The Credibility of the Monetary Policy Free Lunch

Price level targeting has been proposed as an alternative to inflation targeting that may confer benefits if a central bank sets policy under discretion, even if society’s loss function is specified in terms of inflation (instead of price level) volatility. This paper demonstrates the sensitivity of this argument. If even a small portion of agents use a rule-of-thumb to form inflation expectations, or does not fully understand the nature of the target, price level targeting may in fact impose costs on society rather than benefits.postprin

Probing potential output: Monetary policy, credibility, and optimal learning under uncertainty

The effective conduct of monetary policy is complicated by uncertainty about the level of potential output. One possible response is for the central bank to “probe,” interpreted here as actively using its policy to learn about the level of potential output. I consider a simple calibrated model in the Canadian context and examine the relationship between credibility and optimal probing. For plausible parameter values, the optimal amount of probing is small and diminishes slightly as credibility rises. Only for unrealistically low levels of credibility or unrealistically large levels of uncertainty or volatility does the optimal policy diverge significantly from a policy that ignores learning.postprin

Suicidal terrorism and discriminatory screening: an efficiency-equity trade-off

Recent world events have cast a spotlight on what role, if any, discriminatory screening should play in aircraft security. This paper argues that if observable characteristics indicate differing probabilities of committing acts of terrorism, then following a non-discriminatory screening policy that fails to utilize those observable characteristics may be pareto-dominated by a screening policy that discriminates based on observable characteristics, even if agents are risk-neutral.postprin

Fixed prices versus predetermined prices and the equilibrium probability of price adjustment

Elsewhere, papers comparing fixed prices with predetermined prices have assumed that the frequency of re-setting price contracts is equal in either case. This note demonstrates that in equilibrium, the frequency of re-setting price contracts is greater with fixed prices than predetermined prices.postprin

Predetermined Prices and the Persistent Effects of Money on Output

This note illustrates a model of predetermined pricing, where firms set a fixed schedule of nominal prices at the time of price readjustment, based on the work of Fischer (1977). This contrasts with the model of fixed pricing, the specification underlying most recent dynamic sticky-price models. It is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration. However, we show that with a probabilistic model of price adjustment, a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices, without the assumption of long average contract duration.postprin

Identifying a policy makers target: an application to the Bank of Canada

We develop a new way to test hypotheses about policymakers' targets and implement that test for Canadian monetary policy. For example, if the Bank of Canada is targeting a 2 per cent inflation rate, and if the Bank's instrument takes eight quarters to affect inflation, then deviations of inflation from 2 per cent should be uncorrelated with the Bank's information set lagged eight quarters. We show that there was a major change in the Bank's objectives near the time when formal inflation targets were announced and that the Bank has indeed been targeting inflation since thenpostprin

The evolution of consensus in macroeconomic forecasting

When professional forecasters repeatedly forecast macroeconomic variables, their forecasts may converge over time towards a consensus. The evolution of consensus is analysed with Blue Chip data under a parametric polynomial decay function that permits flexibility in the decay path. For the most part, this specification fits the data. We test whether forecast differences decay to zero at the same point in time for a panel of forecasters, and discuss possible explanations for this, along with its implications for studies using panels of forecasters.postprin

Menu costs and the long-run output–inflation trade-off

In standard, New Keynesian models, there exists an unlimited long-run trade-off between output and inflation. But when we allow for an endogenous frequency of price adjustment, this is replaced by an inverted U-shaped relationship.postprin

Shock size, asymmetries, and state dependent pricing

State dependent pricing models predict different real responses to shocks than time dependent pricing models. For sufficiently large shocks, the real effects of shocks are independent of their sign.postprin

A Multicenter, Long-Term Study on Arrhythmias in Children with Ebstein Anomaly

To assess the prevalence, history, and treatment of arrhythmias, in particular preexcitation and Wolff–Parkinson–White (WPW) syndrome, in patients with Ebstein anomaly (EA) during childhood and adolescence, we performed a multicenter retrospective study of all consecutive live-born patients with EA, diagnosed, and followed by pediatric cardiologists between 1980 and 2005 in The Netherlands. During a follow-up after EA diagnosis of 13 years 3 months (range: 6 days to 28 years 2 months), 16 (17%) of the 93 pediatric EA patients exhibited rhythm disturbances. Nine patients showed arrhythmic events starting as of the neonatal period. Supraventricular tachycardia was noted in 11 patients. One patient died in the neonatal period due to intractable supraventricular tachycardia resulting in heart failure and one patient died at 5 weeks of age most probably due to an arrhythmic event. The 14 surviving patients all show preexcitation, albeit 4 of them intermittently, and all have a right-sided accessory pathway location. Nine patients underwent catheter ablation of an accessory pathway. Only four patients are currently on antiarrhythmic drugs. The 17% prevalence of rhythm disturbances in pediatric EA patients, most commonly supraventricular arrhythmias, is significantly lower than in adult EA patients. Life-threatening rhythm disturbances are not frequent early in life. Symptomatic patients are well treated with radiofrequency catheter ablation