{"title":"Evolving Perceptions of Central Bank Credibility: The European Central Bank Experience","authors":"L. Goldberg, Michael W. Klein","doi":"10.1086/658305","DOIUrl":"https://doi.org/10.1086/658305","url":null,"abstract":"What are the preferences of a central bank over inflation and output-gap stabilization objectives, and what is its preferred long-run inflation rate? While statements of priorities and goals are important, the credibility of such statements and the market perception of the policy reaction function of a central bank play a key role in determining economic outcomes. This point, early on described as the “credibility” of central bank policies, is a standard theoretical result with recent interpretation in the New Keynesian paradigms. It is also received wisdom among practitioners. The importance of the market perception of the central bank’s acceptable trade-offs between inflation and output goals as well its specific targets naturally leads to the question of how the market acquires this perception and whether and how it evolves over time. One view is that establishing an appropriate institutional structure is the key element in insulating the monetary authority from political pressure and thereby convincing markets that a central bank has a strong and unvarying aversion to inflation. A second, more dynamic, view focuses on the role that actual policy conduct plays in building the reputation of a central bank. These two different views have distinct implications for the relative importance of the institutional structure of a central bank, as compared to its conduct, for attaining and maintaining its credibility. A survey of the heads of central banks and prominent monetary economists reflects a belief that the credibility of a central bank is based more on its past actions than on institutional structures that afford it independence by insulating it from political concerns, although there is also a consensus that structurematters (Blinder 2000). Empirical research has found that institutional features related to central bank independence are associated with economic performance in cross sections of","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124091411","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment","authors":"Tommaso Monacelli","doi":"10.1086/658313","DOIUrl":"https://doi.org/10.1086/658313","url":null,"abstract":"The main idea of this (very nice) paper is that taxes can be a long-run driver of labor productivity. This raises an intriguing hypothesis: could it be that a recent structural vector autogression (SVAR) based empirical literature that finds that positive innovations in labor productivity have a negative effect on hours workedmay be actually picking up the effects of taxes rather than technology per se? A first issue concerns the question,which taxes? InMertens andRavn’s paper, it is general income taxes. But an immediate implication of a standard neoclassical growth model is that it is only capital income taxes that affect labor productivity in the long run. Hence in principle we should measure capital income taxes as distinct from labor income taxes. In the following I use data from Chen, İmrohoroğlu, and İmrohoroğlu (2009), who extend McGrattan and Prescott’s (2009) measures of capital and labor taxes. Figure 1 shows that the long-run behavior of these two types of taxes has been in fact radically different. Even within capital income taxes, however, and as emphasized by McGrattan and Prescott (2009), it is important to distinguish between three types: (i) taxes on corporate income, (ii) taxes on corporate distributions, and (iii) investment tax credits. McGrattan and Prescott show that, in the 1990s, it is mostly the second category of taxes that has undergone major variations: on average, from 41.1% to 17.4%. Measuring capital and labor tax shocks. To the extent that capital and/or labor income tax changes are believed to be permanent, their first differences should follow random walk processes of the form Δτk;t 1⁄4 εn;t; Δτn;t 1⁄4 εk;t;","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"84 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126774543","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Relation of the Directors to the Work and Publications of the NBER","authors":"","doi":"10.1086/662327","DOIUrl":"https://doi.org/10.1086/662327","url":null,"abstract":"","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133557588","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment","authors":"K. West","doi":"10.1086/658321","DOIUrl":"https://doi.org/10.1086/658321","url":null,"abstract":"Let me begin with a summary of this interesting paper before making some comments. Aruoba et al. use a two-step procedure to fit a factor model to aggregate data from the Group of 7 countries. In the first step, they take each of the seven countries in isolation and fit a one-factor model to growth rates or ratios of six series: quarterly GDP and disposable income, along with monthly employment, industrial production, retail sales, and initial claims for unemployment insurance. In the