The Stagnation Regime of the New Keynesian Model and Current US Policy

In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable stagnation regime as a possible outcome arising from large expectation shocks. Policy implications are examined. Sufficiently large temporary increases in government spending can dislodge the economy from the stagnation regime and restore the natural stabilizing dynamics. More specific policy proposals are presented and discussed.

Ordering Policy Rules with an Unconditional Welfare Measure

The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantitative research. It is shown that it is generally possible to derive a linear - quadratic problem that approximates the exact non-linear problem where the unconditional expectation of the objective is maximised and the steady-state is distorted. Thus, the measure of pol icy performance is a linear combinat ion of second moments of economic variables which is relatively easy to compute numerically, and can be used to rank alternative policy rules. The approach is applied to a simple Calvo-type model under various monetary policy rules.

Host-microorganism interactions in lung diseases.

Until recently, the airways were thought to be sterile unless infected; however, a shift towards molecular methods for the quantification and sequencing of bacterial DNA has revealed that the airways harbour a unique steady-state microbiota. This paradigm shift is changing the way that respiratory research is approached, with a clear need now to consider the effects of host-microorganism interactions in both healthy and diseased lungs. We propose that akin to recent discoveries in intestinal research, dysbiosis of the airway microbiota could underlie susceptibility to, and progression and chronicity of lung disease. In this Opinion article, we summarize current knowledge of the airway microbiota and outline how host-microorganism interactions in the lungs and other tissues might influence respiratory health and disease.

Fiscal Sustainability in a New Keynesian Model

Recent work on optimal monetary and fiscal policy in New Keynesian models suggests that it is optimal to allow steady-state debt to follow a random walk. Leith and Wren-Lewis (2012) consider the nature of the timeinconsistency involved in such a policy and its implication for discretionary policy-making. We show that governments are tempted, given inflationary expectations, to utilize their monetary and fiscal instruments in the initial period to change the ultimate debt burden they need to service. We demonstrate that this temptation is only eliminated if following shocks, the new steady-state debt is equal to the original (efficient) debt level even though there is no explicit debt target in the government’s objective function. Analytically and in a series of numerical simulations we show which instrument is used to stabilize the debt depends crucially on the degree of nominal inertia and the size of the debt-stock. We also show that the welfare consequences of introducing debt are negligible for precommitment policies, but can be significant for discretionary policy. Finally, we assess the credibility of commitment policy by considering a quasi-commitment policy which allows for different probabilities of reneging on past promises. This on-line Appendix extends the results of this paper.

Agenesis of human pancreas due to decreased half-life of insulin promoter factor 1.

Neonatal diabetes mellitus can be transient or permanent. The severe form of permanent neonatal diabetes mellitus can be associated with pancreas agenesis. Normal pancreas development is controlled by a cascade of transcription factors, where insulin promoter factor 1 (IPF1) plays a crucial role. Here, we describe two novel mutations in the IPF1 gene leading to pancreas agenesis. Direct sequence analysis of exons 1 and 2 of the IPF1 gene revealed two point mutations within the homeobox in exon 2. Genetic analysis of the parents showed that each mutation was inherited from one parent. Mutations localized in helices 1 and 2, respectively, of the homeodomain, decreased the protein half-life significantly, leading to intracellular IPF1 levels of 36% and 27% of wild-type levels. Both mutant forms of IPF1 were normally translocated to the nucleus, and their DNA binding activity on different known target promoters was similar to that of the wild-type protein. However, transcriptional activity of both mutant IPF1 proteins, alone or in combination with HNF3 beta/Foxa2, Pbx1, or the heterodimer E47-beta 2 was reduced, findings accounted for by decreased IPF1 steady state levels and not by impaired protein-protein interactions. We conclude that the IPF1 level is critical for human pancreas formation.

Fiscal Sustainability in a New Keynesian Model

Recent work on optimal monetary and fiscal policy in New Keynesian models suggests that it is optimal to allow steady-state debt to follow a random walk. Leith and Wren-Lewis (2012) consider the nature of the timeinconsistency involved in such a policy and its implication for discretionary policy-making. We show that governments are tempted, given inflationary expectations, to utilize their monetary and fiscal instruments in the initial period to change the ultimate debt burden they need to service. We demonstrate that this temptation is only eliminated if following shocks, the new steady-state debt is equal to the original (efficient) debt level even though there is no explicit debt target in the government’s objective function. Analytically and in a series of numerical simulations we show which instrument is used to stabilize the debt depends crucially on the degree of nominal inertia and the size of the debt-stock. We also show that the welfare consequences of introducing debt are negligible for precommitment policies, but can be significant for discretionary policy. Finally, we assess the credibility of commitment policy by considering a quasi-commitment policy which allows for different probabilities of reneging on past promises. This on-line Appendix extends the results of this paper.

