DOCSLIB.ORG

Essays on Industrial Policy and Communication

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Essays on Industrial Policy and Communication Essays on Industrial Policy and Communication The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Rotemberg, Martin. 2015. Essays on Industrial Policy and Communication. Doctoral dissertation, Harvard University, Graduate School of Arts & Sciences. Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:17467295 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Essays on Industrial Policy and Communication A dissertation presented by Martin Sebastian Rotemberg to The Committee on Higher Degrees in Business Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the subject of Business Economics Harvard University Cambridge, Massachusetts April 2015 © 2015 - Martin Sebastian Rotemberg All rights reserved. Dissertation Advisor: Author: Professor Richard Hornbeck Martin Sebastian Rotemberg Essays on Industrial Policy and Communication Abstract In my dissertation, I study government policies and their effects on the behavior of agents in the economy. Chapter 1 discusses the effects that subsidies for small firms have on aggregate output and productivity, with an empirical application to policies in India. Chapter 2 studies the effects of lowering communication costs on structural transforma- tion, with an empirical focus on the roll out of Rural Free Delivery in the United States. Chapter 3 presents a method to estimate the effects that increased transparency have on deliberation, in particular that of the Federal Reserve Bank. iii Contents 1 Equilibrium Effects of Firm Subsidies 1 1.1 Introduction . .1 1.2 Institutional Background . .7 1.2.1 Overview of small-scale firm policies in India . .7 1.3 Analytical Framework . 10 1.3.1 Direct and Indirect Effects Considering a Single Product . 10 1.3.2 The Effect of Changing Subsidies . 13 1.3.3 Multi-Product Firms . 16 1.3.4 Trade and Observed Heterogeneous Product Characteristics . 17 1.3.5 Location of Sales and Unobserved Heterogeneous Product Charac- teristics . 19 1.4 Data and Identification Strategy . 20 1.4.1 Constructing Measures of Exposure . 22 1.4.2 Product Characteristics . 27 1.4.3 Identification Strategy . 28 1.5 Estimating the Direct Effect of Eligibility . 30 1.5.1 Plots of Program Effects . 32 1.5.2 Effects of the Program on Firm-level Economic Outcomes . 33 1.6 Estimating the Indirect Effect of Eligibility Through Competition in Output Markets . 36 1.6.1 The Effects of Output Competition, Treating All Products Similarly . 36 1.6.2 Trade and Output Competition . 39 1.6.3 Permutation Tests . 44 1.6.4 Other Product Characteristics and Output Competition . 46 iv 1.6.5 Aggregate Effects of the Policy Change . 48 1.7 Effects of the Reallocation of Economic Activity . 50 1.7.1 Effect of the Policy Change on Firm Productivity and Relative Prices 52 1.7.2 Aggregate TFP Growth . 55 1.8 Conclusion . 59 2 Communication and Manufacturing: Evidence from the Expansion of Postal Services 61 2.1 Introduction . 61 2.2 Historical Background . 65 2.3 Communication and Sector-Specific Investments . 70 2.3.1 Setup . 70 2.3.2 Communication Costs . 72 2.4 Data and Empirical Strategy . 74 2.4.1 Newspapers . 82 2.5 Results . 83 2.5.1 Placebo Tests . 85 2.6 Discussion and Conclusion . 85 3 How Federal Reserve Discussions Respond to Increased Transparency 87 3.1 Historical Background . 91 3.1.1 Data availability . 91 3.1.2 FOMC Members . 92 3.1.3 Data . 93 3.2 Methodology . 93 3.2.1 Notation . 95 3.2.2 Similarity Metric Axioms . 95 v 3.2.3 Cosine Similarity . 96 3.2.4 Generalized Cosine Similarity . 97 3.2.5 Growth in Cosine Similarity . 97 3.2.6 Growth in Cosine Similarity in the Data . 100 3.2.7 Constructing the Term-Relationship Weight Matrix . 100 3.3 Results . 102 3.3.1 The Evolution of Language after Transparency . 102 3.4 Conclusion . 107 4 References 108 5 Appendix 117 5.1 Appendix: Equilibrium Effects of Firm Subsidies . 117 5.1.1 Alternate Derivation of Direct and Indirect Effects. 