second step, they fit a one-factor model to the seven country factors constructed in the first phase. The country factors constructed in the first step have some reasonable and appealing properties. Almost all series load positively and significantly on the factor, with the exception of initial claims for unemployment insurance (top of table 2); the U.S. factor tends to fall sharply during NBER recessions (fig. 14); a fall in volatility (also known as the Great Moderation) is clear in most of the country factors (figs. 8–14). Things we learn from the country factors include the following: GDP generally has the largest effect on the country factor (panels A and B of table 3); factors generally are highly serially correlated (middle of table 2— somewhat surprising since most of the six observable series are entered in growth rates); factors are positively correlated across countries, with a correlation that changes over time (table 5); because of the ongoing crisis, this correlation is highest in the most recent decade (table 5). The global factor constructed in the second step also has some reasonable and appealing properties. All seven country factors load significantly on the global factor (table 6); the global factor falls sharply during worldwide recessions such as the 1970s and 2000s (fig. 16). Something we learn from the global factor is that some recessions occur when the global factor declines, some when thecountry-specific idiosyncratic component declines (discussion in Sec. V.B.2).","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122454166","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"NBER Board of Directors","authors":"","doi":"10.1086/662326","DOIUrl":"https://doi.org/10.1086/662326","url":null,"abstract":"","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130614645","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment","authors":"Richard Clarida","doi":"10.1086/658316","DOIUrl":"https://doi.org/10.1086/658316","url":null,"abstract":"It is a pleasure to discuss this paper, which (1) uses bond market reaction to inflation surprises to gauge the evolving credibility of the European Central Bank (ECB) during the first 6 years of its existence, (2) finds that the slope of European yield curves tended to steepen with higher than expected inflation in early years of the ECB and that this effect dissipated toward the end of the sample (statistically significant), (3) interprets this result using a New Keynesian macro model, and (4) concludes that the ECB became more credible during the first 6 years of its existence. In my discussion I will ask the following questions: (1) Is this a sensible approach? (2) Is it well implemented? (3) Do I believe the result? (4) Does the New Keynesian model shed light on the result? (5) Is this paper about ECB credibility? Goldberg and Klein make reference to a model by Gürkaynak, Sack, and Swanson (2005) in which the key parameters are a—the Taylor rule coefficient on inflation—and b—the Taylor rule coefficient on the output gap. They key result is illustrated in figure 1. As the Taylor rule parameter a increases, the policy rate goes up by more with inflation shock but the 10-year bond yield goes up by less, so the curve flattens. However, while it is tempting to interpret a rise in a as greater central bank credibility in fighting inflation, strictly speaking this is not true in the Gürkaynak et al. model. Agents are not learning and revising their view about a and b—they are fixed parameters—they are revising their views about π*, the unobserved inflation target. In Clarida and Waldman (2007), we argue that it is not right to equate a rise in a as improved credibility within the logic of these models. They show that with higher a inflation is less persistent, so inflation returns to target sooner; but by assumption in these models, central banks are credible in that they hit their inflation target eventually. In particular, an increase","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"93 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122838503","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment","authors":"Michael McMahon","doi":"10.1086/658312","DOIUrl":"https://doi.org/10.1086/658312","url":null,"abstract":"One of the recent major debates in macroeconomics concerns the role of technology shocks that play a major role in the standard real business cycle (RBC) model. One aspect of this debate concerns the response of hours to technology shocks. Galí’s (1999) empirical evidence concluded that the technology shock was not a key driver of the business cycle and cast doubt on the RBC modeling paradigm. Galí identified the effects of technology shocks using an estimated vector autoregression (VAR) that relied on the identification mechanism that only technology shocks have a permanent effect on labor productivity; this assumption is justified by the main RBC andNewKeynesian models. He finds that hours worked fall in response to a positive technology shock; the negative correlation between labor input and output contradicts the prediction of both the RBC model and the