How Do Monetary and Fiscal Policy Interact in the European Monetary Union?

Formation of the Euro area raises new questions about the coordination of monetary and fiscal policy. Using a New Neoclassical Synthesis (NNS) model, we show that a common monetary policy, responding to area-wide aggregates, has asymmetric effects on countries within the union, depending on whether they are large or small, or whether they have high or low debts. We analyze the implications of these asymmetries for the various countries welfare and for their fiscal policies. We also study rules for setting national tax and spending rates, rules that constrain movements in the deficit to GDP ratio. We ask whether these rules are necessary for the common monetary policy to be able to harmonize national inflation rates, and we analyze their effects on national welfare. We also discuss some potential failings of our model (and perhaps NNS models generally); in particular, our model's variance decompositions suggest that productivity shocks may play an inordinately large role, while fiscal shocks (or demand shocks generally) may play too small a role (even when 'rule of thumb' spenders are added).

The Need for International Policy Coordination: What's Old, What's New, What's Yet to Come?

Fifty years ago, the Chicago School argued that flexible exchange rates would insulate employment from foreign economic disturbances: there is no need for policy coordination; flexible exchange rates suffice. Twenty five years later, the Bretton Woods system was gone, and the first generation of policy coordination models was introduced. Chicago School arguments not withstanding, these Old-Keynesian models provided a theoretical rational for policy coordination. Now, a new generation of policy coordination models is emerging. These New-Keynesian models incorporate optimizing households, monopolistic competition and nominal inertia. Here, we examine macroeconomic interdependence and the scope for policy coordination in a tractable second generation model that has received much recent attention. We relate our discussion to the old Chicago School arguments, to earlier analyses of first generation models, to recent empirical work on productivity, and to recent theoretical work on closed economy models. We conclude that second generation models may have more scope for policy coordination than did the first, and we identify the empirical work that is needed to give a serious answer to the question.

Price- and wage- inflation targeting: variations on a theme by Erceg, Henderson, and Levin

Inflation (Finance) ; Prices ; Wages

Analysis of the phenomenon of speculative trading in one of its basic manifestations: postage stamp bubbles

We document and analyze the empirical facts concerning one of the clearest evidence of speculation in financial trading as observed in the postage collection stamp market. We unravel some of the mechanisms of speculative behavior which emphasize the role of fancy and collective behavior. In our conclusion, we propose a classification of speculative markets based on two parameters, namely the amplitude of the price peak and a second parameter that measures its ``sharpness''. This study is offered to anchor modeling efforts to realistic market constraints and observations.Comment: 9 pages, 5 figures and 2 tables, in press in Int. J. Mod. Phys.

Trends in European productivity and real exchange rates

Durante la ultima decada se ha producido una disminucion sustancial de la tasa de inflacion en paises como España o Italia. Sin embargo, dicho comportamiento esconde un fenomeno de inflacion dual: la tasa de crecimiento de los precios en el sector de bienes no comerciables se ha situado de forma persistente por encima de la tasa en el sector de bienes comerciables. En este trabajo se ofrece una explicacion parcial de dicha divergencia en terminos de las diferencias existentes en la evolucion tendencial de la productividad del trabajo en ambos sectores. En concreto, la evidencia apunta a un menor crecimiento de la productividad en el sector de bienes no comerciables, lo que explicaria su mayor inflacion relativa como un fenomeno de equilibrio. A partir de esta interpretacion de los hechos se investigan sus consecuencias sobre el cumplimiento de los criterios de Maastricht, asi como sobre la posible existencia de diferenciales nacionales de inflacion despues de la formacion de la Union Monetaria Europea (UME). (mc) (bd) (ge) (mac

Testing for rational speculative bubbles in the Brazilian residential real-estate market

Speculative bubbles have been occurring periodically in local or global real estate markets and are considered a potential cause of economic crises. In this context, the detection of explosive behaviors in the financial market and the implementation of early warning diagnosis tests are of critical importance. The recent increase in Brazilian housing prices has risen concerns that the Brazilian economy may have a speculative housing bubble. In the present paper, we employ a recently proposed recursive unit root test in order to identify possible speculative bubbles in data from the Brazilian residential real-estate market. The empirical results show evidence for speculative price bubbles both in Rio de Janeiro and Sao Paulo, the two main Brazilian cities

Is the Price Level Determined by the Needs of Fiscal Solvency?

A new theory of price determination suggests that if primary surpluses are independent of the level of debt, the price level has to jump' to assure fiscal solvency. In this regime (which we call Fiscal Dominant), monetary policy has to work through seignorage to control the price level. If on the other hand primary surpluses are expected to respond to the level of debt in a way that assures fiscal solvency (a regime we call Money Dominant), then the price level is determined in more conventional ways. In this paper we develop testable restrictions that differentiate between the two regimes. Using post war data, we present what we think is overwhelming evidence that the United States is in a Money Dominant regime; even the post Reagan data (1980 to 1995) seem to support that contention.

Asynchronous Interaction Aggregation for Action Detection

Understanding interaction is an essential part of video action detection. We propose the Asynchronous Interaction Aggregation network (AIA) that leverages different interactions to boost action detection. There are two key designs in it: one is the Interaction Aggregation structure (IA) adopting a uniform paradigm to model and integrate multiple types of interaction; the other is the Asynchronous Memory Update algorithm (AMU) that enables us to achieve better performance by modeling very long-term interaction dynamically without huge computation cost. We provide empirical evidence to show that our network can gain notable accuracy from the integrative interactions and is easy to train end-to-end. Our method reports the new state-of-the-art performance on AVA dataset, with 3.7 mAP gain (12.6% relative improvement) on validation split comparing to our strong baseline. The results on dataset UCF101-24 and EPIC-Kitchens further illustrate the effectiveness of our approach. Source code will be made public at: https://github.com/MVIG-SJTU/AlphAction

Rational speculative bubbles: an empirical investigation of the London Stock Exchange

In recent years, a sharp divergence of London Stock Exchange equity prices from dividends has been noted. In this paper, we examine whether this divergence can be explained by reference to the existence of a speculative bubble. Three different empirical methodologies are used: variance bounds tests, bubble specification tests, and cointegration tests based on both ex post and ex ante data. We find that, stock prices diverged significantly from their fundamental values during the late 1990's, and that this divergence has all the characteristics of a bubble