117 5.1.2 An Issue with Industry Codes . 121 5.1.3 Within-District Exposure . 122 5.2 Appendix: How Federal Reserve Discussions Respond to Increased Trans- parency . 124 5.2.1 Model . 124 5.2.2 Setup of FOMC member’s motivations . 127 5.2.3 Credit-Seeking . 129 5.2.4 Predictions of credit-seeking model . 130 5.2.5 Effort Model . 132 5.2.6 Predictions of effort model . 132 5.2.7 Effort model derivations . 133 5.2.8 Topic modeling with a dictionary . 135 5.2.9 Topic Models on Out-of-Sample Dictionaries . 135 vi 5.2.10 Economic topics in the transcripts over time . 136 5.2.11 A bound on vector similarity when trimming vectors . 138 List of Tables 1 Summary Statistics . 31 2 Tests for Firm-Size Manipulation . 33 3 Differences in Differences Estimates of the Direct Effect of Firm Subsidies . 35 4 Differences in Differences Estimates of the Indirect Effects of Firm Subsi- dies on Output . 37 5 Differences in Differences Estimates of the Indirect Effects of Firm Subsi- dies on Inputs . 38 6 Differences in Differences Estimates of the Indirect Effects of Firm Subsi- dies on Output and Trade . 40 7 Differences in Differences Estimates of the Indirect Effects of Firm Subsi- dies on Inputs and Trade . 41 8 Permutation Tests of Differences in Differences Estimates of Placebo Firm Subsidies . 44 9 Differences in Differences Estimates of Heterogeneous Effects of Firm Sub- sidies . 47 10 Differences in Differences Estimates of the Aggregate Effects of Firm Sub- sidies . 50 11 Differences in Differences Estimates of the Effects of Firm Subsidies on Firm Productivity . 53 12 Differences in Differences Estimates of the Effects of Firm Subsidies on Firm Input Costs . 54 vii 13 Differences in Differences Estimates of the Effects of Firm Subsidies on Firm Input Costs . 58 14 Effect of Percent Treated on Predicted Manufacturing Outcomes in 1900 . 78 15 Effect of Instrument on Predicted Outcomes in 1900 . 81 16 Effect of Percent Treated on Predicted Outcomes in 1900 . 82 17 Effect of Percent Treated on Newspapers in 1900 . 84 18 Effect of Rural Free Delivery on Manufacturing in 1900 . 85 19 Effect of Future Rural Free Delivery on Manufacturing in 1890 . 86 20 Differences in Differences Estimates of the Local Effects of Firm Subsidies on Output . 125 21 Differences in Differences Estimates of the Local Effects of Firm Subsidies on Inputs . 126 List of Figures 1 Distribution of Small Firms Across India . .2 2 Small Firm Subsidies in India . .8 3 Distribution of Multi-Industry Products . 24 4 Scatterplots of Different Measures of Exposure to the Change in Eligibility . 26 5 Distribution of Nominal Assets Before Policy Change in 2006 . 32 6 Event-Study Plot of Coefficients: Effect of Being Small on Sales . 34 7 Event-Study Plot of Coefficients: Effect of Product Market Competition . 43 8 Event-Study Plot of Coefficients: Effect of Being Small on Revenue Produc- tivity . 55 9 Year of First Rural Free Delivery Route by County . 67 10 Data on RFD Roll Out from the Annual Report of the Postmaster General, 1900.......................................... 75 viii 11 Year of First Rural Free Delivery Route by County . 77 12 Relationship Between RFD and Local Population . 80 13 Federal Reserve Documents from 1936 - Present . 92 14 Career Durations of Appointive FOMC Members. ................. 94 15 Cosine Similarity of FOMC Transcripts and Corresponding Public Summaries from 1976-2007 ....................................... 102 16 Decomposition of similarity growth into public and private contribution ...... 104 17 Economics language in speech over time ....................... 105 18 Word similarity growth contribution for generalized cosine similarity ....... 106 19 Topics in the ODE .................................. 136 20 ODE topics over time ................................. 137 ix Acknowledgments My graduate school career would not have been nearly as fulfilling without the con- stant support and encouragement of my colleagues and friends. I am particularly in- debted to my advisors. Richard Hornbeck has never stopped pushing me.
