Interacting nominal and real labour market rigidities

This note analyses the interaction between nominal wage stickiness and costly employment adjustment in a small closed-economy New Keynesian model with simple rule-based or optimal monetary policy. The results show (1) the costs of nominal and real rigidity to depend on the policy regime, (2) optimal policy to substantially contain the welfare loss, and (3) the absence of quantitatively important second-best interaction, suggesting that reducing rigidity along one dimension alone does not risk reducing overall welfare.wage stickiness; employment adjustment costs; second best

Macroeconomic effects of cost savings in public procurement

The paper analyses the macroeconomic gain from cost savings in public procurement in an extended version of QUEST III. Labour tax cuts in response to cost savings from cheaper procurement (0.5 pp mark-up decline per year over 10 years and 20% of procurement) raise GDP, employment and consumption by 0.1% after 5 and 0.1-0.2% after 50 years. Alternative policies, such as lower capital taxes and higher public investment, have comparable or stronger long-run GDP effects, lower or comparable consumption effects, and zero employment effects. Supply expansion under lower capital taxes and higher public investment derives from higher investment. Benefits are approximately linear to the size of cost savings and depend on key parameters, such as the elasticity of labour supply or the productivity of public capital.Public procurement, cost savings, macroeconomic benefits, taxation, public investment, aggregate supply, Vogel

China's External Surplus: Simulations with a Global Macroeconomic Model

The paper analyses China's external position in a multi-region macroeconomic model of the world economy. The model includes a portfolio structure and Forex intervention to proxy net/gross and government/non-government foreign asset positions, capital controls and exchange rate management in China. The selected set of transition and globalisation shocks replicates China's external position well, suggesting that it reflects capital exports driven by shifts in domestic saving supply, rather than shifts in foreign saving demand. The simulations also highlight the importance of effective capital controls for the viability of China's exchange rate management. Finally, the analysis suggests that enhanced flexibility of the RMB exchange rate could reduce China's net creditor position.

LMMSE Estimation and Interpolation of Continuous-Time Signals from Discrete-Time Samples Using Factor Graphs

The factor graph approach to discrete-time linear Gaussian state space models is well developed. The paper extends this approach to continuous-time linear systems/filters that are driven by white Gaussian noise. By Gaussian message passing, we then obtain MAP/MMSE/LMMSE estimates of the input signal, or of the state, or of the output signal from noisy observations of the output signal. These estimates may be obtained with arbitrary temporal resolution. The proposed input signal estimation does not seem to have appeared in the prior Kalman filtering literature

Optimal Simple Rules for Fiscal Policy in a Monetary Union

The paper discusses the stabilizing potential of fiscal policy in a dynamic general-equilibrium model of monetary union. We consider a small open economy inside the currency area. We analyze the demand and supply effects of direct taxation, indirect taxation and government spending and derive optimal simple rules for fiscal stabilization of a technology shock. Fiscal policy achieves substantial macroeconomic stabilization. Simple public-expenditure rules show the highest degree of both output and inflation stabilization. The implementation lag substantially weakens output stabilization, but hardly affects the stabilization of prices. Out-put-oriented rules imply less instrument inertia than inflation-dominated rules. The implemen-tation lag leads to higher coefficients for inflation relative to output in the optimal rule. Com-pared to the single-instrument approach the simultaneous optimization of two instrument rules implies only little additional stabilization gains.Fiscal policy, monetary union, simple policy rules

Interacting nominal and real labour market rigidities

Abstract: This note investigates the interaction between nominal and real labour market rigidities. It shows nominal wage rigidity to have little effect on the welfare loss from labour adjustment costs under a labour supply shock. This implies that the second best effect of nominal price stickiness under real wage persistence studied in Duval and Vogel (2007) does not apply to the propagation of supply shocks under nominal wage rigidity and labour adjustment costs

Interacting nominal and real labour market rigidities

Abstract: This note investigates the interaction between nominal and real labour market rigidities. It shows nominal wage rigidity to have little effect on the welfare loss from labour adjustment costs under a labour supply shock. This implies that the second best effect of nominal price stickiness under real wage persistence studied in Duval and Vogel (2007) does not apply to the propagation of supply shocks under nominal wage rigidity and labour adjustment costs

Interacting nominal and real labour market rigidities

This note analyses the interaction between nominal wage stickiness and costly employment adjustment in a small closed-economy New Keynesian model with simple rule-based or optimal monetary policy. The results show (1) the costs of nominal and real rigidity to depend on the policy regime, (2) optimal policy to substantially contain the welfare loss, and (3) the absence of quantitatively important second-best interaction, suggesting that reducing rigidity along one dimension alone does not risk reducing overall welfare