Search results for "INFLATION"
showing 10 items of 210 documents
Wage Bargaining Centralization And Macroeconomic Performance: An Experimental Approach
2001
This paper experimentally analyzes the effect of wage bargaining centralization (WBC) on macroeconomic performance. Our theoretical benchmark comes from that developed by Cukierman and Lippi (1999) to investigate the joint effects of monetary policy and labor market institutions on unemployment and inflation. We focus on the implications of two well known effects related to the degree of WBC: the competitive effect and the strategic effect. To do so we established a simple wage setting mechanism based on the existence of assorted levels of WBC measured by the number of unions in the labor market. In the three control treatments, unions' welfare and monetary rewards depend only on unemployme…
The Taylor Rule and the Practice of Central Banking
2010
The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in response to an increase in inflation. And, various versions of the Taylor rule have been incorporated into macroeconomic models that are used at central banks to understand and forecast the economy. ; This paper examines how the Taylor rule is used as an input in monetary policy deliberations and decision-making at central banks. The paper charac…
Deficit sustainability and inflation in EMU: An analysis from the Fiscal Theory of the Price Level
2007
Price determination theory typically focuses on the role of monetary policy, while the role of fiscal policy is usually neglected. From a different point of view, the Fiscal Theory of the Price Level takes into account monetary and fiscal policy interactions and assumes that fiscal policy may determine the price level, even if monetary authorities pursue an inflation targeting strategy. In this paper we try to test empirically whether the time path of the government budget in EMU countries would have affected price level determination. Our results point to the sustainability of fiscal policy in all the EMU countries but Finland, although no firm conclusions can be drawn about the prevalence…
The Role of the Exchange Rate Regime in the Process of Real and Nominal Convergence
2013
During the last decade, economists have intensively searched for evidence on the importance of the Balassa-Samuelson (B-S) hypothesis in explaining nominal convergence. One general result is that B-S can at best explain only part of the excess inflation observed in the European catching-up countries, which suggests that other factors may be at play. In these and related studies, however, the potential role of the exchange rate regime in affecting price convergence in Europe has been overlooked. In this respect, we claim that the choice of the exchange rate regime has decisively affected the path of nominal convergence. To show this, we first model the (endogenous) choice of the exchange rat…
Quantum macroeconomics: A tribute to Bernard Schmitt
2016
Bernard Schmitt, the founder of quantum macroeconomics, died on 26 March 2014. His legacy concerns the discovery of the logical laws of monetary macroeconomics and extends to the explanation of the origin and nature of economic and financial crises. Starting from a novel conception of bank money, he was able to show that economics is founded on true macroeconomic laws, which take the form of logical identities. This paper is a brief and necessarily incomplete introduction to the main themes of Schmitt's macroeconomic analysis. It ranges from the distinction between money and income that lies at the hearth of his theory of the circuit, to the investigation of inflation and unemployment as pa…
Inflation dynamics in a model with firm entry and (some) heterogeneity
2014
We analyse the incidence of endogenous entry and firm TFP-heterogeneity on the response of aggregate inflation to exogenous shocks. We build up an otherwise standard DSGE model in which the number of firms is endogenously determined and firms differ in their steady state level of productivity. This splits the industry structure into firms of different sizes. Calibrating the different transition rates, across firm sizes and out of the market we reproduce the main features of the distribution of firms in Spain. We then compare the inflation response to technology, interest rate and entry cost shocks, among others. We find that structures in which large (more productive) firms predominate tend…
Inflation and the Circuit of Income
2012
This timely book uses cutting-edge research to analyse the fundamental causes of economic and financial crises, and illustrates the macroeconomic foundations required for future economic policymaking in order to avoid these crises.
Macroeconomic Modelling in EMU: How Relevant is the Change in Regime?
2007
We analyse the likely effects of changes in the monetary and financial regimes of EMU countries on the dynamics of output and inflation. In particular, we evaluate the impact of the regime shift on the forecasting performance of reduced-form models. Data for both the pre-EMU and the EMU regimes are generated by a relatively standard open-economy-DSGE model with sticky prices and wages and restricted access to financial markets for some individuals. We find that the effects of the shift in the monetary regime on the processes followed by macroeconomic variables depend on the nature of the shocks hitting the economy. For plausible shocks distributions the reduction in the accuracy of VAR-base…
A Long Term View on the Short Term Co-movement of Output and Prices in a Small Open Economy
2012
- One assumption behind inflation targeting as objective for monetary policy is that inflation rates in the short run to some extent reflect output cycles. The present paper investigates the historical co-movements of output and prices for a small open raw material based economy, in this case Norway 1830 – 2006. Looking at contemporaneous movements we find more often negative correlations between the two variables than positive. The correlations do not give any evidence of causality. However, they may indicate that supply side shocks, often caused by the foreign sector, were more important for historical output cycles in Norway than assumed hitherto
Inflation and optimal monetary policy in a model with firm heterogeneity and Bertrand competition
2018
Abstract We study the joint implications of heterogeneity of total factor productivity and strategic price interactions between firms on the dynamics of inflation and the design of optimal monetary policy. In this setting, more productive firms respond less to shocks affecting their marginal costs than less productive firms. As a consequence, economies with a larger proportion of highly productive firms face a flatter Phillips curve. Moreover, when these two features concur, the Ramsey problem gives rise to an optimal non-zero long run inflation that amplifies the differences in relative prices between more efficient and less efficient firms, thus increasing the market share of the former. …