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Using historical, theoretical and empirical arguments, this paper puts forth the notion that it was the rise of US national TV networks in the late 1960s that led to the expansion of federal social regulation and a simultaneous decline of federal economic regulation in the 1970s. The paper argues that national TV networks changed the relative position of national versus local and regional producers and sellers of goods and services. Instead of preferring state and local social regulation, the emerging national firms preferred federal social regulation. Since national markets were emerging, the same national firms lobbied for regulatory reform in transportation and communication services. The rise of national markets associated with national TV networks also stimulated a demand for mergers and consolidations. Data describing these various phenomena are provided in the paper. [ABSTRACT FROM AUTHOR]

The global financial downturn of 2001 affected broad swaths of the increasingly interconnected global economy. The global effects of the economic downturn in the U.S. in 2008 showed that decoupling had not occurred to the extent many thought, and showed that indeed emerging market countries, including Turkey, were not immune from economic trouble in America. This paper addresses the question, whether the fiscal, financial, and regulatory reforms in Turkey after the 2001 economic crisis cushion the global financial crisis world is facing toward the end of the decade. In doing so we analyze the policies implemented by Turkey before and after the 2001 global economic crisis and identify the successes as well as failures of those reforms. The results of our research show that despite significant reforms in key economic and regulatory areas in the post-2001 crisis period, vulnerabilities remained; especially concerning the large current account deficit, volatility of exchange rates, increased private sector indebtedness, and persistent unemployment. These vulnerabilities will be visible in the deteriorating liquidity conditions in the global financial markets. We conclude by recommending infrastructure, education and health spending as well as restructuring of the economy to further attract FDI and avoid reliance on speculative foreign capital in order to achieve a more balanced and sustained growth in the long run. [ABSTRACT FROM AUTHOR]

This paper develops a generalization of the formulas proposed by Kuttner (2001) and others for purposes of measuring the effects of a change in the federal funds target on Treasury yields of different maturities. The generalization avoids the need to condition on the date of the target change and allows for deviations of the effective fed funds rate from the target as well as gradual learning by market participants about the target. The paper shows that parameters estimated solely on the basis of the behavior of the fed funds and fed funds futures can account for the broad calendar regularities in the relation between fed funds futures and Treasury yields of different maturities. Although the methods are new, the conclusion is quite similar to that reported by earlier researchers—changes in the fed funds target seem to be associated with quite large changes in Treasury yields, even for maturities of up to 10 years. [ABSTRACT FROM AUTHOR]

The article discusses the economic models for monetary policymaking in the U.S. It has been suggested that monetary policy in most countries and periods is best modeled as an interest rate. In probability models, models are presented with coefficients estimated from data and with standard errors of the estimates. The Federal Reserve Board's FRBUS model applies a standard single-equation specification to many variables that assumes no within quarter interactions among variables. The Bayesian approach to interference recognizes the need for what has to go on daily in data analysis for policymaking.

This paper analyzes the developmental trade-offs involved in multilateral versus regional-bilateral strategies of integration into the international economy. I contrast the regulations that guide policy in the areas of trade, investment, and intellectual property in the World Trade Organization (WTO) and in regional-bilateral agreements between the US and developing countries. Both strategies of integration feature similar trade-offs, in that developing countries gain increased market access and opportunities for specialization in exchange for diminished space for use of industrial policy instruments to create new productive capacities. However, the trade-offs are intensified in the case of regional-bilateral agreements: countries receive more market access, but in exchange make significantly deeper concessions regarding the management of inward investment and intellectual policy. I argue that countries whose integration into the international economy is guided by their obligations as members of the WTO still have opportunities to implement industrial strategies that are designed to alter comparative advantages and achieve upward mobility in the international economic order, but the obligations under the regional-bilateral strategy greatly circumscribe these options. The paper thus points to the need for new terms of reference in the debate over ‘policy space’ in the international political economy. In analyzing contemporary development strategies, the most useful contrast is not between the alternatives that countries have under the WTO and the alternatives that countries had in the past under the WTO's predecessors, but between a constraining multilateral environment and even more constraining regional and bilateral environments that condition increased market access on the sacrifice of the very tools that countries have historically used to capture the developmental benefits of integration into the international economy. [ABSTRACT FROM AUTHOR]

