What Does Monetary Policy Do?

macroeconomics, monetary policy

Growth in Transition: What We Know, What We Don't, and What We Should

This essay surveys macroeconomic issues that marked the transition from centrally planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish a set of stylized facts of the transition so far, namely: (1) output fell, (2) capital shrank, (3) labor moved, (4) trade reoriented, (5) the structure changed, (6) institutions collapsed, and (7) transition costs. We then critically survey the theoretical literature on transition, discussing various explanations for the initial output fall as well as medium term issues, such as optimal speed of transition, disorganization, institutions and sectoral reallocation as a source of output dynamics. Last, we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. The essay concludes with a succinct list of suggestions for future research.http://deepblue.lib.umich.edu/bitstream/2027.42/39854/3/wp470.pd

Effective Counterterrorism: What Have We Learned so Far?

The fight against terrorism, in particular of Islamist nature, has become a focus area of foreign and security policies in Western countries and around the world. This substantial effort is however only to a limited extent matched by adequate evaluations as to its actual success. This paper offers an overview of the counterterrorism effectiveness literature in terms of main areas of interest, conceptualisation and operationalisation difficulties as well as methodological considerations regarding the types of methods used, validity and reliability evaluations. It discusses the different understandings of causality and proposes a working definition of counterterrorism effectiveness. We find that a main focus of the literature lies on the impact component of effectiveness, often in the sense of a reduction of terrorist attacks in general or a reduction of certain methods of terrorism such as suicide attacks. Our model article "What Happened to Suicide Bombings in Israel? Insights from a Terror Stock Model" by Kaplan et al. (2005) illustrates the above-mentioned issues and reflects the mainstream approach in this field. The article uses econometric methods to determine the impact-effectiveness of counter-terrorism and reflects the problematique associated with attempts to infer a causal relationship between counterterrorism policies and the occurrence of terrorism.Counterterrorism, effectiveness, causality, quantitative and qualitative research methods

Growth in Transition: What We Know, What We Don't, and What We Should

This essay surveys macroeconomic issues that marked the transition from centrally planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish a set of stylized facts of the transition so far, namely: (1) output fell, (2) capital shrank, (3) labor moved, (4) trade reoriented, (5) the structure changed, (6) institutions collapsed, and (7) transition costs. We then critically survey the theoretical literature on transition, discussing various explanations for the initial output fall as well as medium term issues, such as optimal speed of transition, disorganization, institutions and sectoral reallocation as a source of output dynamics. Last, we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. The essay concludes with a succinct list of suggestions for future research.Economic Growth, Transition Economies

What drives productivity growth?

Economists have long debated the best way to explain the sources of productivity growth. Neoclassical theory and "new growth" theory both regard investment—broadly defined to include purchases of tangible assets, human capital expenditures, and research and development efforts—as a critical source of productivity growth, but they differ in fundamental ways. Most notably, the neoclassical framework focuses on diminishing and internal returns to aggregate capital, while new growth models emphasize constant returns to capital that may yield external benefits. This article finds that despite their differences, both theories help explain productivity growth. The methodological tools of the neoclassical economists allow one to measure the rate of technical change, and the models of the new growth theorists provide an internal explanation for technical progress.Economic development ; Productivity ; Capital ; Technology

What Are Ecosystem Services?

This paper advocates consistently defined units of account to measure the contributions of nature to human welfare. We argue that such units have to date not been defined by environmental accounting advocates and that the term “ecosystem services” is too ad hoc to be of practical use in welfare accounting. We propose a definition, rooted in economic principles, of ecosystem service units. A goal of these units is comparability with the definition of conventional goods and services found in GDP and the other national accounts. We illustrate our definition of ecological units of account with concrete examples. We also argue that these same units of account provide an architecture for environmental performance measurement by governments, conservancies, and environmental markets.Environmental accounting, ecosystem services, index theory, nonmarket valuation

What macroeconomic policies are"sound?"

Most people agree that the soundness of macroeconomic policies should be judged by their efficacy in meeting the objectives of steady growth, full employment, stable prices, and a viable external payments situation. What people debate about are the links between macroeconomics and economic structure--and in the current environment, the openness to foreign capital flows. As developing countries become more integrated into international financial markets, volatility may become an increasing fact of life. Faced with such volatility, how should these countries frame their macroeconomic policies? What broad principles should guide their macroeconomic management? In many developing countries, the openness of the capital account has been significant. Many countries have made the transition toward an open-economic paradigm. As a result, fluctuations in international capital and currency markets, as well as shifts in foreign investors'attitudes and confidence, have greatly affected local stock market prices, the level of foreign exchange reserves, and the scope for monetary and interest rate policy. Capital controls and foreign exchange restrictions have been significantly dismantled in a number of developing and transition economies. In 1970, only 34 countries--or 30 percent of the International Monetary Fund's membership-had assumed Article VIII of the IMF Articles of Agreement, declaring their currency convertible on current account transactions. By 1997, this figure had increased to 77 percent. Does financial integration make it more difficult to achieve macroeconomic stability? Apparently not, on the whole, although at times large short-term capital flows can lead to misaligned asset prices, including exchange rates. What financial integration does do is limit how far countries can pursue policies incompatible with medium-term financial stability. The disciplining effect of global financial and product markets applies not only to policymakers-through pressures on financial markets-but also to the private sector. Rather than constrain the pursuit of appropriate policies, globalization may add leverage and flexibility to such policies, easing financing constraints and extending the time during which countries can make adjustments. But markets will provide this leeway only if they perceive that countries are undertaking adjustments that address fundamental choices.Economic Theory&Research,Fiscal&Monetary Policy,Payment Systems&Infrastructure,Banks&Banking Reform,Environmental Economics&Policies,Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Economic Theory&Research,Macroeconomic Management

What Inspires Leisure Time Invention?

This paper seeks to understand the intriguing but only sparsely explored phenomenon of “leisure time invention,” where the main underlying idea for the new product or process occurs when the inventor is away from the workplace. We add to previous research by focussing on the inventive creativity of the individual researcher, and reassessing the image of researchers inventing during unpaid time – who have often been dispatched as “hobbyists”. Based on the responses from a survey of over 3,000 German inventors, we tested hypotheses on the conditions under which leisure time invention is likely to arise. Results suggest that the incidence of leisure time invention is positively related to exposure to a variety of knowledge inputs – but, surprisingly, not to the quality of prior inventive output. Leisure time inventions are more frequently observed in conceptual-based technologies than in science-based technologies, in smaller R&D projects, and in externally financed R&D projects