A small estimated Euro area model with rational expectations and nominal rigidities

In this paper we estimate a small model of the euro area to be used as a laboratory for evaluating the performance of alternative monetary policy strategies. We start with the relationship between output and inflation and investigate the fit of the nominal wage contracting model due to Taylor (1980)and three different versions of the relative real wage contracting model proposed by Buiter and Jewitt (1981)and estimated by Fuhrer and Moore (1995a) for the United States. While Fuhrer and Moore reject the nominal contracting model in favor of the relative contracting model which induces more inflation persistence, we find that both models fit euro area data reasonably well. When considering France, Germany and Italy separately, however, we find that the nominal contracting model fits German data better, while the relative contracting model does quite well in countries which transitioned out of a high inflation regime such as France and Italy. We close the model by estimating an aggregate demand relationship and investigate the consequences of the different wage contracting specifications for the inflation-output variability tradeoff, when interest rates are set according to Taylor 's rule

Bond Yield Compression in the Countries Converging to the Euro

We demonstrate that bond yield compression is under way in the countries converging to the euro and that German yields are significant drivers of local currency yields. Based on the evidence from Poland, Hungary and the Czech Republic, we conclude that these new Member States of the European Union are ready to adopt the euro without risking a disruptive shock to their financial stability. This message transpires from investigating the daily volatility dynamics of local bond yields as a function of German yields, conditional on changes in local term spreads, exchange rates and adjustments to central bank reference rates. Similar results of high sensitivity of local currency bond yields to changes in German yields are obtained from testing monthly series of macroeconomic fundamentals. These findings provide evidence of the potential usefulness of term spreads as indicators of monetary convergence.http://deepblue.lib.umich.edu/bitstream/2027.42/40185/3/wp799.pd

Demand methods of price management: An empirical research

One factor which companies often take as a reference point for their pricing decisions is demand. This, however, is often done only partially, with priority being given to quantitative factors rather than qualitative factors. In this context, the aim of this study was to supply companies with a tool to facilitate and enhance price management in areas related to demand. In order to achieve this objective, the following procedure was implemented. Firstly, an extensive review of existing literature was carried out. This has made it possible to identify a set of factors which can influence consumer behaviour with respect to prices, and which should therefore be taken into account when making pricing decisions. The factors identified were then grouped into several categories (variables related to price, variables related to the product, variables related to the characteristics and the behaviour of the consumer, and variables related to the context of the purchase), in order to offer an overall, linked view. An empirical study was then carried out, interviewing price managers in a selection of companies from Andalusia (Spain). The objective was to gather data on their methods of price management, and to evaluate the practical usefulness of the sets of factors identified. The results of the study have made it possible to draw some interesting conclusions on price management. One of these is the importance which companies attach to pricing decisions. These decisions were taken in all cases by higher management teams. However, on analysing the factors which intervene in pricing decisions, it has been observed that their number is limited. In general, cost is still the major factor, while demandrelated aspects, in particular qualitative aspects, play a secondary role. On investigating the reasons for the priority given to quantitative rather than qualitative data, interviewees basically gave two answers. On the one hand, quantitative information (costs and sales) is easier to obtain, use and interpret than qualitative information (motivation, perception and attitude). On the other hand, most companies, and in particular the smaller ones, have no budget available for qualitative market studies. There may be a third reason for this behaviour, which was not explicitly mentioned at first by interviewees. This is the lack of knowledge regarding qualitative demand factors: their nature, their meaning, their usefulness and the way in which they can be incorporated into pricing decisions. This study is a first step towards solving this deficiency, since it proposes a chart which contains numerous restrictions in an integrated, organised fashion. Logically, it would be impractical to take them all into account simultaneously. This is where the work of each company begins, using market studies to establish priorities between the different factors

A Small Estimated Euro Area Model with Rational Expectations and Nominal Rigidities

In this paper we estimate a small model of the euro area to be used as a laboratory for evaluating the performance of alternative monetary policy strategies. We start with the relationship between output and inflation and investigate the fit of the nominal wage contracting model due to Taylor (1980)and three different versions of the relative real wage contracting model proposed by Buiter and Jewitt (1981)and estimated by Fuhrer and Moore (1995a) for the United States. While Fuhrer and Moore reject the nominal contracting model in favor of the relative contracting model which induces more inflation persistence, we find that both models fit euro area data reasonably well. When considering France, Germany and Italy separately, however, we find that the nominal contracting model fits German data better, while the relative contracting model does quite well in countries which transitioned out of a high inflation regime such as France and Italy. We close the model by estimating an aggregate demand relationship and investigate the consequences of the different wage contracting specifications for the inflation-output variability tradeoff, when interest rates are set according to Taylor ’s rule.European Monetary Union, euro area, macroeconomic modelling, rational expectations, nominal rigidities, overlapping wage contracts, inflation persistence, monetary policy rules

Optimal provision of distributed reserves under dynamic energy service preferences

We propose and solve a stochastic dynamic programming (DP) problem addressing the optimal provision of regulation service reserves (RSR) by controlling dynamic demand preferences in smart buildings. A major contribution over past dynamic pricing work is that we pioneer the relaxation of static, uniformly distributed utility of demand. In this paper we model explicitly the dynamics of energy service preferences leading to a non-uniform and time varying probability distribution of demand utility. More explicitly, we model active and idle duty cycle appliances in a smart building as a closed queuing system with price-controlled arrival rates into the active appliance queue. Focusing on cooling appliances, we model the utility associated with the transition from idle to active as a non-uniform time varying function. We (i) derive an analytic characterization of the optimal policy and the differential cost function, and (ii) prove optimal policy monotonicity and value function convexity. These properties enable us to propose and implement a smart assisted value iteration (AVI) algorithm and an approximate DP (ADP) that exploits related functional approximations. Numerical results demonstrate the validity of the solution techniques and the computational advantage of the proposed ADP on realistic, large-state-space problems