A central statement of the theory of natural trading partners is that preferential trading with regional trading partners is less likely to be trade diverting and therefore geographically proximate partners are to be considered “natural” partners for preferential arrangements. This paper examines this question empirically. The analytical framework involves a general equilibrium model of preferential trade and an econometric model with tight links to this theory. This framework is used to implement tests of the natural trading partners hypothesis using U.S. trade data for the years 1964–95: Welfare changes that would result from preferential tariff reductions by the United States against various trading partners are first estimated, and correlations with bilateral “distance” measures (with and without controls for income levels) are then examined. Since the argument for “natural” trading partners is based on the greater likelihood of geographically proximate countries to be more significant trading partners, correlations between the welfare change estimates and bilateral trade volume are examined as well. Both geographic proximity and trade volume are found to have no effect. Thus this paper is unable to find any support for the natural trading partners theory in U.S. data. [ABSTRACT FROM AUTHOR]

Several recent papers agree on the existence of significant regime shifts in the U.S. real interest rate, but disagree on the proximate causes of the shifts. Caporale and Grier (2000) point to large political changes as correlates, while Rapach and Wohar (2004) show that real rate breaks are correlated with inflation regime shifts and argue that the inflation regime changes cause the real rate shifts. In this paper we show that, controlling for the timing of changes in the inflation regime, dummy variables representing either party change in the Presidency or change in the identity of the Fed Chair are still strongly significant for explaining real interest rate fluctuations. When we control for a fixed coefficient linear relationship between inflation and the real rate, we find two real rate regime shifts that line up almost exactly with the accessions of Paul Volcker and Alan Greenspan. Even if we first let inflation regime switches explain the real rate and then look for regime shifts in the residuals, we find almost exactly the same two breaks. These results imply that Fed Chairs sometimes differ with respect to their preferred equilibrium real interest rate. [ABSTRACT FROM AUTHOR]

This article presents a comment on the article "America's Historical Experience with Low Inflation." The author discusses the arguments set forth in the paper and addresses several areas that he found intriguing. The author examines how low, low inflation actually is, what the true costs of inflation are, how the Fisher Effect comes into play during periods of low inflation and the risks associated with deflationary slumps. The author agrees with the major tenets of the paper and believes that the paper has addressed the primary issues that will play a role in determining if the U.S. will continue to experience low inflation.

This article presents a comment on the paper "America's Historical Experience with Low Inflation." The author notes that while he agrees with much of the argument in the paper; however, he does not find it persuasive. He sets forth several instances that would cause the U.S. to be presented with rising inflation other than becoming involved in a war. One situation would be if the unemployment rate were to rise. The author suggests that the U.S. cannot become complacent and assume that a low-inflation environment will continue to thrive.

This article presents a comment on the article "Three Lessons for Monetary Policy in a Low-Inflation Era." The author notes that the paper does an effective job highlighting the economic instability that the lower bound of zero on the nominal interest rate could cause. The author's comments address the policy suggestions that are offered in the paper and the stability analysis that is presented. The author presents his own model to examine policy rules and uses this model as a basis for his comments about the policy suggestions offer in the paper.

