Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0901 Title: The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence Author-Name: Laura Povoledo Author-Email: Laura.Povoledo@uwe.ac.uk Abstract: This paper investigates the business cycle fluctuations of the tradeable and nontradeable sectors of the US economy. Then, it evaluates whether a “New Open Economy” model having prices sticky in the producer’s currency can re¬produce the observed fluctuations qualitatively. The answer is positive: both in the model and in the data the standard deviations of tradeable inflation, out¬put and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. A key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks. Creation-Date: 2009-02 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0901.pdf File-Format: Application/pdf Classification-JEL: F41, E32. Keywords: New Open Economy Macroeconomics, Tradeable and Nontradeable Sectors, Business Cycles. Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0902 Title: The Interest Rate — Exchange Rate Nexus: Exchange Rate Regimes and Policy Equilibria Author-Name: Christoph Himmels Author-Email: ch308@exeter.ac.uk Author-Name: Tatiana Kirsanova Author-Email: t.kirsanova@exeter.ac.uk Abstract: We study a credible Markov-perfect monetary policy in an open New Keynesian economy with incomplete finacial markets. We demonstrate the existence of two discretionary equilibria. Following a shock the economy can be stabilised either 'quickly' or 'slow', both dynamic paths satisfy conditions of optimality and time-consistency. The model can help us to understand sudden change of the interest rate and exchange rate volatility in 'tranquil' and 'volatile' regimes even under a fully credible 'soft peg' of the nominal exchange rate in developing countries. Creation-Date: 2009-08 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0902.pdf File-Format: Application/pdf Classification-JEL: E31, E52, E58, E61, C61, F4. Keywords: Small Open Economy, Incomplete Financial Markets, Discretionary Monetary Policy, Multiple Equilibria. Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0903 Title: The ‘Puzzles’ Methodology: En Route to Indirect Inference? Author-Name: Vo Phuong Mai Le Author-Email: Levp@cf.ac.uk Author-Name: Patrick Minford Author-Email: Patrick.minford@btinternet.com Author-Name: Michael Wickens Abstract: We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments with data moments. We compare these with the method of Indirect Inference to which they are closely related. We illustrate the comparison with contrasting assessments of a two-country model in two recent papers. We conclude that Indirect Inference is the proper end point of the puzzles methodology. Creation-Date: 2009-09 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0903.pdf File-Format: Application/pdf Classification-JEL: C12, C32, C52, E1. Keywords: Bootstrap, US-EU Model, DSGE, VAR, Indirect Inference, Wald Statistic, Anomaly, Puzzle. Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0904 Title: Inflation, Human Capital and Tobin's q Author-Name: Parantap Basu Author-Email: parantap.basu@durham.ac.uk Author-Name: Max Gillman Author-Name: Joseph Pearlman Abstract: A pervasive empirical finding for the US economy is that inflation is negatively correlated with the normalized market price of capital (Tobin's q) and growth. A dynamic stochastic general equilibrium model of endogenous growth is developed to explain these stylized facts. In this model, human capital is the principal driver of self-sustained growth. Long run comparative statics analysis suggests that inflation diverts scarce time resource to leisure which lowers human capital utilization. This impacts growth adversely and modulates cap¬ital adjustment cost downward resulting in a decline in Tobin's q. For the short run, a Tobin effect of inflation on growth weakens the negative association between inflation and q. Creation-Date: 2009-05 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0904.pdf File-Format: Application/pdf Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0905 Title: Monetary and Fiscal Policy under Deep Habits Author-Name: Campbell Leith Author-Email: c.b.leith@lbss.gla.ac.uk Author-Name: Ioana Moldovan Author-Email: i.moldovan@lbss.gla.ac.uk Author-Name: Raffaele Rossi Author-Email: r.rossi.l@research.gla.ac.uk Abstract: Recent work on optimal policy in sticky price models suggests that demand management through fiscal policy adds little to optimal monetary policy. We explore this consensus assignment in an economy subject to ‘deep’ habits at the level of individual goods where the counter-cyclicality of mark-ups this implies can result in government spending crowding-in private consumption in the short run. We explore the robustness of this mechanism to the existence of price discrimination in the supply of goods to the public and private sectors. We then describe optimal monetary and fiscal policy in our New Keynesian economy subject to the additional externality of deep habits and explore the ability of simple (but potentially non¬linear) policy rules to mimic fully optimal policy. Creation-Date: 2009-09 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0905.pdf File-Format: Application/pdf Classification-JEL: E21, E63, E61. Keywords: Monetary Policy, Fiscal Policy, Deep Habits, New Keynesian. Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0906 Title: Output Persistence from Monetary Shocks with Staggered Prices or Wages under a Taylor Rule Author-Name: Sebastiano Daros Author-Name: Neil Rankin Author-Email: nr524@york.ac.uk Abstract: We analytically examine output persistence from monetary shocks in a DSGE model with staggered prices or wages under a Taylor Rule for monetary policy. The best known such model assumes Calvo-style staggering of prices and flexible wages and is known to yield no persistence under a Taylor Rule. Switching to Taylor-style staggering introduces lagged output into the model’s ‘New Keynesian Phillips Curve’ equation. Despite this, we show it generates no persistence, whether staggering is in wages or prices. Surprisingly, however, Calvo-style staggering of wages does generate persistence, if there are decreasing returns to labour. Creation-Date: 2009-05 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0906.pdf File-Format: Application/pdf Classification-JEL: E32, E52. Keywords: Output Persistence, Staggered Prices/Wages, Taylor Rule. Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0907 Title: The Suspension of the Gold Standard as Sustainable Monetary Policy Author-Name: Elisa Newby Author-Email: emsn2@cam.ac.uk Abstract: This paper models the gold standard as a state contingent commitment technology that is only feasible during peace. Monetary policy during war, when the gold convertibility rule suspended, can still be credible, if the policy maker’s plan is to resume the gold standard in the future. The DGE model developed in this paper suggests that the resumption of the gold standard was a sustainable plan, which replaced the gold standard as a commitment technology and made monetary policy time consistent. Trigger strategies support the equilibrium: private agents retaliate if a policy maker defaults its plan to resume the gold standard. Creation-Date: 2009-06 File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0907.pdf File-Format: Application/pdf Classification-JEL: C61, E31, E4, E5, N13. Keywords: Time Consistency, Monetary Policy, Monetary Regimes. Template-Type: ReDIF-Paper 1.0 Handle: RePEc:san:cdmacp:0908 Title: Self-confirming Inflation Persistence Author-Name: Rhys Bidder Author-Name: Kalin Nikolov Author-Name: Tony Yates Abstract: In this paper we simulate a central bank subject to the misperception that prices are indexed to past inflation in periods when firms are unable to re-optimise. It thinks, in other words, that inflation is intrinsically persistent. The central bank sets monetary policy optimally subject to this belief. The central bank updates its beliefs about in¬dexation using a constant gain learning scheme. The data generated by such policy lead to beliefs about inflation persistence being effectively self-confirming in a wide variety of setttings. These results offer a tentative answer to why it appears that inflation is persistent at some times and in some countries, and at others not. The answer is that policymakers sometimes believe inflation to be persistent, and sometimes do not. File-URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0908.pdf File-Format: Application/pdf