CENTRAL BANK LEARNING, TERMS OF TRADE SHOCKS & CURRENCY RISKS: SHOULD ONLY INFLATION MATTER FOR MONETARY POLICY?

This paper examines the role of interest rate policy in a small open economy subject to terms of trade shocks, and time-varying currency risks. The private sector makes optimal decisions in an intertemporal non-linear setting with rational, forward-looking expectations. In contrast, the monetary authority practices "least-squares learning" about the evolution of inflation, output growth, and exchange rate depreciation in alternative policy scenarios. Interest rates are set by linear quadratic optimization, with the objectives for inflation, output growth, or depreciation depending on current conditions. The simulation results show that the prefered stance is one which targets inflation only. Including other targets such as growth and exchange rate changes significantly increases output variability, and unambiguously decreases welfare.Currency risks, learning, parameterized expectations, policy targets

AN EMPLOYMENT EQUATION FOR AUSTRALIA: 1966-2001

We model the relationship between hours of work and employment and argue that unless actual hours are varying with a change in ‘standard hours’, actual hours should not appear in the long-run component of an equation for employment. If however standard hours are changing then it is desirable that this variable be incorporated into the employment equation. Our theoretical model yields an expression for the elasticity of employment with respect to standard hours which shows that the elasticity is related to the size of the premium for overtime. Using quarterly data for the period 1966:3 – 2001:3 we estimate a new employment equation for Australia incorporating standard hours of work. We find empirical support for our approach and we provide new estimates of the elasticity of employment with respect to the real wage and GDP. We also find a marked asymmetry in the response of employment to variations in real GDP and real wages in recession periods as against non-recession periods.Employment Determination, Demand for Labor, Australia

A FRAMEWORK FOR UNDERSTANDING CHANGES IN THE UNEMPLOYMENT RATE IN A FLOWS CONTEXT: AN EXAMINATION NET FLOWS IN THE AUSTRALIAN LABOUR MARKET

In this paper we develop a framework which is appropriate for the systematic investigation of the relationship between net (and gross) flows between different labour market states and movements in the unemployment rate. We use that framework to investigate the behaviour of net flows of persons between employment, unemployment and not in the labour force in Australia between 1979-2003 and the relationship of these flows to changes in the unemployment rate over that period. We find that: flows from unemployment to employment exceed flows from employment to unemployment and that this is the case even in recessions; flows from employment to not in the labour force exceed flows from not in the labour force to employment and that this is the case even in booms, and; flows from not in the labour force to unemployment exceed flows from unemployment to not in the labour force even in recessions. Another important finding is that the reason why the participation rate is negatively correlated with the unemployment rate is because net flows from employment to both unemployment and to not in the labour force are highly correlated. It cannot be explained by flows occurring between unemployment and not in the labour force.Worker Flows Business Cycle Unemployment Participation Rate

Regional Indexes of Activity: Combining the Old with the New

This paper proposes a framework to construct indexes of activity which links two strands of the index literature – the traditional business cycle analysis and the latent variable approach. To illustrate the method, we apply the framework to Australian regional data, namely to two resource-rich and two service-based states. The results reveal differences in the evolution and drivers of economic activity across the four states. We also demonstrate the value of the Index in a broader context by using a structural vector autoregression (SVAR) approach to analyse the effects of shocks from the US and from China. This Index-SVAR approach facilitates a richer analysis because the unique feature of the index method proposed here allows impulse responses to be traced back to the components.Regional economic activity, coincident indicators, dynamic latent factor model

Reversibility of Red blood Cell deformation

The ability of cells to undergo reversible shape changes is often crucial to their survival. For Red Blood Cells (RBCs), irreversible alteration of the cell shape and flexibility often causes anemia. Here we show theoretically that RBCs may react irreversibly to mechanical perturbations because of tensile stress in their cytoskeleton. The transient polymerization of protein fibers inside the cell seen in sickle cell anemia or a transient external force can trigger the formation of a cytoskeleton-free membrane protrusion of micrometer dimensions. The complex relaxation kinetics of the cell shape is shown to be responsible for selecting the final state once the perturbation is removed, thereby controlling the reversibility of the deformation. In some case, tubular protrusion are expected to relax via a peculiar "pearling instability".Comment: 4 pages, 3 figure