Purpose: The study examines the relationship between Economic Policy Uncertainty (EPU) and stock liquidity, and the mediating role of investor sentiment. Design/methodology/approach: This study draws on a sample of 4,620 firm-year observations covering nonfinancial firms in the United States from 2007 to 2020. We employ multiple regression analysis with panel data and path analysis with Structural Equation Modeling (SEM) to examine the impact of EPU on stock liquidity in detail. Findings: EPU significantly enhances stock liquidity. However, at elevated levels of EPU, this relationship reverses. The path analysis results indicate that EPU positively affects stock liquidity via the investor sentiment channel. This sentiment partially mediates the relationship between EPU and both trading volume and turnover rate, and fully mediates the relationship between EPU and both turnover price impact and illiquidity. Practical implications: Our findings underscore the importance of liquidity for investors, who may require higher returns for holding more illiquid stocks. Second, they can help the government understand the implications of changes in EPU, highlighting the need for clear communication and the implementation of appropriate capital market policies. Originality/value: While considerable research focuses on the relationship between EPU and stock market liquidity, the analysis of the channels through which EPU influences stock market liquidity remains largely unexplored. Our study highlights the importance of investor sentiment in explaining this relationship. [ABSTRACT FROM AUTHOR]

This paper presents an approximate analytical solution to the optimal consumption and portfolio choice problem of an infinitely lived investor with Epstein-Zin-Weil utility who faces a constant riskless interest rate and a time-varying equity premium. When the model is calibrated to U. S. stock market data, it implies that intertemporal hedging motives greatly increase, and may even double, the average demand for stocks by investors whose risk-aversion coefficients exceed one. The optimal portfolio policy also involves timing the stock market. Failure to time or to hedge can cause large welfare losses relative to the optimal policy. [ABSTRACT FROM AUTHOR]

This article discusses issues associated with central banking and monetary policy in the U.S. Responding to A. Alesina's comments on the construction of the effective freedom of information (FOI) index, Adam Posen agreed that fractionalization and federalism might influence inflation through mechanisms other than the one explored in his paper; he indicated that in future work, he would consider alternative reasons why the various components of the FOI index might affect inflation. With respect to the issue of whether institutions matter, given array of political forces, Posen suggested that the time span under consideration is very important. The literature on central bank independence looks at correlations over periods from 10 to 40 years in length. Over such long periods, it seems most reasonable that social preferences and political forces determine inflation rates, whereas over one business cycle or electoral cycle institutions may well have an effect. Stanley Fischer disagreed with Posen's conclusion that the financial sector's opposition to inflation completely determines inflation outcomes. He conceded that the issue is quite complicated but argued that law and the institutions chosen by society can make a difference for inflation performance.

This article comments on a paper by Sergio Rebelo and Carlos Végh which analyzed the economics of exchange-rate-based stabilization (ERBS) in the U.S., particularly to understand the dynamics of output and consumption in the course of stabilization. One of the most important, and still unsettled, macroeconomic policy issues facing many governments is the appropriate exchange-rate policy in the course of disinflation. Many governments battling high inflation have attempted to use the exchange rate as a nominal anchor to bring about rapid price stability. Other countries have relied on tight monetary policy and a floating exchange rate. The main concern of Rebelo and Végh is to understand why many countries have experienced an output and consumption boom in the immediate aftermath of an ERBS. There are several crucial questions about the merits of ERBS. First, ERBS has shown itself to be capable of producing a sudden end of high inflation, especially when starting from hyperinflation. Second, ERBS has often been able to produce disinflation with a smaller drop in output than a money-based stabilization. Finally, many episodes of ERBS have not only avoided a contraction, but have actually been accompanied by a boom, in both output and consumption.

This paper uses a number of perspectives to analyze the causes of the strong correlation between fiscal policy variables and the Japanese current account surplus in the 1980s. The paper finds that the price elasticities of trade flows and the interest rate elasticities of investment are fairly low. Accordingly, the paper argues that the popular Mundell-Flemming approach somewhat overemphasizes the causality from fiscal policy to the current account. Conversely, the importance of U.S. fiscal policy and the decrease in oil prices may have been understated in previous explanations of the increase in the Japanese current account surplus. The decline in the budget deficits through the traditional income-expenditure mechanism were also important. From a longer-term perspective, the sharp slowdown in private investment in the 1970s and its relative stability in the 1980s, despite large fluctuations in oil prices, is an important cause of both the surplus and the strong correlation between fiscal policy and the current account. Such a perspective helps to understand the developments in the 1985-87 period as well. [ABSTRACT FROM AUTHOR]

This article focuses on the aspects of economic efficiency in pricing with multiproduct firms and intermodal competition in the U.S. The regulation of multiproduct enterprises has created some difficult problems for regulators, particularly where common costs of production are present and where entry may be allowed in one or more of the markets served by such a firm. A set of rules is developed, showing how second best prices deviate from marginal cost when economies of scale are present. The paper shows why these rules may be difficult to implement in some cases, with a direct application to the case of surface freight transport, and then suggests a variation in the theory of second best which may be useful given those difficulties.

