Heterogeneity in Price Setting and the Real Effects of Monetary Shocks

This paper analyzes the implications of heterogeneity in price setting for the real effects of monetary shocks. Starting from otherwise standard sticky price and sticky information models, I introduce ex-ante heterogeneity in terms of price setting frictions, and compare the resulting dynamics with those of identical firms economies under alternative calibrations. Both the qualitative and the quantitative results show that heterogeneity leads monetary shocks to have substantially larger and more persistent real effects. In particular, reproducing the dynamics of a truly heterogeneous economy with a model based on identical firms requires unrealistically large degrees of price setting frictions.

A Tractable State-Space Model for Symmetric Positive-Definite Matrices

Bayesian analysis of state-space models includes computing the posterior distribution of the system's parameters as well as filtering, smoothing, and predicting the system's latent states. When the latent states wander around $\mathbb{R}^n$ there are several well-known modeling components and computational tools that may be profitably combined to achieve these tasks. However, there are scenarios, like tracking an object in a video or tracking a covariance matrix of financial assets returns, when the latent states are restricted to a curve within $\mathbb{R}^n$ and these models and tools do not immediately apply. Within this constrained setting, most work has focused on filtering and less attention has been paid to the other aspects of Bayesian state-space inference, which tend to be more challenging. To that end, we present a state-space model whose latent states take values on the manifold of symmetric positive-definite matrices and for which one may easily compute the posterior distribution of the latent states and the system's parameters, in addition to filtered distributions and one-step ahead predictions. Deploying the model within the context of finance, we show how one can use realized covariance matrices as data to predict latent time-varying covariance matrices. This approach out-performs factor stochastic volatility.Comment: 22 pages: 16 pages main manuscript, 4 pages appendix, 2 pages reference

New Forms of Public Service Delivery – are they really valuable?

One of the major challenges currently faced by Public Administrations is the creation of more value for both citizens and firms, mainly because of the increasing budgetary constraints and challenging demands from society. In fact, in the last two decades there has been a general movement of public reform in almost all developed countries, and for this reason it became essential to understand how users assess public services’ quality. This paper aims precisely at understanding which the determinants of public services’ quality are. Due to the nature of the research problem, the case-study methodology has been chosen. Thus, this paper presents the case-study of Citizen Shops in Portugal, a recent and innovative channel of public services’ delivery, within a strong relational perspective. This research involved an extensive qualitative and quantitative data collection. The main findings and implications are presented and discussed.public services; Citizen Shops; quality determinants; satisfaction; dissatisfaction

The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia

This paper analyzes the implications of heterogeneity in price setting for the real effects of monetary shocks. Starting from otherwise standard sticky price and sticky information models, I introduce ex-ante heterogeneity in terms of price setting frictions, and compare the resulting dynamics with those of identical firms economies under alternative calibrations. Both the qualitative and the quantitative results show that heterogeneity leads monetary shocks to have substantially larger and more persistent real effects. In particular, reproducing the dynamics of a truly heterogeneous economy with a model based on identical firms requires unrealistically large degrees of price setting frictions.Heterogeneity, Price-setting, Inflation Inertia

The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia

This paper has been replaced by a newer version.heterogeneity, price-setting, inflation persistence

Innovative Public Service Delivery: How to assess the new relationship between public agencies and society?

One of the major challenges faced by the Public Administration is how to create more value for both citizens and firms, mainly because of the increasing budgetary constraints and challenging demands from society. In fact, over the past two decades there has been a general movement of public reform in most developed countries, and for this reason it is essential to understand how users assess public services’ quality. This paper aims at understanding the determinants of public services’ quality. Due to the nature of the research problem, we have adopted a case-study methodology. The research involved an extensive qualitative and quantitative data collection with managers, citizens and front and back-office public servants, by means of interviews, questionnaires and focus groups. The paper presents the case of Citizen Shops in Portugal, a recent and innovative channel of public services’ delivery, within a strong relationship perspective. Firstly, it explores the kind of relationships that are developed during the public service encounter between the citizen, the public organization and society. Secondly, both citizen’s satisfaction and dissatisfaction with public services are investigated. The basic premise is that these two concepts are not opposite but have different determinants instead. Furthermore, the paper also explores the existence of a zone of tolerance and emphasizes the importance of managing emotions in the public service encounter. Finally, it is discussed that public services’ quality assessment should also take into consideration the implications on the value to society.Public services; citizen shops; quality determinants; satisfaction; dissatisfaction

Aggregation and the PPP puzzle in a sticky-price model

We study the purchasing power parity (PPP) puzzle in a multi-sector, two-country, sticky- price model. Across sectors, firms differ in the extent of price stickiness, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, this leads sectoral real exchange rates to have heterogeneous dynamics. We show analytically that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent than in a counterfactual one-sector world economy that features the same average frequency of price changes, and is otherwise identical to the multi-sector world economy. When simulated with a sectoral distribution of price stickiness that matches the microeconomic evidence for the U.S. economy, the model produces a half-life of deviations from PPP of 39 months. In contrast, the half-life of such deviations in the counterfactual one-sector economy is only slightly above one year. As a by-product, our model provides a decomposition of this difference in persistence that allows a structural interpretation of the different approaches found in the empirical literature on aggregation and the real exchange rate. In particular, we reconcile the apparently conflicting findings that gave rise to the "PPP Strikes Back debate" (Imbs et al. 2005a,b and Chen and Engel 2005).Purchasing power parity ; Prices ; Foreign exchange rates

Endogenous Time-Dependent Rules and Inflation Inertia

In this paper we endogenize fixed price time-dependent rules to examine the output effects of monetary disinflation. We derive the optimal rules in and out of inflationary steady states, and develop a methodology to aggregate individual pricing rules which vary through time. Because of strategic complementarities we have to solve both problems simultaneously. This allows us to reassess the output costs of monetary disinflations, including aspects such as the roles of the initial level of inflation, and of the degree of strategic complementarity in price. Finally, we relax the strict assumption of pure time-dependent rules by allowing price setters to reevaluate their rules at the time disinflation is announced.