Load more

Recommended publications
  • Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Zbaracki, Mark J.; Ritson, Mark; Levy, Daniel; Dutta, Shantanu; Bergen, Mark Article — Accepted Manuscript (Postprint) Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets Review of Economics and Statistics Suggested Citation: Zbaracki, Mark J.; Ritson, Mark; Levy, Daniel; Dutta, Shantanu; Bergen, Mark (2004) : Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets, Review of Economics and Statistics, ISSN 1530-9142, MIT Press, Cambridge, MA, Vol. 86, Iss. 2, pp. 514-533, http://dx.doi.org/10.1162/003465304323031085 , https://www.mitpressjournals.org/doi/abs/10.1162/003465304323031085?journalCode=rest This Version is available at: http://hdl.handle.net/10419/206841 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence.
    [Show full text]
  • Happiness, Contentment and Other Emotions for Central Banks
    NBER WORKING PAPER SERIES HAPPINESS, CONTENTMENT AND OTHER EMOTIONS FOR CENTRAL BANKS Rafael Di Tella Robert MacCulloch Working Paper 13622 http://www.nber.org/papers/w13622 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 November 2007 This paper was prepared for the Federal Reserve Bank of Boston, “Implications of Behavioral Economics for Economic Policy” conference, September 27-28th, 2007. For very helpful comments and discussions, we thank our commentators, Greg Mankiw and Alan Krueger, as well as conference participants, Huw Pill, John Helliwell, Sebastian Galiani, Rawi Abdelal, and Julio Rotemberg. We thank Jorge Albanesi for excellent research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. © 2007 by Rafael Di Tella and Robert MacCulloch. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Happiness, Contentment and Other Emotions for Central Banks Rafael Di Tella and Robert MacCulloch NBER Working Paper No. 13622 November 2007 JEL No. E0,E58,H0 ABSTRACT We show that data on satisfaction with life from over 600,000 Europeans are negatively correlated with the unemployment rate and the inflation rate. Our preferred interpretation is that this shows that emotions are affected by macroeconomic fluctuations. Contentment is, at a minimum, one of the important emotions that central banks should focus on. More ambitiously, contentment might be considered one of the components of utility. The results may help central banks understand the tradeoffs that the public is willing to accept in terms of unemployment for inflation, at least in terms of keeping the average level of one particular emotion (contentment) constant.