This paper is concerned with macroeconomic policy interaction in a two-country flexible exchange rate model with no exchange market intervention. The three key ingredients are (1) a short-run non-vertical Phillips curve in each country; (2) positive transmission of economic expansion through the terms of trade; and (3) zero or constant capital movements, so that the flexible exchange rate keeps the trade balance unchanged. [ABSTRACT FROM AUTHOR]

A significant number of studies have been made in the area of agricultural economics; however, there is a paucity of work that investigates factors or determinants which influence the financial performance of agro cooperatives. This paper investigates determinants of financial performance for the United States (U.S.) agricultural cooperatives for the period 2009-2017. By using the United States Department of Agriculture (USDA) database, we created a sample of 37 U.S. agro cooperatives. For analysis, we used panel regression analysis as it is suitable to deal with fixed effect or random effect error component presented in the model. Finding states that the U.S. agro cooperatives are found highly sensitive to economic policy uncertainty. The results provide evidence of a negative relationship between size and profitability. Moreover, the impact of growth and capital intensity is also reflected in the return on asset (ROA). In this study, we considered ROA as a proxy for firm performance. Implications and suggestions for further new research are also discussed. [ABSTRACT FROM AUTHOR]

The question addressed in this paper is whether there is an annual net gain to the state economy on a per student basis as a result of state subsidies to private institutions of higher education. In addition, the annual economic impact of adding a student at a private institution is compared to the impact of an additional student at a public institution. Because of Maryland's 40-year history of direct appropriations to private non-profit institutions, the analysis focuses on the state of Maryland and employs input-output methodology. Due to the high percentage of out-of-state students and high tuition, the typical new student in a private higher education institution adds significant new spending to the state leading to a net positive tax payback on the subsidy. [ABSTRACT FROM AUTHOR]

This article analyzes quantitative credit controls in the U. S. as of 1971. While public discussion of credit controls seems to have waned with the restoration of easier conditions in financial markets, an examination of their economic consequences appears worthwhile for at least three reasons. First, in the nature of things, a bout of financial stringency is certain to recur some day and the advocacy of credit controls as an anti-inflationary device is likely to recur with it. Second, credit controls as applied to banks share some features with other devices recently employed in the U.S. Third, some proponents of credit controls favor them mainly as a means of influencing the composition of aggregate demand rather than as a technique for restraining its total. The paper will consider the following kinds of credit controls: (1) quantitative limits on total bank credit, but not on the composition of bank credit, (2) quantitative limits on specific components of bank credit such as loans to business, finance companies and consumers, but not on the total and (3) quantitative limits on effective demand for credit--specifically, controls over corporate capital issues. Generally speaking, the main interest of credit controls seems to lie in their potential for altering the incidence, rather than the overall efficiency, of restrictive monetary policies.

This article focuses on three papers on the regulated industries. Economist George Wilson seeks to appraise the effect of regulation upon resource allocation in transportation. Economist Roger C. Cramton seeks to test the efficiency of regulation in certain subject-matter areas. Economist Richard E. Caves poses questions with respect to the market performance of the regulated industries and seeks to explore methods by which answers may be sought. In Wilson's discussion of regulatory attitudes toward discrimination he ignores, although he has elsewhere recognized, the tendency for the relatively uniform treatment of distance despite varying conditions of density, terrain, and other factors which affect cost to create a reverse discrimination akin to the type imposed by reluctance to countenance reduced rates for shipments in excess of carload lots. It is, perhaps, surprising that in his discussion of the share-the-traffic criterion he does not call attention to the consequences of enforcing a division of traffic between competing modes when the differences in cost levels are sharp.

