Product Quality and the Optimal Structure of Commodity Taxes

The comparison between ad valorem and specific taxation is among the oldest issues in formal public finance and is important for policy in the European Union (EU) and elsewhere. This paper develops and articulates simple but very general elasticity rules that characterize the optimal balance between the two in a model of endogenous product quality. These rules temper the preference for ad valorem taxation that emerges from homogeneous product models, pointing to relatively heavy reliance on whichever form of taxation has the least effect on product quality.     

FIVE YEARS OF SINGLE EUROPEAN MONETARY POLICY IN PRACTICE: IS THE ECB RULE‐BASED?

The article discusses the conduct of monetary policy of the ECB during its first five years. The authors estimate different versions of the forward-looking policy rule proposed by Clarida et al. (1998, 2000). The results suggest that the ECB applied indeed a Taylor-type rule to its monetary policy. The implied inflation targets that are extracted from the regressions are close to the range of the target that the ECB announced. (JEL E52, E58, F4 )     

The Speed and Stability of Price Adjustment in Australian Manufacturing*

A model of industry speed of price adjustment is derived from firm pricing behaviour. The model is applied to quarterly two‐digit Australian manufacturing data for the period 1985 (Q3) to 2002 (Q3). The results suggest that the industry speed of price adjustment is positively related to the average size of large firms within the industry and is negatively related to industry concentration. We also find that import share has a role in attenuating the effects of industry concentration and that growth in a moving average of real gross domestic product reduces the speed of price adjustment. Calculated industry speeds of price adjustment are both stable across the period of examination and small, suggesting that manufacturing prices are sticky.     

EFFECTS ON INTEREST RATES OF IMMEDIATELY RELEASING FOMC DIRECTIVES

Prior to February 1994, the Federal Open Market Committee (FOMC) did not officially release its current Domestic Policy Directives to the public until after the next FOMC meeting, a lag of approximately 45 days. Thus, the public never knew the FOMC's latest decisions about short-run monetary policy. On 11 occasions between early 1989 and May 1993, however, the essence of the directives was "leaked" to the Wall Street Journal within one week of an FOMC meeting. This study tests Federal Reserve officials' original assertion that early release of directives would increase volatility in financial markets by creating announcement effects. The study finds some evidence of announcement effects in certain instances, but the assertion that an immediate release would "roil the markets" appears unfounded .     

Issues in the Hidden Economy—A Survey*

This paper discusses a number of questions concerning the so-called hidden economy. What is the hidden economy? How big is it? Is it really growing? Does it matter? What should we do about it? The paper is not an exhaustive survey of the literature on the hidden economy. Its objective is more modest - namely to present an overview of the state of research, identify the major themes and issues and provide a framework for further work.     

EDGEWORTH PRICE CYCLES: EVIDENCE FROM THE TORONTO RETAIL GASOLINE MARKET*

I exploit a new station‐level, twelve‐hourly price dataset to examine the strong retail price cycles in the Toronto gasoline market. The cycles appear similar to theoretical Edgeworth Cycles: strongly asymmetric, tall, rapid, and highly synchronous across stations. I test a series of predictions made by the theory about how firm behaviors would differentially evolve over the path of a cycle. The evidence is consistent with the existence of Edgeworth Cycles and inconsistent with competing hypotheses. While the cycles are an interesting phenomenon for study in their own right, the evidence has important policy and welfare implications.     

Sex Discrimination and Occupational Segregation in the Australian Labour Market*

This paper explores the implications of the difference between the occupational distribution for males and females in a joint model determining earnings and occupation. The male/female wage differential is evaluated for a number of broad occupational classifications. This is followed by an evaluation of the role and relative importance of inter-occupational and intra-occupational effects as contributors to the overall male/female wage differential The main conclusion following from the econometric results is that intra-occupational effects dominate Thus, policies which attempt to address the gender wage differential by re-allocation of labour across occupations are unlikely to solve the problem.     

Thatcher Monetary Policy is Working: No Case for Reflation

The Prime Minister's monetary policy has been widely condemned as failing. Two American observers of British economic policy, an academic and a practical economist, maintain that the evidence shows both that it is working effectively and that there is no convincing argument for abandoning it.