Transmission Lags and Optimal Monetary Policy

Real world monetary policy is complicated by long and variable lags in the transmission of the policy to the economy. Most of the policy models, however, abstracts from policy lags. This paper presents a model where transmission lags depend on the behaviour of a two-sector supply side of the economy and focuses on how lag length and variability affect optimal monetary policy. The paper shows that optimal monetary policy should respond more to the sector with the shortest transmission lag and that the presence of production links among sectors amplifies this response. Furthermore, the shorter or more variable the aggregate transmission lag, the more active the overall policy and the larger the response to the sector with the shortest transmission lag. Finally, the relative strength of the response to inflation and output gap depends on the intensity of the sectoral production links, and on the length of the transmission lags. Only with reasonable production links should the optimal policy respond more to in?ation than to the output gap in line with the empirical evidence.Inflation targeting; monetary policy transmission mechanism; policy transmission lags; multiplicative uncertainty; Markov jump linear quadratic systems; optimal monetary policy.

CPI Inflation Targeting and Exchange Rate Pass-through

This paper analyzes how imperfect exchange rate pass-through affects the transmission of the CPI inflation targeting optimal monetary policy. In the short run, delayed pass-through constraints monetary policy more than incomplete pass-through and interest rate smoothing amplifies this effect. In addition, imperfect pass-through does not increase the variability of the real exchange rate for a subset of strict CPI inflation targeting cases and for flexible CPI inflation targeting. Furthermore, there exists an inverse relation between the pass-through and the insulation of CPI inflation from foreign shocks, and when the pass-through falls, the impact on the trade-off between the stabilization of both CPI inflation and output depends on how strictly the central bank is targeting CPI inflation and on the kind of imperfect pass-through.Inflation Targeting; Exchange Rate Pass-through; Open-economy; Direct Exchange Rate Channel; Optimal Monetary Policy.

Price Stickiness Asymmetry, Persistence and Volatility in a New Keynesian Model

In a two-sector New-Keynesian model, this paper shows that the dispersion in the degree of sectoral price stickiness plays a key role in the determination of the dynamics of aggregate inflation and, consequently, of the whole economy. The dispersion in price stickiness reduces the persistence of inflation and, to a smaller extent, of the interest rate. It also reduces the volatility of inflation, the interest rate and the output-gap. Thus two economies with the same average degree of price stickiness but a different variance may behave very differently, highlighting the relevance of sectoral data for economic estimations and forecasts.Sectoral asymmetries, price stickiness, New Keynesian model, persistence, volatility.

Household’s Preferences and Monetary Policy Inertia

The estimation of monetary policy rules suggests that the interest rates set by central banks move with a certain inertia. Although a number of hypotheses have been suggested to explain this phenomenon, its ultimate origin is unclear, thus delineating this issue as a modern "puzzle" in monetary economics. We show that household's preferences can play an important role in determining optimal interest rate inertia. Importantly, this can occur even when the central bank has negligible preferences for smoothing the interest rate.Optimal monetary policy; interest rate smoothing; household's preferences

"Taylored rules". Does one fit (or hide) all?

Modern monetary policymakers consider a huge amount of information to evaluate events and contingencies. Yet most research on monetary policy relies on simple instrument rules and one relevant underpinning for this choice is the good empirical fit of the Taylor rule. This paper challenges the solidness of this foundation. We investigate the way the coefficients of the Taylor-type rules change over time according to the evolution of general economic conditions. We model the Federal Reserve reaction function during the Greenspan’s tenure as a Logistic Smoothing Transition Regime model in which a series of economic meaningful transition variables drive the transition across monetary regimes. We argue that estimated linear rules are weighted averages of the actual rules working in the diverse monetary regimes, where the weights merely reflect the length and not necessarily the relevance of the regimes. Accordingly, an estimated linear Taylor-type reaction function tends to resemble the rule adopted in the longest regime. Thus, the actual presence of finer monetary policy regimes corrupts the general predictive and descriptive power of linear Taylor-type rules. These latter, by hiding the specific rules at work in the various finer regimes, lose utility directly with the uncertainty in the economy.Instrument Rules, LSTR, Monetary Policy Regime, Risk Management, Taylor Rule