The article discusses economic policies of agencies of the Federal government of the United States. The use by the federal government of semi-autonomous corporations and agencies to accomplish certain quasi-commercial tasks has always been controversial. Many of the quasi-commercial and revenue-producing operations of government should be put in the hands of semi-independent, self-financing agencies and kept completely out of the unified Federal budget. This would reduce the size of the budget and, since the expenditures thus made extra-budgetary would very probably exceed the revenues similarly affected, it would also make for a budget surplus. Administratively, there seem to be some major drawbacks to the extra-budgetary idea in general and to the security issuing process in particular. Unfortunate effects on the government securities market may occur when issues are allowed to reach the market from several sources. When the extra-budgetary paper is sold to about the same group of investors as the regular Treasury issues, a certain element of competition could arise. Real financial independence for an agency of the Federal government seems unlikely.

There are several different facets to the argument for the extension of FRS reserve requirements to nonmember banks, including issues of regulatory equity between member and nonmember banks, ability of the commercial banking system to withstand financial shocks, etc. However, the heart of the argument is that the Federal Reserve authorities need to be able to set reserve requirements on nonmember bank deposits in order to better control the money stock. The purpose of this paper is to present some evidence which is germane to the question of whether or not FRS reserve requirements on nonmember bank deposits are needed for greater precision in money stock control. Specifically, evidence is presented on the impact of nonmember banks upon the precision of Federal Reserve control over the money stock during the 1960's and early 1970's. Section I contains a discussion of the nonmember bank data problem (a problem which severely limited the scope of this study and which makes its findings less trustworthy than they might otherwise have been) and Section II presents the logic of the empirical inquiry. Section III contains the findings of the study, none of which supports the contention that the absence of FRS reserve requirements on the deposits of nonmember banks has been a source of instability for Federal Reserve control of the money stock. [ABSTRACT FROM AUTHOR]

Data from seven American medical sector product markets established between the 1950s and the 1980s are used to investigate how business sales and age in evolving industries affect the likelihood that start-up firms and existing firms entering the market (diversifying entrants) will shut down or sell their businesses. The study shows that the influences of business sales and age differ systematically by type of entrant and type of exit. The dissolution rate declined with greater sales and age for start-up firms. While the dissolution rate of diversifying entrants also declined with greater sales, the rate was not affected by business age when the level of sales was controlled. By contrast, start-up firms and diversifying entrants became more likely to sell their businesses over time, while sales levels had no effect on the divestiture rate. When age, sales, and other business and corporate characteristics were controlled, there was little difference in the business dissolution rate of start-up firms and diversifying entrants, but diversifying entrants were more likely than start-up firms to sell their businesses. The paper explores the interrelationship of economic, ecological, and evolutionary explanations for business survival. The results help us understand the processes by which organizational capabilities are retained in a product market as businesses age and grow, suggesting that start-up firms play a moderating role in the almost Darwinian process by which larger businesses are selected for survival. [ABSTRACT FROM AUTHOR]

The decade of the seventies has seen a dramatic surge in the acceptance and adoption of long range planning systems by U.S. firms. This paper examines the planning experiences of 86 "Fortune" 1000 companies, many of them with formal planning systems ten years of age or more. Data collected in this study suggests that planning systems move through different phases in a development cycle. The ability to cope with planning problems, the satisfaction of planning participants, and the extent to which companies formulate explicit policies to recognize managerial contributions to long range planning activities are associated with the age of a company's formal planning system and its phase of planning system development. Mature system companies do a better job in coping with planning problems, are more satisfied with their planning systems, and are more likely to recognize managerial contributions to long range planning. [ABSTRACT FROM AUTHOR]

