary policy. Without real wage rigidity, even when the steady state is inefficient, price stability is nearly optimal in response to technology or government shocks. Right-to-manage bargaining creates the wage channel to inflation, because there is a direct relationship between real wages and real marginal cost. In the presence of the wage channel, price markups consist of only real marginal cost, and real wages and hours per worker are determined such as in the Walrasian labor market.

Gold and other precious metals have acted as a medium for economic exchange for millennia, and currencies based on gold have always had a certain attraction. Because gold is an exhaustible, nonrenewable resource, however, many economists view the gold standard, where the prices of currencies are fixed in terms of a specified amount of gold, as a recipe for economic depression in the long term. An exploration of a proposal to return to a gold standard based on NanoGold examines the practical implications of backing paper currency with minute quantities of gold. Advances in digital technology make it possible for NanoGold particles to serve as a viable medium of exchange—provided people can measure it accurately, validate its tangibility in transactions, and accept it as a new social norm. The undesirable effects of the private holding of gold flooding the economy can be avoided if central banks can enforce a minting monopoly on NanoGold particles. If these conditions are met, it might be possible that paper money will have a true backing and monetary policy can generate price stability and postpone deflation to an infinitely distant future. ©2015 Wiley Periodicals, Inc.

This paper shows that the divine-coincidence does not hold in a sticky price model with external habit if a time-varying tax rate on labor income is not implemented to fully eliminate the time-varying distortions associated with external habit and monopoly power in goods market. The required labor income tax rate is inversely related to the risk-free real interest rate and the markup in the goods market, but it is proportional to the degree of external habit. Under this circumstance, the optimal monetary policy commands a countercyclical interest rate, having a perfect negative correlation with tax rate in the sticky price model with external habit. If a time-invariant tax is the only fiscal instrument, then the degree of external habit entails a gap between the private marginal rate of substitution between consumption and labor and the social marginal rate of substitution, generating an endogenous trade-off between the stabilization of welfare-relevant output gap and inflation. Under this circumstance, price stability is not the optimal policy. The monetary policy authority should optimally try to undo the time-varying distortions associated with external habit and monopoly power in goods market by deviating from price stability.

This article argues that the structure of the Vietnamese rice export system is, in political economy terms, a rational response to the volatility present in the international rice market. In particular, it is argued that the Vietnamese Food Agency, along with VINAFOOD‐1 and VINAFOOD‐2, have been structured so that they can benefit from the domestic demands for export restrictions anticipated to occur as a consequence of international price volatility and the psychological demand of consumers for price stability. In turn, the actions of these agencies also contribute to international price volatility and the resulting demand for export restrictions. Since the political and economic elite in Vietnam obtain both political and economic power from this system, it is unlikely to be replaced with more effective and efficient policies to combat domestic price volatility. Thus, continued volatility in the price of rice can be expected.

A statistical methodology is developed by which realised outcomes can be used to identify, for calendar years between 1974 and 2012, when policymakers in ‘advanced’ economies have successfully pursued single objectives of different kinds, or multiple objectives. A simple criterion is then used to distinguish between multiple objectives pure and simple and multiple objectives subject to a price stability constraint. The overall and individual country results which this methodology produces seem broadly plausible. Unconditional and conditional analyses of the inflation and growth associated with different types of objectives reveal that multiple objectives subject to a price stability constraint are associated with roughly as good economic performance as the single objective of inflation. A proposal is then made as to how the remit of an inflation-targeting central bank could be adjusted to allow it to pursue other objectives in extremis without losing the credibility effects associated with inflation targeting.

I find that policies targeted at stabilizing exchange rates within the context of Nigeria's managed floating exchange rate regime have not allowed for direct inflation targeting. In spite of this constraint, which is predicted by and consistent with macroeconomic theory, however, interactions between financing and investment activities within the Nigerian economy have resulted in a decrease in inflation levels that is traceable to price substitution strategies facilitated by import-related activities. This decrease in inflation levels has been realized in spite of the fact that changes in the demand for investment financing have dissimilar effects on future realizations of inflation and exchange rates; that is, exacerbate policy constraints. My findings provide evidence that while the adoption of managed floating or hybrid exchange rate regimes renders direct inflation targeting difficult, the combination of exchange rate stability, price stability, and lower inflation levels (relative to some origin point) remains achievable in such economies.