Clinical and radiological midterm results from using the Fixion expandable intramedullary nail in transverse and short oblique fractures of femur and tibia

BACKGROUND: A locked nail is the principal method used to eliminate rotatory components in femoral and tibial fractures. Nevertheless, weight bearing is not directed onto the fracture site, slowing down the healing process; another possibility is to use a large-diameter nail and ream the canal to obtain as much adherence as possible and increase the grip, but this can cause a number of complications. The expandable nail is a new option that in theory should remove some problems with previous techniques. MATERIALS AND METHODS: This was a retrospective nonrandomized study encompassing 21 femoral fractures and 27 tibial fractures in 45 patients. They were classified according to the AO classification. Clinical and radiological checks were done at one, three, and six months and at one year from the surgery in order to check for signs of clinical and radiological healing. A good alignment was considered to be the presence of a deformity of less than 5° in the sagittal and lateral planes and the absence of rotatory clinically evident problems. This protocol was adhered to up to six months after surgery by all of the patients, while only 62.2% performed the last control. The mean follow-up was 15 months. A second group of 48 consecutive fractures (24 femural and 24 tibial) treated with locked nail was created to compare surgical times. RESULTS: Appropriate alignment was observed in all cases; the healing process appeared slower: radiological healing occurred in most cases at six months. The following complications were reported: a case of intraoperative fracture widening with no effect on the treatment; a case of a lesion of the tip of the nail with pneumatic system rupture that necessitated nail substitution; two cases of retarded consolidation at six months, with both tibial fractures treated successfully by intralesion platelet gel; a case of incarcerated nail on 17 removals, resolved by shearing. We had no cases of clinically evident compartment syndrome or pulmonary embolism. CONCLUSIONS: The expandable Fixion nail presents significant advantages in the treatment of transverse and short oblique fractures of femur and tibia because it is easy to use, involves minimal X-ray exposure and can control rotations. Nevertheless, it high cost limits its use. We consider it as an alternative to locked nail

Distribution forecast targeting in an open-economy, macroeconomic volatility and financial implications

In an open-economy faced with parameter uncertainty, this paper uses distribution forecasts to investigate the impact of alternative inflation targeting policies on macroeconomic volatility and their potential implications on financial stability. Theoretically, Domestic Inflation Targeting (DIT) leads to less volatility than Consumer Price Index Inflation Targeting (CPIIT) for several macroeconomic variables and, in particular, for the interest rate. Empirically, a positive relationship between interest rate volatility and financial instability emerges for the US, UK and Sweden since the early 1990s. Bridging theory and empirical evidence, we conclude that the choice of the inflation targeting regime has an important impact on macroeconomic volatility and potential implications for financial stability

Possible effects on avionics induced by terrestrial gamma-ray flashes

Abstract. Terrestrial gamma-ray flashes (TGFs) are impulsive (intrinsically sub-millisecond) events associated with lightning in powerful thunderstorms. TGFs turn out to be very powerful natural accelerators known to accelerate particles and generate radiation up to hundreds of MeV energies. The number ratio of TGFs over normal lightning has been measured in tropical regions to be near 10−4. We address in this Article the issue of the possible susceptibility of typical aircraft electronics exposed to TGF particle, gamma ray and neutron irradiation. We consider possible scenarios regarding the intensity, the duration, and geometry of TGFs influencing nearby aircraft, and study their effects on electronic equipment. We calculate, for different assumptions, the total dose and the dose-rate, and estimate single-event-effects. We find that in addition to the electromagnetic component (electrons/positrons, gamma rays) also secondary neutrons produced by gamma-ray photo production in the aircraft structure substantially contribute to single-event effects in critical semiconductors components. Depending on the physical characteristics and geometry, TGFs may deliver a large flux of neutrons within a few milliseconds in an aircraft. This flux is calculated to be orders of magnitude larger than the natural cosmic-ray background, and may constitute a serious hazard to aircraft electronic equipment. We present a series of numerical simulations supporting our conclusions. Our results suggest the necessity of dedicated measurement campaigns addressing the radiative and particle environment of aircraft near or within thunderstorms