Desarrollo de biomarcadores del grado de exposición y activación para la evaluación de la neurotoxicidad de la MDMA en humanos

La 3,4-Metilendioximetanfetamina (MDMA, éxtasis) es un derivado anfetamínico sintético ampliamente usado como droga recreativa, que produce neurotoxicidad serotonérgica en animales y posiblemente también en humanos. El mecanismo subyacente de neurotoxicidad, incluye la formación de especies reactivas de oxigeno (ROS), pero la fuente de generación de estos es un punto de controversia. Se postula que la neurotoxicidad inducida por la MDMA es mediada por la formación de metabolitos bioreactivos. Específicamente, los metabolitos primarios de tipo catecol, la 3,4- dihidroximetanfetamina (HHMA) y la 3,4-dihidroxianfetamina (HHA), que luego dan lugar a la formación de conjugados con el glutatión y la N-acetilcisteína, y que conservan la capacidad de entrar en el ciclo redox y presentan neurotoxicidad serotonérgica en ratas. Aunque la presencia de dichos metabolitos se demostró recientemente en microdialisados de cerebros de ratas, su formación en humanos no se ha reportado aun. Este trabajo describe la detección de N-acetil-cisteína-HHMA (NAC-HHMA) y N-acetil-cisteína-HHA (NAC-HHA) en orina humana de 15 consumidores recreacionales de MDMA (1.5 mg/kg) en un entorno controlado. Los resultados revelan que en las primeras 4 horas después del consumo de MDMA aproximadamente el 0.002% de la dosis administrada es recuperada como aductos tioéter. Los polimorfismos genéticos en la expresión de las enzimas CYP2D6 y COMT, que en conjunto son las principales determinantes de los niveles estables de HHMA y HHA, posiblemente expliquen la variabilidad interindividual observada en la recuperación de la NAC-HHMA y la NAC-HHA en orina. Resumiendo, por primera vez se demuestra la formación de aductos tioéteres neurotóxicos de la MDMA en humanos. Estos resultados apoyan la hipótesis de que la bioactivación de la MDMA a metabolitos neurotóxicos es el mecanismo relevante para la generación de la neurotoxicidad en humanos.

Asset Prices, Business Cycles, and Markov-Perfect Fiscal Policy when Agents are Risk-Sensitive

We study a business cycle model in which a benevolent fiscal authority must determine the optimal provision of government services, while lacking credibility, lump-sum taxes, and the ability to bond finance deficits. Households and the fiscal authority have risk sensitive preferences. We find that outcomes are affected importantly by the household's risk sensitivity, but not by the fiscal authority's. Further, while household risk-sensitivity induces a strong precautionary saving motive, which raises capital and lowers the return on assets, its effects on fluctuations and the business cycle are generally small, although more pronounced for negative shocks. Holding the stochastic steady state constant, increases in household risk-sensitivity lower the risk-free rate and raise the return on equity, increasing the equity premium. Finally, although risk-sensitivity has little effect on the provision of government services, it does cause the fiscal authority to lower the income tax rate. An additional contribution of this paper is to present a method for computing Markov-perfect equilibria in models where private agents and the government are risk-sensitive decisionmakers.

The Inflation Risk Premium on Government Debt in an Overlapping Generations Model

This paper presents a general equilibrium model in which nominal government debt pays an inflation risk premium. The model predicts that the inflation risk premium will be higher in economies which are exposed to unanticipated inflation through nominal asset holdings. In particular, the inflation risk premium is higher when government debt is primarily nominal, steady-state inflation is low, and when cash and nominal debt account for a large fraction of consumers' retirement portfolios. These channels do not appear to have been highlighted in previous models or tested empirically. Numerical results suggest that the inflation risk premium is comparable in magnitude to standard representative agent models. These findings have implications for management of government debt, since the inflation risk premium makes it more costly for governments to borrow using nominal rather than indexed debt. Simulations of an extended model with Epstein-Zin preferences suggest that increasing the share of indexed debt would enable governments to permanently lower taxes by an amount that is quantitatively non-trivial.

