Inflation Targeting and the Role of Money in a Model with Sticky Prices and Sticky Money

In order to study the role of money in an inflation targeting regime for monetary policy, we compare the interest rate and money as monetary policy instruments. Our dynamic stochastic general equilibrium model combines the money-in-the utility-function approach with sticky prices. We allow for time-varying preferences for real money balances, ie velocity shocks, and stochastic aggregate costs in production, ie 'technology shocks'. We show that conditioning the interest rate on the expected future cost change can be used to achieve constant inflation or constant inflation expectations. The assumed adjustment costs in 'money demand' lead to an equilibrium in which inflation can be controlled by money growth without information on the current state of the economy. Finally, we discuss the tradeoff between money and the interest rate as a monetary policy instrument. The result depends on the parameter stability of the cost change process relative to that of the 'money demand' function.monetary transmission mechanism; money-in-the-utility-function model; sticky prices; technology shock; monetary policy strategy

Stability of the Demand for M1 and Harmonized M3 in Finland

We derive a theoretical model for the demand for money using the money-in-the-utility-function approach. The steady-state – utility function – parameters of the model of narrow money (M1) estimated with cointegration techniques are stable over the foreign exchange rate regime shift; whereas in the model of harmonized M3 (M3H) they are not stable. The theoretical model fits the M1 data. The adjustment cost parameters of the M1 model describing the dynamics of the demand for money are stable over the sample period. The adjustment cost parameters of the M3H model are not stable. These results suggest that from the Finnish point of view M1 would be a more appropriate intermediate target for monetary policy than harmonized M3.money-in-the-utility-function model; structural breaks; demand for money; narrow money; harmonized M3

On the Estimation of Euler Equations in the Presence of a Potential Regime Shift

The concept of a peso problem is formalized in terms of a linear Euler equation and a nonlinear marginal model describing the dynamics of the exogenous driving process. It is shown that, using a threshold autoregressive model as a marginal model, it is possible to produce time-varying peso premia. A Monte Carlo method and a method based on the numerical solution of integral equations are considered as tools for computing conditional future expectations in the marginal model. A Monte Carlo study illustrates the poor performance of the generalized method of moment (GMM) estimator in small and even relatively large samples. The poor performance is particularly acute in the presence of a peso problem but is also serious in the simple linear case.peso problem; Euler equations; GMM; threshold autoregressive models

Declining labour share – Evidence of a change in underlying production technology?

The study demonstrates that the decline in the labour share in Finland can not be explained by the Cobb-Douglas production function. Instead, we propose an approach based on the constant-elasticity-of-substitution (CES) production function with labour- and capital-augmenting technical progress. The model is augmented by imperfect competition in the output market. According to the empirical results based on estimation of the first-order-conditions, the technical elasticity of substitution is significantly less than unity (0.6) and hence the Cobb-Douglas production function is rejected. The growth rate of the estimated labour-augmenting technical progress has decreased in recent years, which is not consistent with the ‘new-economy’ hypothesis. Capital-augmenting technical trend has exploded during the same period, which provides a possible explanation for the rapid growth of the Solow residual. The main contributing factor behind the declining labour share is, however, the increasing mark-up.production function; elasticity of technical substitution; input-augmenting technical progress; new economy

Labour and product market competition in a small open economy, Simulation results using a DGE model of the Finnish economy

Using the DGE model of the Finnish Economy (the ‘Aino’ model), we study the response of the economy to reforms in both labour and product markets. The reforms are two-fold. We assume that the wage mark-up, ie the monopoly power of wage-setters is gradually reduced by 5 percentage points. At the same time, the degree of competition is increased, ie price margins are exogenously reduced by 2 percentage points. These reforms imply a very favourable outcome of the economy. Both consumption and employment in-creases permanently and the reforms are welfare enhancing. Public balances improve giving room for 1.5 percentage point cut in income taxes. Our simulation exercises clearly demonstrate that such reforms may help in financing the future fiscal burden of an ageing population.competition; dynamic general equilibrium; public finance