This paper examines the different policy rules proposed by Henry Simons, who, beginning in the mid-1930s, advocated a price-level stabilization rule, and by Milton Friedman, who, beginning in the late-1950s, advocated a rule that targeted a constant growth rate of the money supply. Although both rules shared the objective of eliminating the policy uncertainty emanating from discretion, they differed because of the different views of Simons and Friedman about the stability of secular relationships. Simons’ rule relates to modern rules that emphasize the pursuit of price stability as representing optimal monetary policy.

This paper studies the interaction between macroprudential and monetary policies, using a DSGE model with a housing market and collateral constraints. Monetary policy follows a standard Taylor rule for the interest rate. The macroprudential authority implements a Taylor-type rule for the loan-to-value, ratio reacting to output and house prices. Results show that introducing the macroprudential rule or extending the interest-rate rule to respond to house prices increases welfare, since it enhances financial stability. However, for the optimal policy mix, when both policies act together, monetary policy should ensure price stability while the macroprudential authority should safeguard financial stability.

In diesem Artikel werden neue Schatzungen der Opferquote (engl.: sacrifice ratio) fur Mitgliedslander der Eurozone prasentiert. Eine hohe Opferquote ist gleichbedeutend mit einem starken Ruckgang des Bruttoinlandsproduktes (BIP) oder der Beschaftigung fur eine gegebene Reduktion der Inflationsrate. Um die Anpassungen der Inflationsraten mit Hilfe der Opferquote zu schatzen, verwenden wir zum einen ein strukturelles Vektor-autoregressives Modell nach Cecchetti und Rich (2001) und zum anderen eine Methode basierend auf Disinflationsperioden nach Ball (1994). Unsere Resultate deuten darauf hin, dass die meisten Lander Opferquoten zwischen -1 % und 2 % des realen Bruttoinlandsproduktes fur eine Reduktion der Inflationsrate um einen Prozentpunkt haben. In einigen Fallen liefern die Schatzungen der Opferquote negative Werte.

The Federal Reserve has a dual mandate to foster both full employment and price stability. Most often these two goals are in alignment, so policies that support one objective generally support the other. However, at times the two aims can be at odds. When that happens, policies that target one goal may lead to misses on the other one. This article argues that taking a balanced approach between competing choices provides a solution that is in agreement with mainstream monetary policy rules.

This paper presents a measure of de facto monetary policy commitment towards domestic objectives—namely, price and output stability—based on how well Taylor rules fit interest rate data for Organisation for Economic Co-operation and Development (OECD) economies between 2002 and 2009. The resulting index reveals that although 17 of the 18 autonomous central banks analysed state price stability as their de jure primary objective, the observed de facto behaviour is quite different. Higher de facto monetary policy domestic activism seems to be correlated with lower real gross domestic product growth volatility and lower average consumer price index inflation from a cross-sectional perspective and lower levels of financial stress from a time-series perspective. Moreover, there is evidence that inefficient trilemma configurations—in which further improvements along more than one policy dimension should be simultaneously achievable—are more likely to be observed in less developed OECD economies with higher degrees of stress in their financial system. Copyright © 2014 John Wiley & Sons, Ltd.

The global economic crisis has led to a sharp slowdown in growth and an even greater slowdown in employment creation. The resulting deterioration in the quality of employment has exacerbated the longer-term trend of rising inequality. Jobless growth has dampened output growth through a worsening income distribution. Wages are costs on the supply side but are also incomes on the demand side, so that profit-led growth and wage-led growth are complements, not substitutes. Thus, growth can create jobs, while added jobs can drive growth. More employment and better jobs can also mitigate rising inequality. If macroeconomic policies focus on fostering employment creation and supporting economic growth, rather than on price stability and balanced budgets, employment would revive growth and reduce inequality.

This paper analyzes price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game generating a soft capacity constraint and implying a convex short-term cost function in the second stage of the game. We show that tacit collusion is the only predictable result of the whole game, that is, the unique payoff-dominant pure strategy Nash equilibrium. Technically, this paper bridges the capacity constraint literature on price competition and that of the convex cost function.