    [Show full text]
  • Monetary Policy in the New Neoclassical Synthesis: a Primer
    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Research Papers in Economics Monetary Policy in the New Neoclassical Synthesis: A Primer Marvin Goodfriend reat progress was made in the theory of monetary policy in the last quarter century. Theory advanced on both the classical and the Keynesian sides. New classical economists emphasized the G 1 importance of intertemporal optimization and rational expectations. Real business cycle (RBC) theorists explored the role of productivity shocks in models where monetary policy has relatively little effect on employment and output.2 Keynesian economists emphasized the role of monopolistic competition, markups, and costly price adjustment in models where mon- etary policy is central to macroeconomic fluctuations.3 The new neoclas- sical synthesis (NNS) incorporates elements from both the classical and the Keynesian perspectives into a single framework.4 This “primer” provides an in- troduction to the benchmark NNS macromodel and its recommendations for monetary policy. The author is Senior Vice President and Policy Advisor. This article origi- nally appeared in International Finance (Summer 2002, 165–191) and is reprinted in its entirety with the kind permission of Blackwell Publishing [http://www.blackwell- synergy.com/rd.asp?code=infi&goto=journal]. The article was prepared for a conference, “Stabi- lizing the Economy: What Roles for Fiscal and Monetary Policy?” at the Council on Foreign Relations in New York, July 2002. The author thanks Al Broaddus, Huberto Ennis, Mark Gertler, Robert Hetzel, Andreas Hornstein, Bennett McCallum, Adam Posen, and Paul Romer for valuable comments. Thanks are also due to students at the GSB University of Chicago, the GSB Stanford University, and the University of Virginia who saw earlier versions of this work and helped to improve the exposition.
    [Show full text]
  • References Amato, Jeffrey V., and Hyun Song Shin, 2003
    - 25 - References Amato, Jeffrey V., and Hyun Song Shin, 2003, “Public and private information in monetary policy models” BIS Working Papers, forthcoming (Basel: Bank of International Settlements). Ball, Laurence, 2000, “Near-Rationality and Inflation in Two Monetary Regimes,” NBER Working Paper 7988 (Cambridge, Mass.: National Bureau of Economic Research). ———, 1995, “Disinflation and Imperfect Credibility,” Journal of Monetary Economics, Vol. 35, pp. 5–24. Barro, Robert, and David Gordon, 1983, “Rules, Discretion, and Reputation in a Model of Monetary Policy,” Journal of Monetary Economics, Vol. 12, pp. 101–21. Bayoumi, Tamim, and Silvia Sgherri, 2003, “Deconstructing the Art of Central Banking,” forthcoming IMF Working Paper (Washington: International Monetary Fund). Blanchard, Olivier, and John Simon, 2001, “The Long and Large Decline in U.S. Output Volatility,” Brookings Papers on Economic Activity I, pp. 135–64. (Washington: Brookings Institution). Boivin, Jean, and Marc Giannoni, 2002, “Assessing Changes in the Monetary Transmission Mechanism: A VAR Approach”, Federal Reserve Bank of New York Economic Policy Review, Vol 8, pp. 97-111. Buiter, W., and Jewitt, I., 1989, “Staggered Wage Setting and Relative Wage Rigidities: Variations on a Theme of Taylor,” Reprinted in: Macroeconomic Theory and Stabilization Policy, edited by W. Buiter (University of Michigan Press, Ann Arbor), pp. 183–99. Calvo, Guillermo A., 1983, “Staggered Prices in a Utility Maximizing Framework,” Journal of Monetary Economics, Vol. 12, pp. 383–88. Christiano, Lawrence J., and Cristopher Gust, 2000, “The Expectations Trap Hypothesis,” Federal Reserve Bank of Chicago Economic Perspectives, Vol. 24, pp. 21–39. Clarida, Richard, Jordi Galí, and Mark Gertler, 1998, “Monetary Policy Rules In Practice: Some International Evidence,” European Economic Review, pp.
