290 research outputs found
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
Pricing in inflationary times: The penny drops
How does the frequency and magnitude of micro-price rises and falls relate to macroeconomic crisis, as well as moderation? Weekly micropricing behaviour in British groceries was investigated across three leading retailers over the moderation period 2004–7 and the crisis period 2008–10. We find significant price flexibility sharply distinguished from behaviour observed in most previous works. Downward price flexibility increased markedly in 2008. Overall basket prices rise, but significantly more individual prices fall than rise in the latter period. Tests of obfuscation in price setting suggested that large numbers of small price falls were used to disguise the basket price rises
The Eurace@Unibi Model: An Agent-Based Macroeconomic Model for Economic Policy Analysis
Dawid H, Gemkow S, Harting P, van der Hoog S, Neugart M. The Eurace@Unibi Model: An Agent-Based Macroeconomic Model for Economic Policy Analysis. Working Papers in Economics and Management. Vol 05-2012. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2012.This document provides a description of the modeling assumptions and economic features
of the Eurace@Unibi model. Furthermore, the document shows typical patterns of
the output generated by this model and compares it to empirically observable stylized facts.
The Eurace@Unibi model provides a representation of a closed macroeconomic model with
spatial structure. The main objective is to provide a micro-founded macroeconomic model
that can be used as a unified framework for policy analysis in different economic policy areas
and for the examination of generic macroeconomic research questions. In spite of this general
agenda the model has been constructed with certain specific research questions in mind and
therefore certain parts of the model, e.g. the mechanisms driving technological change, have
been worked out in more detail than others.
The purpose of this document is to give an overview over the model itself and its features
rather than discussing how insights into particular economic issues can be obtained using the
Eurace@Unibi model. The model has been designed as a framework for economic analysis in
various domains of economics. A number of economic issues have been examined using (prior
versions of) the model (see Dawid et al. (2008), Dawid et al. (2009), Dawid et al. (2011a),
Dawid and Harting (2011), van der Hoog and Deissenberg (2011), Cincotti et al. (2010))
and recent extensions of the model have substantially extended its applicability in various
economic policy domains, however results of such policy analyses will be reported elsewhere.
Whereas the overall modeling approach, the different modeling choices and the economic
rationale behind these choices is discussed in some detail in this document, no detailed
description of the implementation is given. Such a detailed documentation is provided in the
accompanying document Dawid et al. (2011b)
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