The ultimate objective of selective credit policies is to influence the composition of real investment, and not merely to influence financial markets. Although various forms of selective credit policies have been in use in the U.S.A. for many decades, there has been relatively little systematic investigation of the extent to which this ultimate objective can be realized. In this paper, we attempt to examine the theoretical and empirical justification for using selective credit policies; specify the structural conditions under which such policies might be expected to achieve their real objective; and look at the empirical evidence to determine whether or not these conditions are satisfied in one specific area where selective credit policies have been proposed. [ABSTRACT FROM AUTHOR]

ABSTRACT: In this paper, we examine the convergence hypothesis using a long memory framework that allows for structural breaks and does not rely on a benchmark country using both univariate and multivariate estimates of the long memory parameter d. Using per capita GDP gaps, we confirm the findings of non‐stationarity and long memory behavior that have been found previously in the literature using univariate tests. However, the support for these findings is much weaker when using a multivariate framework, in which case we find more evidence of stationary behavior. Based on these results, we also investigate club formation, something that would suggest the presence of conditional convergence. We describe a club formation methodology using the sequential testing criteria that we have employed in our analysis as the basis for forming clusters or clubs of countries with similar convergence characteristics. [ABSTRACT FROM AUTHOR]

This paper offers three results. First, in line with the previous literature, we confirm that fiscal adjustments based mostly on the spending side are less likely to be reversed. Second, spending-based fiscal adjustments have caused smaller recessions than tax-based fiscal adjustments. Finally, certain combinations of policies have made it possible for spending-based fiscal adjustments to be associated with growth in the economy even on impact rather than with a recession. Thus, expansionary fiscal adjustments are possible. [ABSTRACT FROM AUTHOR]

This paper sets out theory and measurement of how intangible investment might capture innovation and what data on intangibles look like for the EU, Japan, and the US. We also look at complementarities between information and communications technology (ICT) and intangibles, spillovers from intangibles to growth, and policy implications. [ABSTRACT FROM PUBLISHER]

This article examines the tumultuous relationship between the World Bank and the U.S. government during the seventies. Drawing on previously untapped documents from the bank archives, it details the rise of U.S. opposition to the bank in the seventies and describes the resistance by the bank’s president, former U.S. secretary of defense Robert McNamara, to American efforts to influence the organization during the time. A study of the bank’s relationship with Chile in the early seventies demonstrates how the organization’s behavior was guided as much by internal factors—in this case a desire to maintain its creditworthiness—as it was the result of pressure from the U.S. government. Nevertheless, the article concludes that U.S. support remained critical to the bank and, as such, the organization’s autonomy was significantly bounded. [ABSTRACT FROM PUBLISHER]

Milton Friedman and Anna J. Schwartz published A Monetary History of the United States: 1867 to 1960 with Princeton University Press in 1963, to critical acclaim. Since then the book's reputation has grown and it clearly has become one of the most influential volumes in economics in the twentieth century. In this paper we document the extraordinary impact of A Monetary History and argue that the key to this success was the use of the "narrative approach" to the problem of identifying the effects of monetary policy on economic activity. [ABSTRACT FROM AUTHOR]

Because of several policy distortions, including import-substitution industrialization, widespread government intervention, and both domestic and international competitive barriers, there has been a general presumption that Latin America has been much less productive than the leading economies in the last decades. In this paper we show, however, that until the late 1970s Latin American countries had high productivity levels relative to the United States. It is only after the late 1970s that we observe a fast decrease of relative total factor productivity (TFP) in Latin America. We also show that the inclusion of human capital in the production function makes a crucial difference in the TFP calculations for Latin America. [ABSTRACT FROM AUTHOR]

The paper compares the quality of real-time forecasts from a standard medium-scale New Keynesian dynamic stochastic general equilibrium (DSGE) model to those from the Survey of Professional Forecasters (SPF) and DSGE-VARs. It is shown that the DSGE model is relatively successful in forecasting the U.S. economy. This is especially true for forecasts conditional on SPF nowcasts, in which case the forecasting power of the DSGE turns out to be similar or better than that of the SPF for all the variables and horizons. An important weakness of the benchmark DSGE model is the poor absolute performance of its point forecasts and rather badly calibrated forecast densities. [ABSTRACT FROM AUTHOR]

