Optimal Policy Projections

We outline a method to provide advice on optimal monetary policy while taking policymakers' judgment into account. The method constructs Optimal Policy Projections (OPPs) by extracting the judgment terms that allow a model, such as the Federal Reserve Board's FRB/US model, to reproduce a forecast, such as the Greenbook forecast. Given an intertemporal loss function that represents monetary policy objectives, OPPs are the projections - of target variables, instruments, and other variables of interest -that minimize that loss function for given judgment terms. The method is illustrated by revisiting the Greenbook forecasts of February 1997 and November 1999, in each case using the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world, and our OPPs illustrate this difference. For a conventional loss function, our OPPs provide significantly better performance than Taylor-rule simulations.

Optimal Policy Projections

We outline a method to provide advice on optimal monetary policy while taking policymakers’ judgment into account. The method constructs optimal policy projections (OPPs) by extracting the judgment terms that allow a model, such as the Federal Reserve Board staff economic model, FRB/US, to reproduce a forecast, such as the Greenbook forecast. Given an intertemporal loss function that represents monetary policy objectives, OPPs are the projections — of target variables, instruments, and other variables of interest — that minimize that loss function for given judgment terms. The method is illustrated by revisiting the economy of early 1997 as seen in the Greenbook forecasts of February 1997 and November 1999. In both cases, we use the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world in 1997 and our OPPs illustrate this difference. For a conventional loss function, our OPPs provide significantly better performance than Taylor-rule simulations.

On the Approximability of Digraph Ordering

Given an n-vertex digraph D = (V, A) the Max-k-Ordering problem is to compute a labeling $\ell : V \to [k]$ maximizing the number of forward edges, i.e. edges (u,v) such that $\ell$(u) < $\ell$(v). For different values of k, this reduces to Maximum Acyclic Subgraph (k=n), and Max-Dicut (k=2). This work studies the approximability of Max-k-Ordering and its generalizations, motivated by their applications to job scheduling with soft precedence constraints. We give an LP rounding based 2-approximation algorithm for Max-k-Ordering for any k={2,..., n}, improving on the known 2k/(k-1)-approximation obtained via random assignment. The tightness of this rounding is shown by proving that for any k={2,..., n} and constant $\varepsilon > 0$, Max-k-Ordering has an LP integrality gap of 2 - $\varepsilon$ for $n^{\Omega\left(1/\log\log k\right)}$ rounds of the Sherali-Adams hierarchy. A further generalization of Max-k-Ordering is the restricted maximum acyclic subgraph problem or RMAS, where each vertex v has a finite set of allowable labels $S_v \subseteq \mathbb{Z}^+$. We prove an LP rounding based $4\sqrt{2}/(\sqrt{2}+1) \approx 2.344$ approximation for it, improving on the $2\sqrt{2} \approx 2.828$ approximation recently given by Grandoni et al. (Information Processing Letters, Vol. 115(2), Pages 182-185, 2015). In fact, our approximation algorithm also works for a general version where the objective counts the edges which go forward by at least a positive offset specific to each edge. The minimization formulation of digraph ordering is DAG edge deletion or DED(k), which requires deleting the minimum number of edges from an n-vertex directed acyclic graph (DAG) to remove all paths of length k. We show that both, the LP relaxation and a local ratio approach for DED(k) yield k-approximation for any $k\in [n]$.Comment: 21 pages, Conference version to appear in ESA 201

Chaotic Dynamics in Optimal Monetary Policy

There is by now a large consensus in modern monetary policy. This consensus has been built upon a dynamic general equilibrium model of optimal monetary policy as developed by, e.g., Goodfriend and King (1997), Clarida et al. (1999), Svensson (1999) and Woodford (2003). In this paper we extend the standard optimal monetary policy model by introducing nonlinearity into the Phillips curve. Under the specific form of nonlinearity proposed in our paper (which allows for convexity and concavity and secures closed form solutions), we show that the introduction of a nonlinear Phillips curve into the structure of the standard model in a discrete time and deterministic framework produces radical changes to the major conclusions regarding stability and the efficiency of monetary policy. We emphasize the following main results: (i) instead of a unique fixed point we end up with multiple equilibria; (ii) instead of saddle--path stability, for different sets of parameter values we may have saddle stability, totally unstable equilibria and chaotic attractors; (iii) for certain degrees of convexity and/or concavity of the Phillips curve, where endogenous fluctuations arise, one is able to encounter various results that seem intuitively correct. Firstly, when the Central Bank pays attention essentially to inflation targeting, the inflation rate has a lower mean and is less volatile; secondly, when the degree of price stickiness is high, the inflation rate displays a larger mean and higher volatility (but this is sensitive to the values given to the parameters of the model); and thirdly, the higher the target value of the output gap chosen by the Central Bank, the higher is the inflation rate and its volatility.Comment: 11 page

