Monetary Policy, Asset-Price Bubbles and the Zero Lower Bound

We use a simple model of a closed economy to study the recommendations of monetary policy-makers, attempting to respond optimally to an asset-price bubble whose stochastic properties they understand. We focus on the impact which the zero lower bound (ZLB) on nominal interest rates has on the recommendations of such policy-makers. For a given target inflation rate, we identify several different forms of `insurance' which policy-makers could potentially take out against encountering the ZLB due to the future bursting of a bubble. Even with perfect knowledge of the bubble process, however, which of these will be optimal varies from one type of bubble to another and, for certain bubbles, from one period to the next. It is therefore difficult to say whether the ZLB should cause policy-makers to operate policy more tightly or loosely than they would otherwise do, while a bubble is growing -- even after abstracting from the informational difficulties they face in practice. We also examine the implications of the ZLB for policy-makers' preferences as to their inflation target. Policy-makers who wish to avoid concerns about the ZLB should take care not to set too low a target -- especially if the neutral real interest rate is low.

Monetary Policy, Asset-price Bubbles and the Zero Lower Bound

We use a simple model of a closed economy to study the recommendations of monetary policy-makers attempting to respond optimally to an asset-price bubble whose stochastic properties they understand. We focus on the impact which the zero lower bound (ZLB) on nominal interest rates has on the recommendations of such policy-makers. For a given target inflation rate, we identify several different forms of ‘insurance’ which policy-makers could potentially take out against encountering the ZLB due to the future bursting of a bubble. Even with perfect knowledge of the bubble process, however, which of these will be optimal varies from one type of bubble to another and, for certain bubbles, from one period to the next. It is therefore difficult to draw general conclusions as to whether the ZLB should cause policy-makers to operate policy more tightly or loosely than otherwise, while a bubble is growing – even after abstracting from the informational difficulties they face in practice. We also examine the implications of the ZLB for policy-makers’ preferences as to their inflation target. Policy-makers who wish to avoid concerns about the ZLB should take care not to set too low a target, especially if the neutral real interest rate is low. Such policy-makers should also set a higher target inflation rate if the economy’s natural propensity to rebound from a shock to output is weak, or if output is relatively unresponsive to real interest rate settings.monetary policy; asset-price bubbles; zero lower bound

Understanding the Flattening Phillips Curve

Policy-makers have recently noted an apparent flattening of the Phillips curve. The implications of such a change include that a positive output gap would be less inflationary, but the cost of reducing inflation, once established, would increase. This paper’s objective is to review the evidence and possible explanations for the flattening of the Phillips curve in the context of new-Keynesian economic theory. Using data for the United States and Australia, we find that the flattening is evident in the baseline ‘structural’ new-Keynesian Phillips curve. We consider a variety of reasons for this structural flattening, such as data problems, globalisation and alternative definitions of marginal cost, none of which is entirely satisfactory.Phillips curve; inflation

A Small BVAR-DSGE Model for Forecasting the Australian Economy

This paper estimates a small structural model of the Australian economy, designed principally for forecasting the key macroeconomic variables of output growth, underlying inflation and the cash rate. In contrast to models with purely statistical foundations, which are often used for forecasting, the Bayesian Vector Autoregressive Dynamic Stochastic General Equilibrium (BVAR-DSGE) model uses the theoretical information of a DSGE model to offset in-sample over-fitting. We follow the method of Del Negro and Schorfheide (2004) and use a variant of the small open economy DSGE model of Lubik and Schorfheide (2007) to provide prior information for the VAR. The forecasting performance of the model is competitive with benchmark models such as a Minnesota VAR and an independently estimated DSGE model.BVAR-DSGE; forecasting

Global Imbalances and the Global Saving Glut – A Panel Data Assessment

Since the late 1990s there have been substantial changes in the current account balances of a number of economies, most notably a marked widening in the current account deficit of the United States and increased net lending by many developing nations to developed economies. This paper uses panel data to examine what may have contributed to changes in the current account positions of a wide sample of developing and developed economies. In particular, we aim to assess the ‘global saving glut’ hypothesis that financial crises have contributed to the current account surpluses in developing economies. Overall, we find some support for this argument; there is a significant role for financial crises as well as institutional factors in determining current account balances. However, the model captures the broad trends evident in international capital flows for only some of the major regions in our sample.current accounts; financial crises; capital flows

Outkicking the Coverage: The Unionization of College Athletes

The article focuses on two-pronged solution in which the U.S. National Labor Relations Board (NLRB) would recognize scholarship college athletes as employees under the National Labor Relations Act (NLRA) and their rights restricted from collective bargaining

Elation generalised quadrangles of order (s,p), where p is prime

We show that an elation generalised quadrangle which has p+1 lines on each point, for some prime p, is classical or arises from a flock of a quadratic cone (i.e., is a flock quadrangle).Comment: 14 page

Perceptions of trends in Seychelles artisanal trap fisheries: comparing catch monitoring, underwater visual census and fishers' knowledge

Fisheries scientists and managers are increasingly engaging with fishers' knowledge (FK) to provide novel information and improve the legitimacy of fisheries governance. Disputes between the perceptions of fishers and scientists can generate conflicts for governance, but can also be a source of new perspectives or understandings. This paper compares artisanal trap fishers' reported current catch rates with landings data and underwater visual census (UVC). Fishers' reports of contemporary 'normal' catch per day tended to be higher than recent median landings records. However, fishers' reports of 'normal' catch per trap were not significantly different from the median CPUE calculated from landings data, and reports of 'good' and 'poor' catch rates were indicative of variability observed in landings data. FK, landings and UVC data all gave different perspectives of trends over a ten-year period. Fishers' perceptions indicated greater declines than statistical models fitted to landings data, while UVC evidence for trends varied between sites and according to the fish assemblage considered. Divergence in trend perceptions may have resulted from differences in the spatial, temporal or taxonomic focus of each dataset. Fishers may have experienced and understood behavioural changes and increased fishing power, which may have obscured declines from landings data. Various psychological factors affect memory and recall, and may have affected these memory-based estimates of trends, while different assumptions underlying the analysis of both interview data and conventional scientific data could also have led to qualitatively different trend perceptions. Differing perspectives from these three data sources illustrate both the potential for 'cognitive conflicts' between stakeholders who do not rely on the same data sources, as well as the importance of multiple information sources to understand dynamics of fisheries. Collaborative investigation of such divergence may facilitate learning and improve fisheries governance