Monetary policy under uncertain planning horizon

This note focuses on the role of the planning horizon in monetary policy games. We analyze the case of an uncertain horizon of the monetary policy game that has not been considered, yet. In addition to that we will - different from the basic Barro-Gordon-model - assume a quadratic loss function for the policy maker. --

ECB Presidency and Inflation Aversion among the Citizens of European Countries: An Empirical Assessment

Geldpolitik; Zentralbank; Inflationsbekämpfung; Inflation; Angst; EU-Staaten

Forecasting inflation via electronic markets: Results from a prototype market

Forecasts of macroeconomic variables as the inflation rate serve as important guidelines for the private as well as the public sector. At least central banks that adopted an inflation targeting regime are in urgent need of high quality inflation forecasts. Accurate inflation forecasts are also needed within private sector wage negotiations. In this paper we present a new method to predict future inflation via conducting electronic markets. We show at the example of a prototype market how the market data of such an experimental market can be used to generate predictions of the future inflation rate. We also show that the market data provide important evidence on the distribution of inflation expectations. --Inflation Forcasting,Inflation Targeting,Electronic Markets

The effect of signalling and beliefs on the voluntary provision of public goods

We report and analyze the results of a series of classroom experiments on the voluntary provision of public goods. Using fixed effect panel regression models we find that cooperation significantly increases when participants are forced to guess the degree of overall cooperation. We also find that the possibility to make announcements during the experiment enhances cooperation significantly although these commitments are not binding and heavily used for cheating purposes. We suggest that this effect is due to attempts at restoring the announcements' reputation in the aftermath of heavy cheating. --Experimental Economics,Public Goods,Cheap Talk,Signalling,Communication,Expectations

Predictive accuracy of political stock markets: Empirical evidence from an European perspective

In a meta study of 25 political stock markets conducted in Germany in the last decade we analyze their predictive success. Although the predictions of political stock markets are highly correlated with the corresponding polls, the markets are able to aggregate additional information. One explanatory variable for variations in predictive success of the German stock markets relative to the polls is market efficiency. Even though the overall predictions of the political stock markets are quite reliable on the aggregate level we find systematic prediction errors on the contract level that can be attributed to the vote share size and to individual trader biases. --political stock markets,forecasting,market efficiency,proportional representation

Assessing Market Expectations on Exchange Rates and Inflation: A Pilot Forecasting System for Bulgaria

Econometric forecasting models typically perform bad in volatile environments as they are often present in economies in transition. Since forecasts of key macroeconomic variable are inevitable as guidelines for economic policy, one might alternatively make attempts at measuring market participants’ expectations or conduct surveys. However, often financial markets are underdeveloped and regular surveys are unavailable in transition countries. In this paper we propose to conduct experimental stock markets to reveal market participants’ expectations. W? present the results fr?m a series of pilot markets conducted in Bulgaria throughout 2002 indicating that the method could be useful especially for transition countries.http://deepblue.lib.umich.edu/bitstream/2027.42/40145/3/wp759.pd

Effective monetary policy conservatism: A comparison of 11 OECD countries

Modern monetary economists argue that institutional aspects such as central bank independence and central bank conservatism play an important role for the performance of an economy. In order to be able to compare the effects of different institutions it is necessary to measure both central bank independence and conservatism. In this paper we propose a new methodology of uncovering the degree of effective monetary policy conservatism from observed central bank behavior. Employing a variant of the Barro-Gordon-model we derive an optimal prime rate reaction function and show that more effectively conservative monetary policy tends to react less active to shocks to the real economy. In order to illustrate the proposed methodology we then estimate a common prime rate reaction function for a sample of 11 central banks in a panel setting and allow the reaction to real disturbances to differ between countries. --

Forecasting Inflation via Experimental Stock Markets Some Results from Pilot Markets

While there are various techniques of inflation forecasting in use, none of them has proved to deliver consistently more accurate forecasts than the others. That is why most users of inflation forecasts monitor a variety of inflation indicators and forecasts and check them for consistency. This paper aims at contributing to an extension of themethods in use. We propose to conduct experimental inflation forecasting markets in order to uncover market participants' inflation expectations. While the markets directly deliver density forecasts of inflation they also allow to construct mean forecasts and a measure of forecast uncertainty. We also present evidence from a number of pilot markets underlining that the proposed method might enrich the arsenal of existing forecastingtechniques.Inflation forecast, field experiments, experimental stock markets.

Partisan cycles and pre-electoral uncertainty

Rational partisan theory of political business cycles suggests differences in inflation under left-wing and right-wing governments. It also suggests temporary post-electoral booms after election of left-wing governments and temporary recessions after election of right-wing ones. However, the core hypothesis that post-electoral booms and recessions depend upon the degree of pre-electoral uncertainty has rarely been tested. Using pre-electoral polling data, we provide empirical evidence in favor of the hypothesis of the existence of rational partisan cycles. We also show that - in line with most previous empirical studies - there is little evidence for partisan cycles under adaptive expectations. --partisan theory,political business cycles

Lending of Last Resort, Moral Hazard and Twin Crises: Lessons from the Bulgarian Financial Crisis 1996/1997

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.http://deepblue.lib.umich.edu/bitstream/2027.42/39848/3/wp464.pd