    [Show full text]
  • Prices and Unit Labor Costs: a New Test of Price Stickiness$
    Journal of Monetary Economics 49 (2002) 265–292 Prices and unit labor costs: a new test of price stickiness$ Argia M. Sbordone* Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, NJ 08901-1248, USA Received 20 September 2000; received in revised form 5 April 2001; accepted 27 April 2001 Abstract This paper investigates the predictions of a simple optimizing model of nominal price rigidity for the dynamics of inflation. Taking as given the paths of nominal labor compensation and labor productivity to approximate the evolution of marginal costs, I determine the path of prices predicted by the solution of the firms’ optimal pricing problem. Model parameters are chosen to maximize the fit with the data. I find evidence of a significant degree of price stickiness and substantial support for the forward-looking model of price setting. The results are robust to the use of alternative forecasting models for the path of unit labor costs, alternative measures of marginal costs, and alternative specifications of the model of price staggering. r 2002 Elsevier Science B.V. All rights reserved. JEL classification: E31; E32 Keywords: Inflation; Unit labor cost; Phillips curve 1. Introduction This paper investigates the predictions of a simple model of optimal price-setting for the aggregate price level and the dynamics of inflation. The model incorporates $I thank Mike Woodford for his invaluable advice; Mark Bils, Olivier Blanchard, Jordi Gali, Mark Gertler, Julio Rotemberg, Chris Sims, and seminar participants at Princeton University, Rutgers University, the NBER Monetary Economics program meeting, the NBER Summer Institute, the Board of Governors, the Federal Reserve Bank of Kansas City, and Victoria University for helpful comments, and the Institute for International Economic Studies of Stockholm University for its hospitality when I started to work on this project.
    [Show full text]
  • Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve Marcelle Chauvet and Insu Kim
    Center for Quantitative Economic Research WORKING PAPER SERIES Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve Marcelle Chauvet and Insu Kim CQER Working Paper 10-05 November 2010 Center for Quantitative Economic Research ⎮ WORKING PAPER SERIES Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve Marcelle Chauvet and Insu Kim CQER Working Paper 10-05 November 2010 Abstract: This paper proposes a dynamic stochastic general equilibrium model that endoge- nously generates inflation persistence. We assume that although firms change prices periodi- cally, they face convex costs that preclude optimal adjustment. In essence, the model assumes that price stickiness arises from both the frequency and size of price adjustments. The model is estimated using Bayesian techniques, and the results strongly support both sources of price stickiness in the U.S. data. In contrast with traditional sticky price models, the framework yields inflation inertia, a delayed effect of monetary policy shocks on inflation, and the observed “reverse dynamic” correlation between inflation and economic activity. JEL classification: E0, E31 Key words: inflation persistence, Phillips curve, sticky prices, convex costs The authors thank Tao Zha and participants of the 17th Meeting of the Society for Nonlinear Dynamics and Econometrics and of the University of California, Riverside, conference “Business Cycles: Theoretical and Empirical Advances” for helpful comments and suggestions. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility. Please address questions regarding content to Marcelle Chauvet, Department of Economics, University of California, Riverside, CA 92521, [email protected], or Insu Kim, Institute for Monetary and Economic Research, The Bank of Korea, 110, Namdaemunro 3-Ga, Jung-Gu, Seoul, 100-794, Republic of Korea, [email protected].
    [Show full text]
  • An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy
    This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: NBER Macroeconomics Annual 1997, Volume 12 Volume Author/Editor: Ben S. Bernanke and Julio Rotemberg Volume Publisher: MIT Press Volume ISBN: 0-262-02435-7 Volume URL: http://www.nber.org/books/bern97-1 Publication Date: January 1997 Chapter Title: An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy Chapter Author: Julio Rotemberg, Michael Woodford Chapter URL: http://www.nber.org/chapters/c11041 Chapter pages in book: (p. 297 - 361) JulioJ. Rotembergand Michael Woodford MASSACHUSETTSINSTITUTE OF TECHNOLOGY;AND PRINCETON UNIVERSITY An Optimization-BasedEconometric Framework for the Evaluation of Monetary Policy 1. Introduction In this paper, we develop a small, structural econometric model to be used in the quantitative evaluation of proposed rules for monetary pol- icy. The quantitative evaluation of monetary policy rules has gained increased attention in recent years (see, e.g., McCallum, 1988, 1997; Taylor, 1993a; Bryant, Hooper, and Mann, 1993; Henderson and Mc- Kibbin, 1993; Feldstein and Stock, 1994; Leeper and Sims, 1994; Levin, 1996; and Fuhrer 1997a). Our approach differs from these studies in that we derive our econometric specification from an explicit model of in- tertemporal optimization on the part of both the suppliers and the pur- chasers of goods and services.1 Rigorously grounding our structural relations in optimizing individual behavior has two important advantages. The first is that we are able to respond to the well-known Lucas (1976) critique of econometric policy evaluation. Our analysis of hypothetical policy rules takes full account of the way that an understanding of the change in policy regime ought to affect the decision rules of private agents, and make them different than those that underlie the statistical correlations observed in past data.
