Federal Reserve Bank of New York Number 2 2005 ResearchUpdate Research and Statistics Group www.newyorkfed.org/research New Study Estimates U.S. Welfare Gains from the Increased Variety of Imported Goods he growth of international trade To measure the degree to which this in recent decades has greatly increase in available varieties enhances Texpanded U.S. consumers’ choice consumer well-being, the authors recal- of goods. While the benefits of trade have culate the U.S. import price index for traditionally been associated with 1972-2001 taking variety growth into declines in the price of existing products, account. By comparing their variety- economists now recognize that the avail- adjusted estimate of the rate of change in ability of new imported goods and varie- import prices over the sample period with ties constitutes another important gain the conventional estimate that does not from trade. include variety growth, they obtain a In “Are We Underestimating the Gains measure of the nation’s welfare gains from Globalization for the United States?” from variety growth. (Current Issues in Economics and Finance, The authors’ calculations show that vol. 11, no. 4), authors Christian Broda between 1972 and 2001, the variety- and David Weinstein break new ground adjusted price of imports fell about 1.2 per- by providing a measure of the gains from centage points per year faster than the variety growth. Their estimates put the unadjusted price. Thus, the real cost of value to U.S. consumers of global variety imports was almost 30 percent lower at growth in the 1972-2001 period at the end of the period than the conven- roughly $260 billion. tional price index would suggest. Reason- The authors begin their analysis by ing that imports account for about 10 per- calculating the increase in global varieties cent of U.S. GDP, Broda and Weinstein from 1972 to 2001. They find that over then estimate that the value to consumers this period, the number of product varie- of this drop in import prices is about 3 per- ties more than tripled. This increase cent of GDP in 2001, or approximately reflects a sharp rise in both the number $260 billion. ■ of goods available and the number of countries supplying each good. ResearchVolume 9, Update Number ■ 2,Number 2005 2, 2005 Premier Issue of International Journal of Central Banking Is Published n May, the Federal Reserve Board, ■ Do Actions Speak Louder Than Words? along with the twenty-four other The Response of Asset Prices to Monetary sponsoring institutions of the Policy Actions and Statements I Refet S. Gürkaynak, Brian Sack, International Journal of Central Banking and Eric T. Swanson (IJCB), announced the publication of the ■ The Performance and Robustness of Interest- journal’s first issue and the launch of a Rate Rules in Models of the Euro Area website hosted by the Bank for Ramón Adalid, Günter Coenen, International Settlements. Peter McAdam, and Stefano Siviero The IJCB, a quarterly publication, is an ■ Monetary Policy Neglect and the Great initiative of the central banking commu- Inflation in Canada, Australia, nity. It features articles on central bank and New Zealand 2 theory and practice, with a special Edward Nelson emphasis on research relating to mone- ■ Committees versus Individuals: An tary and financial stability. The journal’s Experimental Analysis of Monetary main objectives are to disseminate widely Policy Decision Making Clare Lombardelli, James Proudman, the best policy-relevant and applied and James Talbot research that reflects the missions of ■ central banks around the world across a Exchange Rate Volatility and the Credit Channel in Emerging Markets: range of disciplines, and to promote A Vertical Perspective communication among researchers both Ricardo Caballero and Arvind Krishnamurthy inside and outside central banks. The IJCB’s first issue contains the Detailed information on the International following articles: Journal of Central Banking can be found at ■ Monetary Policy with Judgment: www.ijcb.org. Forecast Targeting Lars E. O. Svensson Publications and Papers The Research and Statistics Group produces a wide range of publications: ■ The Economic Policy Review—a policy-oriented journal focusing on economic and financial market issues. ■ EPR Executive Summaries—online versions of selected Economic Policy Review articles in abridged form. ■ Current Issues in Economics and Finance—concise studies of topical economic and financial issues. ■ Second District Highlights—a regional supplement to Current Issues. ■ Staff Reports—technical papers intended for publication in leading economic and finance journals, available only online. ■ Publications and Other Research—an annual catalogue of our research output. Federal Reserve Bank of New York