The communications challenges facing central banks that share macroprudential responsibilities with other agencies are daunting. Central bank surveys and an index of central bank transparency reveal that central banks have adopted the necessary institutional arrangements to communicate effectively a price stability objective. However, their communications strategy is ill suited to dealing with financial stability issues. Recent events require a departure from the pre-crisis narrative that entailed a predictable relationship between inflation and output gaps, of which financial stability was considered a by-product. I argue that central banks should adopt a hybrid form of inflation and price level targeting as well as require that macroprudential regulators jointly communicate their determination to act in concert, especially when the financial system is under stress. The current practice of announcing the rationale for the setting of monetary policy instruments is no longer an effective communication strategy when central banks must also evince a concern for financial stability.

Central bank independence (CBI) and fixed exchange rates are used by governments to achieve stable prices. This article analyzes the mechanisms through which the two monetary institutions could work: Indirectly via a disciplinary effect on money growth rates or via an additional credibility effect on inflation expectations and the cost of capital. I further explain how both discipline and credibility are affected by the distinct flaws of independent central banks and fixed exchange rates: central banks lack transparency and fixed exchange rates take many shapes and are routinely devalued. The argument is tested with quarterly data from postcommunist countries for years 1991 to 2007. The findings show a strong disciplinary effect of monetary institutions on rates of M2 change and an effect on inflation controlling for money growth, but credibility does not extend to lower real short-term market interest rates. Political institutions do condition the effect of central bank independence, while the types of fixed exchange rates affect money growth rates and inflation to different degrees.

We present an extension to nonatomic congestion games (NCG). An NCG models a large number of players depending on a set of resources (e.g., network links) in certain combinations (e.g., paths or multicast trees) called strategies. The rate of consumption ZeS specifies how aggressively resource e is consumed when used via strategy S, but it also effects how strongly the resource's latency is experienced by the players. Our extension allows essentially unrelated factors CeS and ReS instead of ZeS. Factor CeS is the actual rate of consumption, whereas ReS expresses the amplification of the resource latency of e for players choosing strategy S, or, in other words, the relevance of resource e for strategy S. We call the extended model nonatomic consumption-relevance congestion games (NCRCG). NCRCGs exhibit new phenomena, including multiple Nash equilibria of different social cost and—even from a worst-case point of view—a dependence of the price of anarchy on structural parameters not limited to the class of resource latency functions used. We prove almost tight lower, upper, and bicriteria bounds for the price of anarchy for polynomial latency functions with nonnegative coefficients. We conjecture that the lower bound is the best possible. © 2013 Wiley Periodicals, Inc. NETWORKS, 2013

Over the last decade, governments throughout eastern and southern Africa have increasingly used strategic reserves and/or marketing boards to influence grain market outcomes, yet little is known about how these activities are affecting grain markets. This article estimates the effects of the Food Reserve Agency (FRA) on maize market prices in production and consumption regions in Zambia using a vector autoregression model and monthly data from July 1996 through December 2008. In recent years, FRA has become the dominant buyer of smallholder maize in Zambia. Simulations show that FRA activities stabilized market prices throughout the July 1996–December 2008 study period and raised mean prices between July 2003 and December 2008 by 17–19%. The price raising effects of FRA policies have assisted surplus maize producers but adversely affected net buyers of maize in Zambia, namely urban consumers and the majority of the rural poor. The increase in maize price stability is unlikely to have had substantial welfare effects on poor households. In contrast, relatively wealthy producers are likely to have benefited from the higher average and more stable maize prices resulting from FRA policies.

