Does the Term Spread play a role in the FED's reaction function? An Empirical Investigation

Using US data for the period 1967:5-2002:4, this paper empirically investigates the performance of a Fed’s reaction function (FRF) that (i) allows for the presence of switching regimes, (ii) considers the long-short term spread in addition to the typical variables, (iii) uses an alternative monthly indicator of general economic activity suggested by Stock and Watson (1999), and (iv) considers interest rate smoothing. The estimation results show the existence of three switching regimes, two characterized by low volatility and the remaining regime by high volatility. Moreover, the scale of the responses of the Federal funds rate to movements in the rate of inflation and the economic activity index depends on the regime. The estimation results also show robust empirical evidence that the importance of the term spread in the FRF has increased over the sample period and the FRF has been more stable during the term of office of Chairman Greenspan than in the pre-Greenspan period.

Income Taxation and Growth in an OLG Economy: Does Aggregate Uncertainty Play any Role?

We analyze the effects of capital income taxation on long-run growth in a stochastic, two-period overlapping generations economy. Endogenous growth is driven by a positive externality of physical capital in the production sector that makes firms exhibit an aggregate technology in equilibrium. We distinguish between capital income and labor income, and between attitudes towards risk and intertemporal substitution of consumption. We show necessary and sufficient conditions such that i) increments in the capital income taxation lead to higher equilibrium growth rates, and ii) the effect of changes in the capital income tax rate on the equilibrium growth may be of opposite signs in stochastic and in deterministic economies. Such a sign reversal is shown to be more likely depending on i) how the intertemporal elasticity of substitution compares to one, and ii) the size of second- period labor supply. Numerical simulations show that for reasonable values of the intertemporal elasticity of substitution, a sign reversal shows up only for implausibly high values of the second- period’s labor supply. The conclusion is that deterministic OLG economies are a good approximation of the effect of taxes on the equilibrium growth rate as in Smith (1996).

The use of role-play games in teaching: The International Climate Negotiation Game

This paper presents a role-play game designed by the authors, which focuses on international climate negotiations. The game has been used at a university with students all drawn from the same course and at summer schools with students from different levels (undergraduate, master’s and doctoral students and post-doctoral researchers) and different knowledge areas (economics, law, engineering, architecture, biology and others). We discuss how the game fits into the process of competence-based learning, and what benefits games, and role-play games in particular, have for teaching. In the game, students take on the role of representatives of national institutions and experience at first hand a detailed process of international negotiation concerned with climate change.

ADAPTECC: A Role-Play Game about Adapting to Climate Change

The ADAPTECC Climate Change Adaptation Game is a role-play game designed to enable players to experience the difficulties that arise at local and regional levels when authorities have to implement adaptation measures. Adaptation means anticipating the advert effects of climate change (CC) and taking measures to prevent and minimise the damage caused by its impacts. Each player takes the role of the mayor or a councillor of a town affected by CC who must decide what adaptation strategies and measures to take, or of a member of the Regional Environment Department which must distribute funding for adaptation among the various towns. At the end of the game, players should have a greater understanding of the challenges posed by adaptation to CC