On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework

This paper studies the wasteful e ffect of bureaucracy on the economy by addressing the link between rent-seeking behavior of government bureaucrats and the public sector wage bill, which is taken to represent the rent component. In particular, public o fficials are modeled as individuals competing for a larger share of those public funds. The rent-seeking extraction technology in the government administration is modeled as in Murphy et al. (1991) and incorporated in an otherwise standard Real-Business-Cycle (RBC) framework with public sector. The model is calibrated to German data for the period 1970-2007. The main fi ndings are: (i) Due to the existence of a signi ficant public sector wage premium and the high public sector employment, a substantial amount of working time is spent rent-seeking, which in turn leads to signifi cant losses in terms of output; (ii) The measures for the rent-seeking cost obtained from the model for the major EU countries are highly-correlated to indices of bureaucratic ineffi ciency; (iii) Under the optimal scal policy regime,steady-state rent-seeking is smaller relative to the exogenous policy case, as the government chooses a higher public wage premium, but sets a much lower public employment, thus achieving a decrease in rent-seeking.

Optimal progressive taxation in a model with endogenous skill supply.

This paper examines whether efficiency considerations require that optimal labour income taxation is progressive or regressive in a model with skill heterogeneity, endogenous skill acquisition and a production sector with capital-skill complementarity. We find that wage inequality driven by the resource requirements of skill-creation implies progressive labour income taxation in the steady-state as well as along the transition path from the exogenous to optimal policy steady-state. We find that these results are explained by a lower labour supply elasticity for skilled versus unskilled labour which results from the introduction of the skill acquisition technology.

The Inflation Bias under Calvo and Rotemberg Pricing.

New Keynesian models rely heavily on two workhorse models of nominal inertia - price contracts of random duration (Calvo, 1983) and price adjustment costs (Rotemberg, 1982) - to generate a meaningful role for monetary policy. These alternative descriptions of price stickiness are often used interchangeably since, to a first order of approximation they imply an isomorphic Phillips curve and, if the steady-state is efficient, identical objectives for the policy maker and as a result in an LQ framework, the same policy conclusions. In this paper we compute time-consistent optimal monetary policy in bench-mark New Keynesian models containing each form of price stickiness. Using global solution techniques we find that the inflation bias problem under Calvo contracts is significantly greater than under Rotemberg pricing, despite the fact that the former typically significant exhibits far greater welfare costs of inflation. The rates of inflation observed under this policy are non-trivial and suggest that the model can comfortably generate the rates of inflation at which the problematic issues highlighted in the trend inflation literature emerge, as well as the movements in trend inflation emphasized in empirical studies of the evolution of inflation. Finally, we consider the response to cost push shocks across both models and find these can also be significantly different. The choice of which form of nominal inertia to adopt is not innocuous.

Interlinkages and forecasting made possible by the use of the DECOIN analytical tool kit

This technical report is a document prepared as a deliverable [D4.3 Report of the Interlinkages and forecasting prototype tool] of a EU project – DECOIN Project No. 044428 - FP6-2005-SSP-5A. The text is divided into 4 sections: (1) this short introductory section explains the purpose of the report; (2) the second section provides a general discussion of a systemic problem found in existing quantitative analysis of sustainability. It addresses the epistemological implications of complexity, which entails the need of dealing with the existence of Multiple-Scales and non-equivalent narratives (multiple dimensions/attributes) to be used to define sustainability issues. There is an unavoidable tension between a “steady-state view” (= the perception of what is going on now – reflecting a PAST --& PRESENT view of the reality) versus an “evolutionary view” (= the unknown transformation that we have to expect in the process of becoming of the observed reality and in the observer – reflecting a PRESENT --& FUTURE view of the reality). The section ends by listing the implications of these points on the choice of integrated packages of sustainability indicators; (3) the third section illustrates the potentiality of the DECOIN toolkit for the study of sustainability trade-offs and linkages across indicators using quantitative examples taken from cases study of another EU project (SMILE). In particular, this section starts by addressing the existence of internal constraints to sustainability (economic versus social aspects). The narrative chosen for this discussion focuses on the dark side of ageing and immigration on the economic viability of social systems. Then the section continues by exploring external constraints to sustainability (economic development vs the environment). The narrative chosen for this discussion focuses on the dark side of current strategy of economic development based on externalization and the “bubbles-disease”; (4) the last section presents a critical appraisal of the quality of energy data found in energy statistics. It starts with a discussion of the general goal of statistical accounting. Then it introduces the concept of multipurpose grammars. The second part uses the experience made in the activities of the DECOIN project to answer the question: how useful are EUROSTAT energy statistics? The answer starts with an analysis of basic epistemological problems associated with accounting of energy. This discussion leads to the acknowledgment of an important epistemological problem: the unavoidable bifurcations in the mechanism of accounting needed to generate energy statistics. By using numerical example the text deals with the following issues: (i) the pitfalls of the actual system of accounting in energy statistics; (ii) a critical appraisal of the actual system of accounting in BP statistics; (iii) a critical appraisal of the actual system of accounting in Eurostat statistics. The section ends by proposing an innovative method to represent energy statistics which can result more useful for those willing develop sustainability indicators.