During the crisis era, while considerable attention was given to Chinese management of its currency’s exchange rate with the US dollar, the frequent alteration of rebates on value-added taxes (VAT) paid by exporters on the inputs they have imported has been overlooked. In this paper the relevant Chinese policy changes are documented and evidence presented to gauge the relative importance of what turns out to be a systematic form of export management. Given the relatively high shares of imported content used in Chinese exports and the low profit margins of Chinese exporters, an increase in the VAT rebate of a single per cent is estimated to increase the profitability of beneficiary exporters by 12 per cent for the typical Chinese exporter, and by 18 per cent for those Chinese exporters operating in export processing zones. [ABSTRACT FROM PUBLISHER]

This article stylizes the monetary policy features applied during the chairmanship of Mr. Alan Greenspan and condenses statistical discussion into the "low interest rate trap" in the U.S. economy. Data from the U.S. in the decade prior to the 2008 financial crisis are used. A monetarist solution to the "low interest rate trap" is provided. The paper challenges the theoretical discussion on the Keynes' interest rate -- output relationship, and poses the question whether difference in investment returns would present a different picture in output growth. [ABSTRACT FROM AUTHOR]

This paper examines the price response of wireless carriers to the introduction of number portability in the U. S. I find that wireless prices decreased in response to number portability, but not uniformly across plans. Average prices for the plans with the fewest minutes decreased by only $0.19/month (0.97%), but average prices for medium and high-volume plans decreased by $3.64/month (4.84%) and $10.29/month (6.81%), respectively. The results suggest that higher-volume users in the wireless market benefited more from the policy-induced reduction in switching costs. [ABSTRACT FROM AUTHOR]

Core or underlying inflation indicators feature prominently in the economic debate and in internal and external policy discussions of central banks. Notwithstanding this popularity the role of core inflation measures in the monetary policy-making process is questionable since most of these measures are based exclusively on statistical criteria without any theoretical justification. In this paper we propose an approach to building a benchmark measure of core inflation that explicitly treats core inflation as an artificial concept whose usefulness rests exclusively with its use in improving monetary policy effectiveness. Using this measure, constructed on the basis of the solution to a standard optimal monetary policy problem, we assess the performance and policy usefulness of other, popular core inflation indicators. Our approach is illustrated by means of two applications to euro-area and US data. [ABSTRACT FROM PUBLISHER]

Defense and commercial trade offsets (also known as countertrade or industrial participation) are valued in the tens of billions of dollars each year andoften accompany the export of advanced technological goods. An offset is any type of non-monetary compensation that a procuring government requires an exporting firm to provide as a condition of the sale and generally commits the exporting firm to spend a certain percentage of the value of the sale in the procuring country. This paper examines 1) how procuring governments use offsets to achieve their goals, and 2) the economic and national security implications of offsets. [ABSTRACT FROM AUTHOR]

Curiously and in spite of its name, very few business cycle theories actually treat it as a cycle. Mainstream economists, for example, model all macroeconomic fluctuations as a function of exogenous forces. In their view, the economy remains at full employment indefinitely unless impacted by some external event. Post Keynesian economists disagree strongly with this characterization, arguing instead that business-cycle fluctuations are endogenously generated. The goal of this paper is to compare the explanatory power of four business cycle models - three mainstream and one Post Keynesian - for the U.S. economy since 1971. While the test employed is a simple one, the results are very clear: no model's performance comes even close to that of the one based on Keynes's seventy-year old analysis. [ABSTRACT FROM AUTHOR]

This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the welfare of the representative household. Although the model has Keynesian features, its policy prescriptions differ significantly from those of textbook Keynesian analysis. Moreover, the model suggests that the commonly used "bang for the buck" calculations are potentially misleading guides for the welfare effects of alternative fiscal policies. [ABSTRACT FROM AUTHOR]

