Central Bank Independence,Inflation and Uncertainty: The Case of Colombia

Colombia undertook reform of its central bank in 1991, pushing it in the direction of greater independence. We find that this reform led to a significant decrease in the level of inflation, as well as inflation uncertainty, suggesting an increase in credibility. However, there has also been an increase in inflation persistence since reform. The lower mean but greater persistence of inflation indicates that central bank independence has shifted the Phillips curve inward but also flattened it, a result consistent with recent research for the Euro-zone and the United States. Finally, further analysis reveals that, in accordance with the Friedman-Ball hypothesis, higher inflation raises uncertainty in Colombia, but that uncertainty does not increase inflation.     

Industry competitiveness using Herfindahl and entropy concentration indices with firm market capitalization data

While previous studies of industry concentration have traditionally utilized sales or market share data, no studies that we are aware of have been done with market capitalization data. If the markets are successful at valuing a firm's current and future prospects, it can be argued that concentration indices and other metrics based on the market value of the firms in an industry should be a good proxy for market power within an industry. This study presents a study of the market concentration using the Herfindahl and entropy concentration indices for 13 industries.     

A Simulation Analysis to Evaluate the Impact of the Automatic Stabilizers

A model of a firm' decision to guarantee job reinstatement following a parental leave is constructed. Guaranteed reinstatement emerges if the worker is willing to sacrifice wages greater than or equal to the minimum amount a firm requires for the policy. Predictions from the model find support in the empirical analysis. Firm size, training costs, and unions increase, which mobility of jobs skills decrease, the likelihood of a guaranteed leave.     

COMPETITIVE SEARCH,EFFICIENCY, AND MULTIWORKER FIRMS*

I study competitive search equilibrium in an environment where firms operate a decreasing‐returns production technology and hire multiple workers simultaneously. Firms post wages, possibly several of them. The equilibrium can feature wage dispersion even though all firms and workers are ex ante identical. Unlike the benchmark where firms hire a single worker, hiring is constrained inefficient. Efficiency requires that firms commit to the number of hires, pay all applicants, or pay wages that depend on the number of applicants. Under wage‐posting, the inefficiency is highest at intermediate levels of labor market tightness.     

Independent but Not Indifferent: Partisan Bias in Monetary Policy at the Fed

Independent central banks are thought to be effective inflation hawks because they are run by technocrats with conservative monetary policy preferences. However, central bankers can only protect their independence by compromising with the elected officials who grant them their independence. Policy, therefore, is likely to be a weighted average of the preferences of the central bank and the government. Consequently, central bankers may be eager to help right‐wing governments stay in power and oppose the election of left‐wing governments. We show evidence from the United States that interest rates (a) decline as elections approach when Republicans control the White House, but rise when Democrats do; and (b) are sensitive to the inflation rate (output gap) when Democrats (Republicans) are in the White House. Thus, the Federal Reserve is a conditional inflation hawk. Since the Fed became operationally independent in 1951, the Republicans have exhibited a decided electoral advantage in presidential politics.     

Alternative Ways to Teach and Learn Economics: Writing,Quantitative Reasoning,and Oral Communication

The authors describe an interesting attempt by one university to require of students demonstrated competencies in the areas suggested by the title—writing as freshmen, quantitative reasoning as sophomores and juniors, and oral communication as juniors or seniors. Quantitative measures of the effectiveness of the program are not provided.     

“Measurement” or Finding Things Out in Economics: A Comment

Immiserizing growth is a long-term phenomenon that occurs when the gain in a country's social welfare arising from economic growth is more than offset by the loss in such welfare associated with an adverse shift in the terms of trade. In one case explored many years ago by Jagdish Bhagwati, immiserizing growth occurs in a developing nation that has started economic growth but faces unfavorable international demand conditions as it increases its traditional exports. In another case explored recently by Paul A. Samuelson, immiserizing growth occurs for the growing industrialized country when its trade partner follows a policy of import substituting growth and, as a result, shifts the terms of trade against the exporting country. Still others have specified a variety of different cases of immiserizing growth. The author provides a simple graphical method to analyze these situations and then presents data showing that immiserizing growth is a relatively rare phenomenon.     

Game Theory and Economic Modelling. by David M. Kreps

Data from the National Science Foundation (2014) indicate that at least one PhD in economics was awarded to a Swarthmore College graduate in every year since 1966. The authors’ purpose in this article is to consider factors that may have contributed to the high number of PhDs in economics awarded to Swarthmore College graduates. While there is little doubt that self-selection plays a significant role, they describe curricular and environmental aspects of the economics department at Swarthmore that may have contributed to this outcome.     

The Gold at Fort Knox

When explaining that U.S. currency is not backed by gold or other precious metals, economic educators frequently are asked about the gold at Fort Knox, Kentucky. This note explains the content and role of the depository at Fort Knox.     

In Memory of Michael Watts (November 3, 1950–December 5, 2014)

In an experimental economics simulation, Ukrainian teachers of economics chose free riding responses at a rate similar to those found by Leuthold in an undergraduate class on public economics at the University of Illinois. The authors speculate that those who become academic economists may do so because they have certain insights in deductive logic.