empirical data of a positive correlation. Since it was first published in 1999 (having been earlier released as a working paper in 1996), this “TFP ↑ ⇒ hours ↓” finding has created a great deal of discussion. Other authors such as Francis and Ramey (2005) and Basu, Fernald, and Kimball (2006) endorse the finding of Galí. The former paper carries out a number of robustness checks on the identified technology shocks, whereas the latter uses an entirely different methodology to identify the technology shocks. Both corroborate the TFP ↑ ⇒ hours ↓ finding of Galí. There have been twomain angles of attack on this finding: one concerns the low-frequency properties of the hours data series, and the other considers the identification assumption in the Galí work. This latter approach suggests that other factorsmay affect productivity in the long run. One example of the approach that questions the identification strategy is the article by Fisher (2006). Fisher allows for both traditional technological","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132277330","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment","authors":"P. Beaudry","doi":"10.1086/658318","DOIUrl":"https://doi.org/10.1086/658318","url":null,"abstract":"Inspired by ideas presented in Pigou’s 1927 book on Industrial Fluctuations, Pigou cycles refer to economic fluctuations that are driven by changes in firms’ belief about the future profitability of current investment decisions. A recent literature has emerged exploring whether Pigou’s ideas may offer a reasonable explanation to business cycle episodes (revival inspired in part by the episode of the tech boom-bust of the 1990s). This literature has many challenges: theoretical, conceptual, and empirical. For example, what is the source of the change in beliefs, what are the transmission mechanisms, and are such forces empirically relevant? One of the immediate and less obvious challenges of this literature is to identify environments in which such changes in beliefs can actually cause business cycles, that is, positive comovement between investment, consumption, and employment. Although such a possibility sounds very intuitive, it is nontrivial to build fully specified (and reasonable) dynamic stochastic general equilibrium models in which changes in fundamentals that affect the future profitability of current investment actually generate business cycle phenomena. In a recent paper, Den Haan and Kaltenbrunner (2009) have shown that news about future productivity growth can generate business cycle phenomena in an environment in which jobs are subject to matching frictions. However, their results are somewhat fragile since they depended on, among others things, assuming a high degree of intertemporal elasticity of substitution in consumption. In the current paper, Den Haan and Lozej examine whether extending the analysis of the earlier paper to an international setting allows Pigou cycles to emerge for more reasonable parameter values. The main result of the paper is to show that an","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133426429","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Pigou Cycles in Closed and Open Economies with Matching Frictions","authors":"Wouter J. den Haan, Matija Lozej","doi":"10.1086/658306","DOIUrl":"https://doi.org/10.1086/658306","url":null,"abstract":"Den Haan and Kaltenbrunner (2009) show that a simple labor market matching model can generate Pigou cycles— i.e., a positive comovement in consumption, investment, and employment in response to news about future macroeconomic developments. However, investment moves in the right direction only for a small set of parameter values. This paper shows that an open-economy version in which international capital ‡ows dampen domestic interest rate responses can robustly generate Pigou cycles. In models with a spot market for labor, sticky interest rates reinforce","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131404734","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment","authors":"Bianca De Paoli","doi":"10.1086/658314","DOIUrl":"https://doi.org/10.1086/658314","url":null,"abstract":"Erceg andLindé use a fully fledged general equilibriummodel to address a very topical issue. By characterizing the euro area with two distinct blocks of countries, the paper assesses the cross-border spillovers from a fiscal contraction in one of the blocks. The authors evaluate how the zero lower bound constraint on monetary policy affects these spillovers. The exercise compares the case of a unilateral contraction in a small country versus a contraction in a larger block of countries. It shows that the fiscal multiplier and the spillovers are larger when policy is constrained. Moreover, a small country gains from having a coordinated policy with other countries only if policy is unconstrained.","PeriodicalId":353207,"journal":{"name":"NBER International Seminar on Macroeconomics","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129406638","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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