Magnetic properties of Ruddlesden-Popper phases Sr3−x_{3-x}Yx_{x}(Fe1.25_{1.25}Ni0.75_{0.75})O7−δ_{7-\delta}: A combined experimental and theoretical investigation

We present a comprehensive study of the magnetic properties of Sr$_{3-x}$Y$_{x}$(Fe$_{1.25}$Ni$_{0.75}$)O$_{7-\delta}$ ($0 \leq x \leq 0.75$). Experimentally, the magnetic properties are investigated using superconducting quantum interference device (SQUID) magnetometry and neutron powder diffraction (NPD). This is complemented by the theoretical study based on density functional theory as well as the Heisenberg exchange parameters. Experimental results show an increase in the N\'eel temperature ($T_N$) with the increase of Y concentrations and O occupancy. The NPD data reveals all samples are antiferromagnetically ordered at low temperatures, which has been confirmed by our theoretical simulations for the selected samples. Our first-principles calculations suggest that the 3D magnetic order is stabilized due to finite inter-layer exchange couplings. The latter give rise to a finite inter-layer spin correlations which disappear above the $T_N$

Money in monetary policy design: monetary cross-checking in the New-Keynesian model

In the New-Keynesian model, optimal interest rate policy under uncertainty is formulated without reference to monetary aggregates as long as certain standard assumptions on the distributions of unobservables are satisfied. The model has been criticized for failing to explain common trends in money growth and inflation, and that therefore money should be used as a cross-check in policy formulation (see Lucas (2007)). We show that the New-Keynesian model can explain such trends if one allows for the possibility of persistent central bank misperceptions. Such misperceptions motivate the search for policies that include additional robustness checks. In earlier work, we proposed an interest rate rule that is near-optimal in normal times but includes a cross-check with monetary information. In case of unusual monetary trends, interest rates are adjusted. In this paper, we show in detail how to derive the appropriate magnitude of the interest rate adjustment following a significant cross-check with monetary information, when the New-Keynesian model is the central bank’s preferred model. The cross-check is shown to be effective in offsetting persistent deviations of inflation due to central bank misperceptions. Keywords: Monetary Policy, New-Keynesian Model, Money, Quantity Theory, European Central Bank, Policy Under Uncertaint

Gambling: Electronic friends or a threat to one's health and personal development?

Gambling has become quite common in Sweden. The Swedish National Institute of Public Health (2010) has reported that about 70% of the Swedish population has gambled at least once during the last 12 months. Half of the population had gambled with money by 18 years of age and about 11% had gambled for the first time when they were 12-years-old or younger. In the report from the Swedish National Institute of Public Health, gambling problems are related to health problems and risky alcohol consumption. The highest problem rate is found among men aged 18 to 24; almost 1 in 10 had some gambling problems. The share of problem gamblers is found to be twice as high among the under-age gamblers as it is among the population as a whole. Young people gamble less but develop gambling problems to a larger extent than adult gamblers. In this article young people's gambling and their gambling careers are analysed as a natural part of their internalisation of other adult habits

Fueling of a marine-terrestrial ecosystem by a major seabird colony

Seabirds redistribute nutrients between different ecosystem compartments and over vast geographical areas. This nutrient transfer may impact both local ecosystems on seabird breeding islands and regional biogeochemical cycling, but these processes are seldom considered in local conservation plans or biogeochemical models. The island of Stora Karlso in the Baltic Sea hosts the largest concentration of piscivorous seabirds in the region, and also hosts a large colony of insectivorous House martins Delichon urbicum adjacent to the breeding seabirds. We show that a previously reported unusually high insectivore abundance was explained by large amounts of chironomids-highly enriched in delta N-15-that feed on seabird residues as larvae along rocky shores to eventually emerge as flying adults. Benthic ammonium and phosphate fluxes were up to 163% and 153% higher close to the colony (1,300 m distance) than further away (2,700 m) and the estimated nutrient release from the seabirds at were in the same order of magnitude as the loads from the largest waste-water treatment plants in the region. The trophic cascade impacting insectivorous passerines and the substantial redistribution of nutrients suggest that seabird nutrient transfer should be increasingly considered in local conservation plans and regional nutrient cycling models.Peer reviewe

Optimal Policy Projections

We outline a method to provide advice on optimal monetary policy while taking policymakers’ judgment into account. The method constructs optimal policy projections (OPPs) by extracting the judgment terms that allow a model, such as the Federal Reserve Board staff economic model, FRB/US, to reproduce a forecast, such as the Greenbook forecast. Given an intertemporal loss function that represents monetary policy objectives, OPPs are the projections — of target variables, instruments, and other variables of interest — that minimize that loss function for given judgment terms. The method is illustrated by revisiting the economy of early 1997 as seen in the Greenbook forecasts of February 1997 and November 1999. In both cases, we use the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world in 1997 and our OPPs illustrate this difference. For a conventional loss function, our OPPs provide significantly better performance than Taylor-rule simulations