HOW DID UNCONVENTIONAL MONETARY POLICY AFFECT ECONOMIC FORECASTS?

We study how unconventional monetary policy announcements affected professional forecasters' predictions of bond rates, gross domestic product growth and inflation using data from the monthly survey by the Wall Street Journal. We find that unconventional monetary policy (UMP) announcements moved predicted bond rates in the direction the Fed intended. UMP announcements had differential impacts on forecasters' predictions; they also tended to move growth and inflation predictions in directions opposite those the Fed intended due to Fed information effects. A policy implication of our study is that the Fed should communicate economic projections to the public separately from monetary policy announcements to mitigate Fed information effects. (JEL E52, E58)     

“CONVENTIONAL” MONETARY POLICY IN OLG MODELS: REVISITING THE ASSET-SUBSTITUTION CHANNEL

Conventional monetary policy involves actions by the monetary and fiscal authorities: the former sets a nominal interest rate and the latter sets lump-sum taxes to finance the implied flow of interest payments on government debt. We model such policy within an overlapping generations framework and show that absent any other frictions the magnitude of the nominal interest rate gives rise to asset substitution between government debt and either private debt or capital—substitution that has both real and nominal effects. Such substitution is not in standard New Keynesian models because their dynastic specification implies that government debt is not net wealth.     

MONETARY POLICY AND INEQUALITY: HOW DOES ONE AFFECT THE OTHER?

This article studies a labor-supply-side channel affecting the relationship between monetary policy and income inequality. To this end, I build a heterogeneous-agent New Keynesian economy with indivisible labor in which both macro and micro labor supply elasticities are endogenously generated. First, I find that monetary policy shocks have distributional consequences due to a substantial heterogeneity in labor supply elasticity across households. Second, a more equal economy is associated with more effective monetary policy in terms of output. I document supporting empirical evidence for the key mechanism of the model using microlevel data and state-level data in the United States.     

CONTROLLING INFLATION WITH TIMID MONETARY–FISCAL REGIME CHANGES

Can monetary policy control inflation when both monetary and fiscal policies change over time? When monetary policy is active, a long-run fiscal principle entails flexibility in fiscal policy that preserves determinacy even when deviating from passive fiscal, substantially for brief periods or timidly for prolonged periods. In order to guarantee a unique equilibrium, monetary and fiscal policies must coordinate not only within but also across regimes, and not simply on being active or passive, but also on their extent. The amplitude of deviations from the active monetary/passive fiscal benchmark determines whether a regime is Ricardian: Timid deviations do not imply wealth effects.     

DO PRIVATE TUTORS ENHANCE ENGLISH LANGUAGE ABILITY? REGRESSION DISCONTINUITY EVIDENCE FROM A POLICY EXPERIMENT IN INDIA

Empirical evidence has shown that returns to English language ability are substantial in India. Research has also focused on the impact of private tutoring in the context of developing economies to find evidence that remedial teaching leads to better student achievement and higher test scores. In this paper I analyze whether private tutoring helps in developing English language ability. Simple OLS estimates suggest statistically significant effects but estimated coefficients are rather small at 0.2 percentage points. Presence of confounders and selection bias may potentially understate the true effects of private tutoring on English language ability. To address this issue, I exploit a unique policy experiment in India in a regression discontinuity framework to identify cohorts eligible for private tutoring and compare their outcomes to the ineligible. I use this potentially exogenous policy variation as an instrument for private tutoring and find significant increases in English language ability estimated at 16 percentage points which is much larger than the simple OLS effects. Since standard academic curriculum is not directed towards improving foreign language ability, private tutoring as an input in the education production function seems to offer high marginal returns. From a policy perspective, this implies that private tutoring should be encouraged for enhancing English ability even though there are concerns that this provides disincentives for teachers to teach in school.     