[Author Affiliation]Sandeep Mazumder, , , , mazumds@wfu.edu[Acknowledgment]I wish to thank the anonymous referees for their valuable comments and suggestions that helped shape this manuscript.1. IntroductionOn June 1, 1998, the European Central Bank came into being with the goal of maintaining price stability in the euro zone.1 The ability to describe inflation as accurately as possible has long been a key goal that macroeconomists pursue, and in light of the introduction of the euro currency in the late 1990s, this topic is particularly pertinent in Europe. To this end, recent research has devoted a great deal of time to the New Keynesian Phillips Curve (NKPC), a model that examines price setting behavior based on nominal rigidities founded on the work of authors such as Taylor (1980) and Calvo (1983). This model has not been without controversy, but even so it remains a workhorse of macroeconomics, perhaps attributable to the lack of a better alternative.In particular, the model is thought to have first seen genuine empirical success when Gali and Gertler (1999) estimated the NKPC using U.S. data and found that the model describes changes in U.S. prices considerably well. Indeed, Gali, Gertler, and Lopez-Salido (2001) conduct a similar exercise using European inflation data and find that the NKPC is even more applicable to the euro area than for the United States over the period from the 1970s to the latter 1990s. One of the key innovations of these articles is that the labor income share (equivalently, real unit labor costs) is used as the proxy for real marginal cost in the NKPC as opposed to previously used proxies, such as detrended real output. Following in the same vein as Gali, Gertler, and Lopez-Salido (2001), others have also found that the NKPC can be accurately used to describe inflation in Europe. For example, Rumler (2007) estimates the labor share NKPC for nine euro area countries and finds evidence in favor of the model, while Jondeau and Bihan (2005) argue that the labor share NKPC may describe European inflation dynamics well, depending on the number of leads or lags that one is willing to include into the model. Similarly, Leith and Malley (2005) use the NKPC to find greater evidence of price stickiness in Europe as compared to the United States, where the proxy for real marginal cost is labor's share of income.While some authors have questioned the empirical performance of the NKPC in Europe when using different econometric techniques (such as Bardsen, Jansen, and Nymoen 2004; Paloviita 2005; Lawless and Whelan 2007; Boug, Cappelen, and Swensen 2010), a more obvious problem remains with the approach of Gali, Gertler, and Lopez-Salido (2001) to estimating the NKPC for Europe that has not received much attention in the literature. That is, the labor income share cannot be used to proxy for real marginal cost in the NKPC if we are to address the cyclicality of real marginal cost in a manner in keeping with predictions from basic microeconomic theory. Namely, we believe that marginal cost is likely to be procyclical over the business cycle, whereas the labor income share in fact moves countercyclically. Furthermore, the labor share proxy of real marginal cost is founded on the assumption that labor input can be freely adjusted at a fixed real wage rate. The problem with this assumption is that it ignores the notion of labor adjustment costs, which is something that cannot reasonably be discounted. Specifically, one can think of labor as being the product of the number of workers in an economy and the respective number of hours that they work. Seminal work by Oi (1962) has argued that employment is not perfectly flexible in the short run, something that the derivation of the labor share marginal cost proxy does not take into account.This article reconsiders the derivation of a proxy for real marginal cost in a similar manner to that done in Gali and Gertler (1999) and Gali, Gertler, and Lopez-Salido (2001), with the crucial difference that we account for the existence of labor adjustment costs. …

The question of price level versus inflation targeting remains controversial. Disagreement concerns, not so much the desirability of price stability, but rather the means of achieving it. Irving Fisher argued for a commodity dollar standard where the purchasing power of money was fixed by indexing it to a basket of commodities. We show that movements in the price of silver closely track the movements in overall prices during the classical gold standard era. The one-to-one relationship between paper and silver bonds suggests that a simple "silver rule" could have sufficed to fix the purchasing power of money.

The author examines economic reforms carried out in Latin America since the 1990s. Price stabilization was achieved, but there has been insufficient growth and economic instability has been detrimental to productive investment and employment. Frequent crises have had a severe recessionary effect and have discouraged capital formation and the creation of decent jobs. Financial capital flows were the chief causes of this general economic situation. A positive recovery in 2010 resumed the climb towards progress begun in the 2004-08 period, but still high levels of precarious employment and serious deficiencies in macroeconomic policy prevail. Precarious employment has long been a feature of Latin American societies. Although progress has been made in reducing poverty since the 1990s, there is yet to be a sustained and robust move towards a situation in which more stable jobs predominate and workers have social protection, are organized and can engage in collective bargaining, in keeping with the decent work concept of the International Labour Organization (ILO). The countries of Latin America undertook sweeping economic reforms in the context of what is known as the Washington Consensus − including far-reaching trade and financial liberalization, privatization, and the introduction of fiscal discipline − in the belief that this would ensure stability and economic growth. Employment and equity, it was supposed, would improve markedly. The reality is that the past 20 years have seen price stability (inflation has generally been kept under control), but also low GDP growth and instability in the real economy, i.e. in output and employment. The significant progress made during the recent period of economic and social recovery (2004-08) notwithstanding, precarious employment was an acute reality even before the contagion of the global financial crisis; the contagion of