Testing for Indeterminacy:An Application to U.S. Monetary Policy

This paper considers a prototypical monetary business cycle model for the U.S. economy, in which the equilibrium is undetermined if monetary policy is ‘inactive? In previous multivariate studies it has been common practice to restrict parameter estimates to values for which the equilibrium is unique. We show how the likelihood-based estimation of dynamic stochastic general equilibrium models can be extended to allow for indeterminacies and sunspot fluctuations. We propose a posterior odds test for the hypothesis that the data are best explained by parameters that imply determinacy. Our empirical results show that the Volcker-Greenspan policy regime is consistent with determinacy, whereas the pre-Volcker regime is not. We find that before 1979 non-fundamental sunspot shocks may have contributed significantly to inflation and interest rate volatility, but essentially did not affect output fluctuations.

On-the-job search and the cyclical dynamics of the labor market

We show how on-the-job search and the propagation of shocks to the economy are intricately linked. Rising search by employed workers in a boom amplifies the incentives of firms to post vacancies. In turn, more vacancies induce more on-the-job search. By keeping job creation costs low for firms, on-the-job search greatly amplifies shocks. In our baseline calibration, this allows the model to generate fluctuations of unemployment, vacancies, and labor productivity whose magnitudes are close to the data, and leads output to be highly autocorrelated. --Search and matching,job-to-job mobility,worker flows,Beveridge curve,business cycle,propagation

Does intra-firm bargaining matter for business cycle dynamics?

We analyse the implications of intra-firm bargaining for business cycle dynamics in models with large firms and search frictions. Intra-firm bargaining implies a feedback effect from the marginal revenue product to wage setting which leads firms to over-hire in order to reduce workers' bargaining position within the firm. The key to this effect are decreasing returns and/or downward-sloping demand. We show that equilibrium wages and employment are higher in steady state compared to a bargaining framework in which firms neglect this feedback. However, the effects of intra-firm bargaining on adjustment dynamics, volatility and comovement are negligible. --Strategic wage setting,search and matching frictions,business cycle propagation

Estimating a search and matching model of the aggregate labor market

The search and matching model of the labor market has become the workhorse for analyzing unemployment dynamics and the business cycle transmission mechanism. However, many quantitative studies of the search and matching framework argue that it is unable to replicate key labor market facts. These studies typically rely on a wide range of calibrated parameter values for which independent information is difficult to obtain. In this article, I specify and estimate a simple version of the search and matching framework using Bayesian methods. I show that the model has extremely weak internal propagation and that labor dynamics are explained almost exclusively by shocks that are residuals in the respective equations. Moreover, the structural parameter estimates appear to be only weakly identified and can change considerably across minor specification changes. This suggests that the search and matching model may not be a good framework for explaining business cycle fluctuations in the labor market.Labor market ; Business cycles

Deep Habits in the New Keynesian Phillips Curve

We derive and estimate a New Keynesian Phillips curve (NKPC) in a model where consumers are assumed to have deep habits. Habits are deep in the sense that they apply to individual consumption goods instead of aggregate consumption. This alters the NKPC in a fundamental manner as it introduces expected and contemporaneous consumption growth as well as the expected marginal value of future demand as additional driving forces for inflation dynamics. We construct the driving process in the deep habits NKPC by using the model’s optimality conditions to impute time series for unobservable variables. The resulting series is considerably more volatile than unit labor cost. General Methods of Moments (GMM) estimation of the NKPC shows an improved fit and a much lower degree of indexation than in the standard NKPC. Our analysis also reveals that the crucial parameters for the performance of the deep habit NKPC are the habit parameter and the substitution elasticity between differentiated products. The results are broadly robust to alternative specifications.

Inventories, Inflation Dynamics and the New Keynesian Phillips Curve

We introduce inventories into an otherwise standard New Keynesian model and study the implications for in.ation dynamics. Inventory holdings are motivated as a means to generate sales for demand-constrained .rms. We derive various representa- tions of the New Keynesian Phillips curve with inventories and show that one of these speci.cations is observationally equivalent to the standard model with respect to the behavior of in.ation when the model.s cross-equation restrictions are imposed. How- ever, the driving variable in the New Keynesian Phillips curve - real marginal cost - is unobservable and has to be proxied by, for instance, unit labor costs. An alternative approach is to impute marginal cost by using the model.s optimality conditions. We show that the stock-sales ratio is linked to marginal cost. We also estimate these various speci.cations of the New Keynesian Phillips curve using GMM. We .nd that predictive power of the inventory-speci.cation at best approaches that of the standard model, but does not improve upon it. We conclude that inventories do not play a role in explaining in.ation dynamics within our New Keynesian Phillips curve framework.

