Markups, Gaps, and the Welfare Costs of Business Fluctuations

In this paper we present a simple, theory-based measure of the variations in aggregate economic efficiency associated with business fluctuations. We decompose this indicator, which we refer to as 'the gap', into two constituent parts: a price markup and a wage markup, and show that the latter accounts for the bulk of the fluctuations in our gap measure. Finally, we derive a measure of the welfare costs of business cycles that is directly related to our gap variable, and which takes into account explicitly the existence of a varying aggregate inefficiency. When applied to postwar U.S. data, for plausible parametrizations, our measure suggests welfare losses of fluctuations that are of a higher order of magnitude than those derived by Lucas (1987). It also suggests that the major postwar recessions involved substantial efficiency costs.

European inflation dynamics

Los autores presentan evidencia sobre el ajuste de la Nueva Curva de Phillips para el area del euro durante el periodo 1970-1998. Utilizan esta evidencia para comparar las caracteristicas dinamicas de la inflacion en el area del euro y en Estados Unidos. Ademas, estudian los factores determinantes de la inercia de esta variable a partir del comportamiento ciclico de los principales componentes de los costes marginales : la productividad del trabajo y los salarios reales. Entre los resultados : a) La Nueva Curva de Phillips explica los datos, en el area del euro, incluso mejor que en Estados Unidos y b) La inflacion en el area del euro parece tener una mayor componente 'forward looking' que en Estados Unidos. (ad

Robustness of the estimates of the hybrid new Keynesian Phillips curve

Galí and Gertler (1999) developed a hybrid variant of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward looking behavior is dominant: The coefficient on expected future inflation substantially exceeds the coefficient on lagged inflation. While the latter differs significantly from zero, it is quantitatively modest. Several authors have suggested that our results are the product of specification bias or suspect estimation methods. Here we show that these claims are incorrect, and that our results are robust to a variety of estimation procedures, including GMM estimation of the closed form, and nonlinear instrumental variables. Also, as we discuss, many others have obtained very similar results to ours using a systems approach, including FIML techniques. Hence, the conclusions of GG and others regarding the importance of forward looking behavior remain robust

The euro area inefficiency gap

We construct a measure of Euro area cyclical effficiency, following the approach developed in Galí, Gertler and López-Salido (2002).Our measure -wich we call “the gap”- corresponds to the inverse of price over social marginal cost. Here we present a time series of this gap for the Euro area, as well as it two components, the price and wage markups. As with U.S. data, the inefficiency gap is highly procyclical, and driven largely by countercyclical movements in the wage markup. We are also able to use our gap variable to derive a theory-based measure of the output gap for the Euro area, which we can compare to other measures often used in applications. We also show that the wage markup moves closely with the unemployment rate, as theory would suggest. Finally, we discuss briefly the implications for monetary policy of alternative interpretations of our evidence [resumen de autor

Markups, gaps, and the welfare costs of business fluctuations

A partir de un modelo teorico, se presenta una medida de las variaciones en el grado de eficiencia ligadas a las fluctuaciones ciclicas de una economia. Este indicador (gap) se descompone en dos componentes: un margen de precios y un marge de salarios, siendo este ultimo el que contribuye en mayor medida a explicar las fluctuaciones del gap. (ad

European Inflation Dynamics

We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.

Gender Differences in Russian Colour Naming

In the present study we explored Russian colour naming in a web-based psycholinguistic experiment (http://www.colournaming.com). Colour singletons representing the Munsell Color Solid (N=600 in total) were presented on a computer monitor and named using an unconstrained colour-naming method. Respondents were Russian speakers (N=713). For gender-split equal-size samples (NF=333, NM=333) we estimated and compared (i) location of centroids of 12 Russian basic colour terms (BCTs); (ii) the number of words in colour descriptors; (iii) occurrences of BCTs most frequent non-BCTs. We found a close correspondence between females’ and males’ BCT centroids. Among individual BCTs, the highest inter-gender agreement was for seryj ‘grey’ and goluboj ‘light blue’, while the lowest was for sinij ‘dark blue’ and krasnyj ‘red’. Females revealed a significantly richer repertory of distinct colour descriptors, with great variety of monolexemic non-BCTs and “fancy” colour names; in comparison, males offered relatively more BCTs or their compounds. Along with these measures, we gauged denotata of most frequent CTs, reflected by linguistic segmentation of colour space, by employing a synthetic observer trained by gender-specific responses. This psycholinguistic representation revealed females’ more refined linguistic segmentation, compared to males, with higher linguistic density predominantly along the redgreen axis of colour space

The Central-Bank Balance Sheet as an Instrument of Monetary Policy

While many analyses of monetary policy consider only a target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We extend a standard New Keynesian model to allow a role for the central bank's balance sheet in equilibrium determination, and consider the connections between these alternative dimensions of policy and traditional interest-rate policy. We distinguish between "quantitative easing" in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest-rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves; in our model, this requires that the interest rate on reserves be kept near the target for the policy rate at all times