Demographic Uncertainty and Labour Market Imperfections in Small Open Economy

This paper extends Gertler's (1999) tractable overlapping generations model by allowing for imperfect labour markets and distortionary taxation. Furthermore, we allow for stochastic variation in demographic structure. The model is then used to study demographic change in a small open economy of Finland. The simulations highlight a key role played by labour market imperfections in determining a fiscal burden of ageing in defined benefit pensions systems. Higher labour market imperfections lead into considerably stronger responses of labour supply and taxes on ageing. Thus, imperfections magnify the problem associated with fiscal sustainability in ageing society. Higher labour market imperfections lead into considerably stronger responses of labour supply and taxes on ageing. Thus, imperfections magnify the problem associated with fiscal sustainability in ageing society. Stochastic simulations suggest that lengthening of working time has rather minor impact on alleviating the fiscal burden of ageing. Only a small fraction of the stochastic variation in endogenously determined contribution rate is explained by the stochastic variation in the lenght of working time. Variation in fertility rate is clearly more important.Demographics, Uncertainty, DSGE, Labour Markets

Population ageing in a small open economy – some policy experiments with a tractable general equilibrium model

This paper extends Gertler’s (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure. The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by labour market responses to ageing. When the responses of labour supply, wages, and hence private consumption, to higher taxation are consistently accounted for, population ageing has clearly much larger effects on public finance, when compared to mechanical sustainability calculations. Stochastic simulations suggest that lengthening of working time has only a modest alleviating effect on the fiscal burden of ageing. This is due to the fact that stochastic variation in the length of working time has only a relatively small effect on the model’s dependency ratio. Variation in life expectancy is clearly much more important.ageing; general equilibrium; public finance; demographic uncertainty

Towards Agile Workforce – Case Study Research in Three Companies

Many companies today face a highly turbulent and volatile environment caused by intense foreign competition, rapid technological change, shorter product life-cycles, and customers demand- ing more customized products. Several strategies have been developed to deal with unpredictability in the environment. Agility and agile methods have been widely accepted as a new competitive concept in many countries, including Finland. However, the understanding of how to build agile organizations remains weak. The thesis provides initial empirical evidence to better understand essential elements of agile workforce and their relationship with organizational agility. More specifically, the research aims to understand and describe the concept of workforce agility in the selected case companies. The second goal is to discover the management practices, methods and tools that the case companies have adopted in order to enable and support the actions of an agile workforce. The thesis employs qualitative research methods with empirical approach doing semi- structured interviews in case study companies and conceptual approach using previous academic research. The case study companies are OP, DNA and Alma Media. The phenomenon of developing an agile workforce is rather new in large previously traditional organizations in Finland. Consequently, the study is exploratory by nature and aims to increase familiarity of the phenomenon in the Finnish context. The different cases were studied through interviews with managers that have been in a superior decision-making position and responsible for the change process, and managers or employees that have participated the implementation of the change process. Also, a HR specialist from Vincit was interviewed for her expertise on enterprise agility. According to the findings employees’ agile capabilities and attitudes towards agility are important factors when transforming towards enterprise agility. Findings show that companies that aim to make their organization more agile face two kinds of challenges. Firstly, companies must be able to arouse excitement and interest towards agility among employees. The second challenge concerns enabling agile work and managing the frustrations that arise. To deal with these challenges case companies employed similar practices, tools and methods that enable change management, change attitudes and culture, increase internal communication, knowledge sharing and cooperation; support empowerment and work organization, and promote new work methods and training

Short Subjects: Collecting at the 1982 World\u27s Fair

When the World\u27s Fair came to Tennessee (1 May-31 October 1982), it brought an opportunity for the staff of the McClung Historical Collection of the Knoxville-Knox County Public Library to collect small, ephemeral fair-related items. There is a scarcity of such items from the city\u27s early exposition experiences--the Appalachian Expositions of 1910 and 1911 and the National Conservation Exposition twenty years later. This led to thoughts on the needs of future researchers and how easily similar requests might be met with relatively little effort in the present

Modernizing Architecture and Ornament on Mid-Nineteenth-Century Scandinavian Farms

In mid-19th-century Sweden and Finland, numerous publications promoted the modernization of rural architecture. Many featured guidance for peasant farmers, including instructions for crafting wood carvings for the exteriors of farm buildings. This article argues that such wood carvings and the discourse around them played an important and inherently political role in efforts to modernize not only Scandinavian farm architecture but rural Scandinavia writ large. For reformers, this ornament was a means by which to increase agricultural production, provide decent incomes to the growing number of landless rural laborers, and develop the image of a prosperous Scandinavia at a time of widespread rural poverty. Offering a new look at the societal meanings of a common decorative element in 19th-century Scandinavian architecture, this article contributes to ongoing discussions about ornament in the history of architecture.Peer reviewe