SUNSPOT EQUILIBRIA IN A PRODUCTION ECONOMY: DO RATIONAL ANIMAL SPIRITS CAUSE OVERPRODUCTION?*

We study a standard two‐period economy with one nominal bond and one firm. The firm finances the input with the nominal bond in the first period and its profits are distributed to the shareholders in the second period. We show that in the neighbourhood of each efficient equilibrium, a sunspot equilibrium also exists. It is shown that the equilibrium interest rate is lower than the efficient level and that there is overproduction in the sunspot equilibrium, under some conditions. However, there is no sunspot equilibrium if the profit share of the firm can be traded as well as the bond.     

DOES DISAGGREGATION AFFECT THE RELATIONSHIP BETWEEN HEALTH CARE EXPENDITURE AND GDP? AN ANALYSIS USING REGIME SHIFTS*

This paper investigates the impact of policy shifts on disaggregated health expenditure‐GDP relationship in Australia. In contrast to previous studies the disaggregation is at the level of type of service delivered and not at the level of source of expenditure. Our results show that the subcomponents of health expenditure exhibit different patterns of behaviour at both cointegration and unit root stages once policy shifts or structural breaks are allowed in the empirical analysis. When the possibility of structural break is allowed we find a significant long‐run relationship between subcomponents of aggregate health expenditure and GDP that is not observed when break is not allowed. The underlying reasons for the occurrence of breaks and policy lessons are discussed subsequently.     

DO MONETARY REWARDS CROWD OUT THE INTRINSIC MOTIVATION OF VOLUNTEERS? SOME EMPIRICAL EVIDENCE FOR ITALIAN VOLUNTEERS

ABSTRACT 1 : The paper studies the determinants of regular volunteering, taking its cue from the previous literature on extrinsic and intrinsic motivations. Its main contribution lies in the analysis of the role of monetary rewards in influencing intrinsic motivation. It uses frameworks that allow empirical hypotheses to be made about the effects of monetary rewards, intrinsic motivation and the combined term on volunteer labour supply. With an Italy‐based survey, the paper shows, controlling for endogenous bias, that monetary payments as well as intrinsic motivation have roles in the real‐life decision to supply volunteer work, but monetary rewards do not crowd out intrinsic motivation.     

IS MINIMUM WAGE AN EFFECTIVE ANTI‐POVERTY POLICY IN JAPAN?

This paper considers whether the minimum wage is a well‐targeted antipoverty policy by examining the backgrounds of minimum‐wage workers. Whether raising the minimum wage reduces employment for unskilled workers is also investigated. An examination of micro data from a large‐scale government household survey, the Employment Structure Survey (Shugyo Kozo Kihon Chosa), reveals that approximately half of minimum‐wage workers belong to households with annual incomes of more than 5 million yen as a non‐head of household. A regression analysis indicates that an increase in the minimum wage moderately reduces the employment of male teenagers and middle‐aged married women, while it encourages the employment of high‐school age youth.     

OPTIMAL MONETARY POLICY WITH THE STICKY INFORMATION MODEL OF PRICE ADJUSTMENT: INFLATION OR PRICE‐LEVEL TARGETING?

I investigate the optimal monetary policy in a New Keynesian macroeconomic framework with the sticky information model of price adjustment. The model is solved for optimal policy, and welfare implications of three alternative monetary policy regimes under this optimal policy are compared when there is a cost‐push shock to the economy. These monetary policy regimes are the unconstrained policy, price‐level targeting and inflation targeting regimes. The results illustrate that optimal policy depends on the degree of price stickiness and the persistence of the shock. Inflation targeting emerges as the optimal policy if prices are flexible enough or the shock is persistent enough. However, the unconstrained policy or price‐level targeting might be preferable to inflation targeting if prices are not very flexible and the shock is not very persistent. The results also show that as prices become more flexible, the welfare loss usually gets bigger.     