This paper suggests that the U.S. recovery from the Great Depression was driven by a shift in expectations. This shift was caused by President Franklin Delano Roosevelt's policy actions. On the monetary policy side, Roosevelt abolished the gold standard and—even more importantly—announced the explicit objective of inflating the price level to pre-Depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending, which made his policy objective credible. These actions violated prevailing policy dogmas and initiated a policy regime change as in Sargent (1983) and Temin and Wigmore (1990). The economic consequences of Roosevelt are evaluated in a dynamic stochastic general equilibrium model with nominal frictions. (JEL D84, E52, E62, N12, N42) [ABSTRACT FROM AUTHOR]

The current account deficit of the United States has been large in recent years, both in absolute size and relative to GDP. In 2006, it reached $811 billion, 6.1 percent of GDP. It has become a dominant feature of the world economy; if you sum up the current account deficits of all nations that are running deficits in the world economy, the U.S. deficit accounts for about 70 percent of the total. This paper looks beyond the national income accounting relationships to offer a more complex view of the U.S. imbalance. I argue that the generally rising U.S. trade deficit over the last 10–15 years is a natural outcome of two important forces in the world economy—globalization of financial markets and demographic change—and therefore that the U.S. current account deficit is likely to remain large for at least a decade. In a globalized market, the United States has a comparative advantage in producing marketable securities and in exchanging low-risk debt for higher-risk equity. It is not surprising that savers around the world want to put a growing portion of their savings into the U.S. economy. I argue that serious efforts to reduce the U.S. deficit, even collaborative efforts with other countries, may well precipitate a financial crisis and an economic downturn every bit as severe as the one that many fear could result from a disorderly market adjustment to the trade deficit. [ABSTRACT FROM AUTHOR]

This paper considers the productivity impact on the US economy of the period of war mobilization and demobilization lasting from 1941 to 1948. Optimists have pointed to learning by doing in military production and spin-offs from military R & D as the basis for asserting a substantial positive effect of military conflict on potential output. Productivity data for the private non-farm economy are not consistent with this view, as they show slower total factor productivity (TFP) growth between 1941 and 1948 than before or after. The paper argues for adopting a less rosy perspective on the supply side effects of the war. [ABSTRACT FROM AUTHOR]

Monetary policy analysts often rely on rules of thumb, such as the Taylor rule, to describe historical monetary policy decisions and to compare current policy with historical norms. Analysis along these lines also permits evaluation of episodes where policy may have deviated from a simple rule and examination of the reasons behind such deviations. One interesting question is whether such rules of thumb should draw on policymakers' forecasts of key variables, such as inflation and unemployment, or on observed outcomes. Importantly, deviations of the policy from the prescriptions of a Taylor rule that relies on outcomes may be the result of systematic responses to information captured in policymakers' own projections. This paper investigates this proposition in the context of Federal Open Market Committee (FOMC) policy decisions over the past 20 years, using publicly available FOMC projections from the semiannual monetary policy reports to Congress (Humphrey-Hawkins reports). The results indicate that FOMC decisions can indeed be predominantly explained in terms of the FOMC's own projections rather than observed outcomes. Thus, a forecast-based rule of thumb better characterizes FOMC decisionmaking. This paper also confirms that many of the apparent deviations of the federal funds rate from an outcome-based Taylor-style rule may be considered systematic responses to information contained in FOMC projections. [ABSTRACT FROM AUTHOR]

This paper examines the impact of economic freedom on income inequality using cross-sectional data for U.S. states. While previous research has explored this relationship internationally, the results have been conflicting. In addition, while it seems obvious that the large institutional differences across countries will impact income inequality, it isn’t so obvious that the smaller variation in policies among U.S. states can have a measurable impact. Can improvements in income inequality be used as a justification for marginal pro-market policy reforms at the state level, or is this argument applicable only to national-level institutional reforms? [ABSTRACT FROM AUTHOR]