Inventories and Optimal Monetary Policy

We introduce inventories into a standard New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to study the effect on the design of optimal monetary policy. The possibility of inventory investment changes the transmission mechanism in the model by decoupling production from final consumption. This allows for a higher degree of consumption smoothing since firms can add excess production to their inventory holdings. We consider both Ramsey optimal monetary policy and a monetary policy that maximizes consumer welfare over a set of simple interest rate feedback rules. We find that in contrast to a model without inventories, Ramsey-optimal monetary policy in a model with inventories deviates from complete inflation stabilization. In the standard model, nominal price rigidity is a deadweight loss on the economy, which an optimizing policymaker attempts to remove. With inventories, a planner can reduce consumption volatility and raise welfare by accumulating inventories and letting prices change as an equilibrating mechanism. We find also find that the application of simple rules comes very close to replicating Ramsey optimal outcomes.Ramsey policy, New Keynesian model

Non-stationarity and instability in small open-economy models even when they are "closed"

Interest rates

On-the-job Search and the Cyclical Dynamics of the Labor Market

We develop a dynamic general equilibrium model where workers can engage in search while on the job.We show that on-the-job search is a key component in explaining labor market dynamics in models of equilibrium unemployment.The model predicts fluctuations of unemployment, vacancies, and labor productivity whose relative magnitudes replicate the data.A standard search and matching model suggests much lower volatitilities of these variables.Intuitively, in a boom, rising search activity on the job avoids excessive tightening of the labor market for expanding firms.This keeps wage pressures low, thus further increasing firms' incentives to post new jobs.Labor market tightness as measured by the vacancy-unemployment ratio is as volatile as in the data.The interaction between on-the-job search and job creation also generates a strong internal propagation mechanism.labour market;curves;business cycles

Partycypacja obywatelska na poziomie wiejskich społeczności lokalnych – próba analizy zagadnienia

Citizen participation is an important element of contemporary democracy. It is considered a panacea to the declining participation of citizens in political and public life. People may decide to participate for various reasons. It is important that participation promotes the development of local democracy, for instance, by strengthening bottom-up civic initiatives; participation stimulates integrationof local communities through joint activities. It is also an efficient tool to solve certain problems, since opinions of all parties concerned can be heard, local conflicts mitigated and compromise reached. This article attempts to analyze citizen participation based on the example of a specific social group, namely the rural local community. The article concentrates on various theoretical views on the issue. The main goal of the article is to answer a question about the form of local rural communities participation, and it presents examples of instruments which help community members to implement their activity and express civic attitudes.Partycypacja obywatelska jest istotnym elementem współczesnej demokracji. Traktowana jest jako ratunek wobec stałego obniżania udziału obywateli w życiu politycznym i publicznym. Partycypację można podejmować z bardzo rożnych powodów. Istotne jest to, iż sprzyja ona rozwojowi demokracji lokalnej, chociażby poprzez wzmocnienie oddolnych inicjatyw obywatelskich; pobudza integracje środowisk lokalnych dzięki podejmowaniu wspólnych działań. Jest również skutecznym sposobem na rozwiązanie problemów: daje możliwość wysłuchania opinii wszystkich zainteresowanych osób, rozwiązania lokalnych konfliktów i wypracowania kompromisu. W niniejszym tekście podjęto próbę przeanalizowania zagadnienia partycypacji obywatelskiej na przykładzie konkretnej grupy społecznej, jaką jest wiejska społeczność lokalna. Skoncentrowano się na różnych teoretycznych ujęciach tych dwóch zagadnień. Celem tekstu jest przede wszystkim odpowiedź na pytanie o formy zaangażowania wiejskich społeczności lokalnych w działania partycypacyjne; ukazanie przykładowych instrumentów, które umożliwiają członkom tej wspólnoty uzewnętrznienie ich aktywności i postaw obywatelskich