IN TANDEM OR OUT OF SYNC? ACADEMIC ECONOMICS RESEARCH AND PUBLIC POLICY MEASURES

This paper investigates whether academic research attention to certain policy‐related measures (including gross domestic product, unemployment, and inflation) is correlated with empirical measurements of the measures themselves. In other words, when unemployment rises, does research attention to the matter increase? Or do economists pursue research (in the short run) relatively uninfluenced by policy shocks on the ground? Text analysis implies that economic attention to key policy terms does correlate with empirical movements of the terms in most instances; however, the stronger and more consistent correlation is between use of policy terms in the literature and discussion of them by the broader public. (JEL A11, H00)     

IS TIGHTER FISCAL POLICY EXPANSIONARY UNDER FISCAL DOMINANCE?: HYPERCROWDING OUT IN LATIN AMERICA

Hypercrowding out occurs when fiscally dominated governments' domestic credit demands are so intrusive to a nation's financial system that a move toward fiscal surplus lowers interest rates and increases growth. We sample nine Latin American countries to test for these relationships. The impulse‐response results of vector error correction models, six nations test positive for these two connections, suggesting market concern despite recent efforts toward fiscal balance. (JEL E430, E620, O230, O540)     

DO LIES ERODE TRUST?

Does honesty promote trust and trustworthiness? We investigate how being lied to (versus told the truth) in a Gneezy deception game affects behavior in a subsequent trust game with different players. Using a design that controls for potential treatment effects on payoffs, mood, and beliefs about the overall propensity for honesty in the experiment, we find that the specific experience of being lied to significantly erodes trust and trustworthiness.     

DO DOCTORS INDUCE DEMAND?

This paper examines supply‐induced demand in medicine using an exogenous income shock to obstetricians and gynaecologists caused by a declining number of births in their practice location from 1989 to 1999. The results of the present study indicate some evidence of induced demand. A 4.1 percentage point increase in Caesarean section procedures is found for a one unit decline in the birth rate per 100 population. Interestingly, people commence prenatal care statistically significantly earlier with fertility decline and, subsequently, the total number of prenatal care visits has been increased. However, I found no evidence of declining fertility inducing excessive prenatal care visits.     

WHY DO CHARTER SCHOOLS FAIL? AN ANALYSIS OF CHARTER SCHOOL SURVIVAL IN NEW JERSEY

Charter school competition can only work as a policy to improve public education if schools that do not contribute to this goal are allowed to fail. We estimate survival regressions to assess the effects of various factors on the probability of school failure. We find that students' test scores are the most important determinant of survival: a one standard deviation increase reduces the probability of failure by 76%. Higher expenditures per student and a longer wait list result in smaller, but significant, reductions. Enrollment, average performance in the host district, and student demographics do not significantly affect school survival. (JEL I21, H75)     

DO WOMEN MANAGE SMALLER FUNDS?

Based on a sample of 467 asset managers from four countries we robustly find that women manage smaller funds than men, despite tough competition in this industry. Interestingly, the gender gap exists only for managers of smaller funds, i.e. at the lower end of the hierarchy, as quantile regressions show. This is inconsistent with the glass ceiling hypothesis. Going further, this gender gap is limited to large firms. Explanations may refer to large firms using market power in the area of smaller funds or to ‘visibility’ among top asset managers protecting against unequal treatment of the sexes.     

DO STOCK MARKETS VALUE EFFICIENCY?

An empirical model determining the relationship between changes in firm-level productivity and changes in firm value is estimated using an unbalanced panel of 706 public limited companies observed over the period 1996–2002. We find a positive relationship between efficiency and the market value of manufacturing sector firms controlling for traditional accounting measures of performance such as earnings per share and the return on capital employed. This evidence is consistent with the stock market valuing the adoption of better management practices that lead to better resource utilisation. By contrast, we find no such evidence for service sector firms.     

HOW DO SPATIAL SPILLOVERS DIFFUSE IN SCIENCE–INDUSTRY INTERACTIONS? THE CASE OF FRENCH BIOTECH SECTOR

The objective of this article is to study the interactions that exist between public research and private research in the French biotechnology sector. These interactions are observable at a double level. On the one hand, public research can influence private research, and conversely. Researchers of these two spheres develop important relations of cooperation. We then seek to identify these mutual influences and to measure their spatial dimension. Using asymptotic least squares method, we show that spillovers can diffuse through cooperation in upstream and downstream phases of the innovation process. On the other hand, spillovers resulting from public or private research, when measured by an external stock of knowledge, would be located, in so far as they exist.