    [Show full text]
  • What Is the Monetary Standard?
    Working Paper Series This paper can be downloaded without charge from: http://www.richmondfed.org/publications/ What Is the Monetary Standard? Robert L. Hetzel Federal Reserve Bank of Richmond Richmond, VA 23261 [email protected] November 9, 2015 Working Paper No. 15-16 The monetary standard emerges out of the interaction of monetary policy with the structure of the economy. Characterization of the monetary standard thus requires specification of a model of the economy with a central bank reaction function. Such a specification raises all the fundamental issues of identification in macroeconomics. Miki Doan provided invaluable research assistance. The views expressed here are those of the author not the Federal Reserve Bank of Richmond or the Federal Reserve System. JEL classification code: E50 *The author is Senior Economist and Research Advisor at the Federal Reserve Bank of Richmond. The monetary standard emerges out of the way in which the behavior of the central bank interacts with the structure of the economy. The following contrasts an understanding of the monetary standard in the monetarist tradition where economic disturbances are assumed to originate with monetary disturbances with an understanding of the monetary standard in which economic disturbances are assumed to originate in the private sector. The monetarist tradition assumes that the central bank should follow a rule that provides for a stable nominal anchor and that allows the price system to work freely to determine real variables like output and employment. Apart from the real-business-cycle approach to cyclical fluctuations, a common denominator among alternatives to this monetarist tradition involves “imbalances” of some sort that reflect a weakly equilibrating price system.
    [Show full text]
  • Breaking the Gridlock on Global Labor Mobility
    10014-06_Ref.qxd 8/18/06 10:40 AM Page 143 References Acemoglu, Daron. 2001. “Factor Prices and Technical Change: From Induced Innova- tions to Recent Debates.” In Knowledge, Information, and Expectations in Modern Macroeconomics: In Honor of Edmund Phelps, edited by Philippe Aghion, Roman Frydman, Joseph Stiglitz, and Michael Woodford. Princeton University Press. Acemoglu, Daron, Simon Johnson, James Robinson, and Yunyong Thaicharoen. 2003. “Institutional Causes, Macroeconomic Symptoms: Volatility, Crises And Growth.” Journal of Monetary Economics 50: 49–123. Anderson, Benedict. 1991. Imagined Communities. New York: Verso. Baumol, William J. 1967. “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis.” American Economic Review 42, no. 3: 415–26. Bhagwati, Jagdish. 2003. “Borders beyond Control.” Foreign Affairs, 82, no. 1: 98–104. Birdsall, Nancy, and Lant Pritchett. 2002. “North and South in the Western Hemisphere: The Impact of Population Dynamics and Migration on Education, Wages, Inequality, and Savings.” Center for Global Development, Washington. Borjas, George. 1999. Heaven’s Door: Immigration Policy and the American Economy. Princeton University Press. Bourguignon, F., and C. Morrison. 2002. “Inequality among World Citizens: 1820–1992.” American Economic Review 92, no. 4: 727–44. Butcher, Kristin, and Anne Piehl. 1998. “Cross-City Evidence on the Relationship between Immigration and Crime.” Journal of Policy Analysis and Management 17, no. 2: 457–93. Card, David. 1990. “The Impact of the Mariel Boatlift on the Miami Labor Market.” Industrial and Labor Relations Review 43, no. 3: 245–57. Carens, Joseph. 1987. “Aliens and Citizens: The Case for Open Borders.” Review of Pol- itics 49: 251–73. Clemens, Michael. 2004. The Long Walk to School: International Education Goals in His- torical Perspective.
