Should central banks really be flexible?

In this paper I show that central bank flexibility may not be desirable when it encourages trade unions to behave more aggressively. The argument is based on a model where risk averse trade unions interact with a central bank. A flexible central bank stabilizes economic shocks and reduces output volatility. This enables trade unions to realize higher real wages without risking the unemployment of some insider workers. Risk averse insiders demand higher real wages, generate more inflation and more unemployment. The overall e ect on welfare may be negative. A conservative central bank instead increases output and employment on average but raises output volatility. The argument also sheds new light on the issue of optimum currency areas. Wage claims are lower and employment is higher in a currency union if national trade unions expect the central bank to do less to secure employment of insider workers in their country. JEL Classification: E52, E58central bank credibility, central bank flexibility, Optimum Currency Area

Charge-density-wave formation in the Edwards fermion-boson model at one-third band filling

We examine the ground-state properties of the one-dimensional Edwards spinless fermion transport model by means of large-scale density-matrix renormalization-group calculations. Determining the single-particle gap and the Tomonaga-Luttinger liquid parameter ($K_\rho$) at zero temperature, we prove the existence of a metal-to-insulator quantum phase transition at one-third band filling. The insulator---established by strong correlation in the background medium---typifies a charge density wave (CDW) that is commensurate with the band filling. $K_\rho=2/9$ is very small at the quantum critical point, and becomes $K_\rho^{\rm CDW}=1/9$ in the infinitesimally doped three-period CDW, as predicted by the bosonization approach.Comment: 6 pages, 3 figures, contributions to SCES 201

Limits to international banking consolidation

Heterogenous banking supervision and regulation is often considered as the most important impediment for Pan-European Bank mergers. In this paper we identify other more fundamental reasons for a limited degree of cross-country integration in retail banking. We argue that the distribution of regional liquidity shocks may pose a natural limit to the extent of cross-border bank mergers. The paper derives the impact of different underlying stochastic structures on the optimal structure of cross regional bank mergers. Imposing a symmetry restriction on the underlying stochastic structure of liquidity shocks we find that benefits from diversification and the costs of contagion may be optimally traded off if banks from some but not from all regions merge. Under an additional monotonicity assumption full integration is only desirable if the number of regions with diverse risks is sufficiently large. --Bank Mergers,Financial Integration,Liquidity Transformation,Liquidity Crisis,Risk Sharing

Committees and special interests

Some committees convene behind closed doors while others publicly discuss issues and make their decisions. This paper studies the role of open and closed committee decision making in presence of external influence. We show that restricting the information of interest groups may reduce the bias towards special interest politics. Moreover, there are cases where benefits from increasing the number of decision makers can only be reaped if the committee's sessions are not public. In open committees benefits from voting insincerely accrue not only when a decision maker's vote is pivotal. As the number of voters increases, the cost of voting insincerely declines in an open committee because the probability of being pivotal declines. This is not the case in a closed committee where costs and benefits of insincere voting only arise when a voter is pivotal. JEL Classification: D71, D72, D73Committees, common agency, interest groups, voting

Collective decisions with interdependent valuations

Many collective decision problems have the common feature that individuals' desired outcomes are correlated but not identical. This paper studies collective decisions with private information about these desired policies. Each agent holds private information which mainly concerns his own bliss point, but this private information also affects all other agents' bliss points. We concentrate on two specific mechanisms, the mean and the median mechanism. We establish existence of two symmetric Bayesian Nash equilibria of the corresponding game and compare the performance of the mechanisms for different degrees of interdependencies. Applications of our framework include the assignment of voting rights in the council of the European Central Bank, the design of decision processes in teams, firms, and international organizations.collective decisions, asymmetric information, interdependent valuations

Signatures of polaronic charge ordering in optical and dc conductivity using dynamical mean field theory

We apply dynamical mean field theory to study a prototypical model that describes charge ordering in the presence of both electron-lattice interactions and intersite electrostatic repulsion between electrons. We calculate the optical and d.c. conductivity, and derive approximate formulas valid in the limiting electron-lattice coupling regimes. In the weak coupling regime, we recover the usual behavior of charge density waves, characterized by a transfer of spectral weight due to the opening of a gap in the excitation spectrum. In the opposite limit of very strong electron-lattice coupling, instead, the charge ordering transition is signaled by a global enhancement of the optical absorption, with no appreciable spectral weight transfer. Such behavior is related to the progressive suppression of thermally activated charge defects taking place below the critical temperature. At intermediate values of the coupling within the polaronic regime, a complex behavior is obtained where both mechanisms of transfer and enhancement of spectral weight coexist.Comment: 1 figure added, illustrating the optical sum rul

Unions, wage setting and monetary policy uncertainty

Recent theoretical research has studied extensively the link between wage setting and monetary policymaking in unionized economies. This paper addresses the question of the role of monetary uncertainty from both an empirical and theoretical point of view. Our analysis is based on a simple model that derives the influence of monetary uncertainty on unionized wage setting. We construct an indicator of monetary policy uncertainty and test our model with data for the G5 countries. The central finding is that monetary policy uncertainty has a negative impact on nominal wage growth in countries where wage setting is relatively centralized. This result is consistent with recent theoretical approaches to central bank transparency and wage setting. JEL Classification: E58centralized wage setting, Monetary policy uncertainty, union behavior