T1-weighted MRI as a substitute to CT for refocusing planning in MR-guided focused ultrasound.

Precise focusing is essential for transcranial MRI-guided focused ultrasound (TcMRgFUS) to minimize collateral damage to non-diseased tissues and to achieve temperatures capable of inducing coagulative necrosis at acceptable power deposition levels. CT is usually used for this refocusing but requires a separate study (CT) ahead of the TcMRgFUS procedure. The goal of this study was to determine whether MRI using an appropriate sequence would be a viable alternative to CT for planning ultrasound refocusing in TcMRgFUS. We tested three MRI pulse sequences (3D T1 weighted 3D volume interpolated breath hold examination (VIBE), proton density weighted 3D sampling perfection with applications optimized contrasts using different flip angle evolution and 3D true fast imaging with steady state precision T2-weighted imaging) on patients who have already had a CT scan performed. We made detailed measurements of the calvarial structure based on the MRI data and compared those so-called 'virtual CT' to detailed measurements of the calvarial structure based on the CT data, used as a reference standard. We then loaded both standard and virtual CT in a TcMRgFUS device and compared the calculated phase correction values, as well as the temperature elevation in a phantom. A series of Bland-Altman measurement agreement analyses showed T1 3D VIBE as the optimal MRI sequence, with respect to minimizing the measurement discrepancy between the MRI derived total skull thickness measurement and the CT derived total skull thickness measurement (mean measurement discrepancy: 0.025; 95% CL (-0.22-0.27); p = 0.825). The T1-weighted sequence was also optimal in estimating skull CT density and skull layer thickness. The mean difference between the phase shifts calculated with the standard CT and the virtual CT reconstructed from the T1 dataset was 0.08 ± 1.2 rad on patients and 0.1 ± 0.9 rad on phantom. Compared to the real CT, the MR-based correction showed a 1 °C drop on the maximum temperature elevation in the phantom (7% relative drop). Without any correction, the maximum temperature was down 6 °C (43% relative drop). We have developed an approach that allows for a reconstruction of a virtual CT dataset from MRI to perform phase correction in TcMRgFUS.

Macrophages from Crohn's disease patients exhibit deficient pro-repair functions

BACKGROUND: We previously reported that myeloid cells can induce mucosal healing in a mouse model of acute colitis. Promotion of mucosal repair is becoming a major goal in the treatment of Crohn's disease. Our aim in this study is to investigate the pro-repair function of myeloid cells in healthy donor (HD) and Crohn's disease patients (CD). METHODS: Peripheral blood mononuclear cells (PBMC) from HD and CD patients were isolated from blood samples by Ficoll density gradient. Monocytic CD14+ cells were positively selected by Macs procedure and then differentiated ex-vivo into macrophages (Mφ). The repair function of PBMC, CD14+ monocytic cells and macrophages were evaluated in an in vitro wound healing assay. RESULTS: PBMC and CD14+ myeloid cells from HD and CD were not able to repair at any tested cell concentration. Remarkably, HD Mφ were able to induce wound healing only at high concentration (105 added Mφ), but, if activated with heat killed bacteria, they were able to repair even at very low concentration. On the contrary, not activated CD Mφ were not able to promote healing at any rate, but this function was restored upon activation. CONCLUSION: We showed that CD Mφ in their steady state, unlike HD Mφ, are defective in promoting wound healing. Our results are in keeping with the current theory of CD as an innate immunodeficiency. Defective Mφ may be responsible to the mucosal repair defects in CD patients and to the subsequent chronic activation of the adaptive immune response.