www.newyorkfed.org/research New Titles in the Staff Reports Series The following new Staff Reports are welfare. Indeed, one or, more surprisingly, available at www.newyorkfed.org/ both types of agents may benefit if the cen- research/staff_reports. tral bank deviates from the Friedman rule. MACROECONOMICS AND GROWTH INTERNATIONAL No. 206, April 2005 No. 209, May 2005 Shock Identification of Macroeconomic The Simple Geometry of Transmission Forecasts Based on Daily Panels and Stabilization in Closed and Marlene Amstad and Andreas M. Fischer Open Economies Giancarlo Corsetti and Paolo Pesenti This paper proposes a new procedure for shock identification of macroeconomic This paper provides an introduction to the forecasts based on factor analysis. The recent literature on macroeconomic stabili- 3 authors’ identification scheme for informa- zation in closed and open economies. tion shocks relies on data reduction Corsetti and Pesenti present a stylized theo- techniques for daily panels and the recog- retical framework, illustrating its main nition that macroeconomic releases exhibit properties with the help of an intuitive a high level of clustering. This information graphical apparatus. Among the issues dis- clustering facilitates the interpretation of cussed are optimal monetary policy and the forecast innovations as real or nominal welfare gains from macroeconomic stabili- information shocks. An empirical applica- zation, the international transmission of tion is provided for Swiss inflation. Amstad real and monetary shocks and the role of and Fischer show that the monetary policy exchange rate pass-through, and the design shocks generate an asymmetric response to of optimal exchange rate regimes and mone- inflation, that the pass-through for con- tary coordination among interdependent sumer price index inflation is weak, and economies. that the information shocks to inflation are not synchronized. MICROECONOMICS No. 208, May 2005 No. 212, June 2005 Who Is Afraid of the Friedman Rule? Propensity Score Matching, a Distance- Joydeep Bhattacharya, Joseph Haslag, Based Measure of Migration, and the Antoine Martin, and Rajesh Singh Wage Growth of Young Men The authors explore the connection John C. Ham, Xianghong Li, and Patricia B. Reagan between optimal monetary policy and het- erogeneity among agents. They utilize a This paper estimates the effect of U.S. standard monetary economy with two types internal migration on real wage growth of agents that differ in the marginal utility between the movers’ first and second jobs. they derive from real money balances—a Ham, Li, and Reagan develop an economic framework that produces a nondegenerate model to 1) assess the appropriateness of stationary distribution of money holdings. matching as an econometric method for Without type-specific fiscal policy, the studying migration and 2) choose the con- authors show that the zero-nominal-interest- ditioning variables used in the matching rate policy (the Friedman rule) does not procedure. The authors find a significant maximize type-specific welfare; further, it effect of migration on the wage growth of may not maximize aggregate ex ante social college graduates of 10 percent and a Research and Statistics Group Research Update ■ Number 2, 2005 marginally significant effect for high-school cap sectors are modeled by way of a vector dropouts of -12 percent. If the authors use autoregression model, using data that span a measure of migration based on moving more than 3,000 trading days. The authors across either county lines or state lines, the find that volatility and liquidity innovations significant effects of migration for college in one sector are informative in predicting graduates and dropouts disappear. liquidity shifts in the other. Impulse responses indicate the existence of persist- No. 213, June 2005 ent liquidity, return, and volatility spill- Selection Bias, Demographic Effects, overs across the small- and large-cap and Ability Effects in Common Value sectors. Lead and lag patterns across small- Auction Experiments and large-cap stocks are stronger when Marco Casari, John C. Ham, spreads in the large-cap sector are wider. and John H. Kagel Consistent with the notion that private The authors find clear demographic and informational trading in large-cap stocks is ability effects on bidding in common value transmitted to other stocks with a lag, 4 auctions: inexperienced women are much order flows in the large-cap decile predict more susceptible to the winner’s curse than both transaction-price-based and mid- are men, but they catch up quickly; eco- quote returns of small-cap deciles when nomics and business majors substantially large-cap spreads are high. overbid relative to other majors; and those with superior SAT/ACT scores are