    [Show full text]
  • Learning, Expectations Formation, and the Pitfalls of Optimal Control Monetary Policy
    FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Learning, Expectations Formation, and the Pitfalls of Optimal Control Monetary Policy Athanasios Orphanides Central Bank of Cyprus John C. Williams Federal Reserve Bank of San Francisco April 2008 Working Paper 2008-05 http://www.frbsf.org/publications/economics/papers/2008/wp08-05bk.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Learning, Expectations Formation, and the Pitfalls of Optimal Control Monetary Policy Athanasios Orphanides Central Bank of Cyprus and John C. Williams¤ Federal Reserve Bank of San Francisco April 2008 Abstract This paper examines the robustness characteristics of optimal control policies derived un- der the assumption of rational expectations to alternative models of expectations. We assume that agents have imperfect knowledge about the precise structure of the economy and form expectations using a forecasting model that they continuously update based on incoming data. We ¯nd that the optimal control policy derived under the assumption of rational expectations can perform poorly when expectations deviate modestly from rational expectations. We then show that the optimal control policy can be made more robust by deemphasizing the stabilization of real economic activity and interest rates relative to infla- tion in the central bank loss function. That is, robustness to learning provides an incentive to employ a \conservative" central banker. We then examine two types of simple monetary policy rules from the literature that have been found to be robust to model misspeci¯cation in other contexts.
    [Show full text]
  • Simple and Robust Rules for Monetary Policy
    FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Simple and Robust Rules for Monetary Policy John B. Taylor Stanford University and Hoover Institution John C. Williams Federal Reserve Bank of San Francisco April 2010 Working Paper 2010-10 http://www.frbsf.org/publications/economics/papers/2010/wp10-10bk.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Simple and Robust Rules for Monetary Policy by John B. Taylor and John C. Williams* Prepared for the Handbook of Monetary Economics Edited by Benjamin Friedman and Michael Woodford April 20, 2010 Abstract This paper focuses on simple normative rules for monetary policy which central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perform well with a variety of newer and more rigorous models and policy evaluation methods. Simple rules are also frequently more robust than fully optimal rules. Important progress has also been made in understanding how to adjust simple rules to deal with measurement error and expectations. Moreover, historical experience has shown that simple rules can work well in the real world in that macroeconomic performance has been better when central bank decisions were described by such rules.
    [Show full text]
  • Interest Rate Rules in an Estimated Sticky Price Model
    This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Monetary Policy Rules Volume Author/Editor: John B. Taylor, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-79124-6 Volume URL: http://www.nber.org/books/tayl99-1 Publication Date: January 1999 Chapter Title: Interest Rate Rules in an Estimated Sticky Price Model Chapter Author: Julio J. Rotemberg, Michael Woodford Chapter URL: http://www.nber.org/chapters/c7414 Chapter pages in book: (p. 57 - 126) 2 Interest Rate Rules in an Estimated Sticky Price Model Julio J. Rotemberg and Michael Woodford This paper seeks to evaluate monetary policy rules that generalize the rule proposed by Taylor (1993). In particular, we consider rules in which the Fed sets the federal funds rate as a function of the history of inflation, output, and the federal funds rate itself. Even though this is not part of Taylor's original formulation, we introduce the possibility that the federal funds rate depends on the history of the funds rate itself in order to allow for interest rate smooth- ing of the kind that appears to be an important feature of current Fed policy. We also consider the character of optimal policy, that is, the policy that maxi- mizes the utility of the representative agent, assuming unlimited information about the exogenous disturbances to the economy. We then compare optimal policy in this unrestricted sense with the best rule of the generalized Taylor family. We evaluate these rules under the assumption that interest rate, inflation, and output determination in the U.S.
    [Show full text]