An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area

We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro area policy making, with a strengthening of the anti-inflation stance in the early years of the ERM, which was then lost around the time of German reunification and only recovered following the turnoil in the ERM in 1992. The ECB does not appear to have been as conservative as aggregate Euro-area policy was under Bundesbank leadership, and its response to the financial crisis has been muted. The estimates also suggest that the most appropriate description of policy is that of discretion, with no evidence of commitment in the Euro-area. As a result although both ‘good luck’ and ‘good policy’ played a role in the moderation of inflation and output volatility in the Euro-area, the welfare gains would have been substantially higher had policy makers been able to commit. We consider a range of delegation schemes as devices to improve upon the discretionary outcome, and conclude that price level targeting would have achieved welfare levels close to those attained under commitment, even after accounting for the existence of the Zero Lower Bound on nominal interest rates.

Consumer Behaviour in a Social Context: Implications for Environmental Policy

In this paper we summarise some of our recent work on consumer behaviour, drawing on recent developments in behavioural economics, in which consumers are embedded in a social context, so their behaviour is shaped by their interactions with other consumers. For the purpose of this paper we also allow consumption to cause environmental damage. Analysing the social context of consumption naturally lends itself to the use of game theoretic tools, and indicates that we seek to develop links between economics and sociology rather than economics and psychology, which has been the more predominant field for work in behavioural economics. We shall be concerned with three sets of issues: conspicuous consumption, consumption norms and altruistic behaviour. Our aim is to show that building links between sociological and economic approaches to the study of consumer behaviour can lead to significant and surprising implications for conventional economic policy prescriptions, especially with respect to environmental policy.

Moral Behaviour, Altruism and Environmental Policy

Free‐riding is often associated with self‐interested behaviour. However if there is a global mixed pollutant, free‐riding will arise if individuals calculate that their emissions are negligible relative to the total, so total emissions and hence any damage that they and others suffer will be unaffected by whatever consumption choice they make. In this context consumer behaviour and the optimal environmental tax are independent of the degree of altruism. For behaviour to change, individuals need to make their decisions in a different way. We propose a new theory of moral behaviour whereby individuals recognise that they will be worse off by not acting in their own self‐interest, and balance this cost off against the hypothetical moral value of adopting a Kantian form of behaviour, that is by calculating the consequences of their action by asking what would happen if everyone else acted in the same way as they did. We show that: (a) if individuals behave this way, then altruism matters and the greater the degree of altruism the more individuals cut back their consumption of a ’dirty’ good; (b) nevertheless the optimal environmental tax is exactly the same as that emerging from classical analysis where individuals act in self‐interested fashion.

An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area

We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro area policy making, with a strengthening of the anti-inflation stance in the early years of the ERM, which was then lost around the time of German reunification and only recovered following the turnoil in the ERM in 1992. The ECB does not appear to have been as conservative as aggregate Euro-area policy was under Bundesbank leadership, and its response to the financial crisis has been muted. The estimates also suggest that the most appropriate description of policy is that of discretion, with no evidence of commitment in the Euro-area. As a result although both ‘good luck’ and ‘good policy’ played a role in the moderation of inflation and output volatility in the Euro-area, the welfare gains would have been substantially higher had policy makers been able to commit. We consider a range of delegation schemes as devices to improve upon the discretionary outcome, and conclude that price level targeting would have achieved welfare levels close to those attained under commitment, even after accounting for the existence of the Zero Lower Bound on nominal interest rates.

High-magnification vascular imaging to reject false-positive sites in situ during Hexvix® fluorescence cystoscopy.

Fluorescence imaging for detection of non-muscle-invasive bladder cancer is based on the selective production and accumulation of fluorescing porphyrins-mainly, protoporphyrin IX-in cancerous tissues after the instillation of Hexvix®. Although the sensitivity of this procedure is very good, its specificity is somewhat limited due to fluorescence false-positive sites. Consequently, magnification cystoscopy has been investigated in order to discriminate false from true fluorescence positive findings. Both white-light and fluorescence modes are possible with the magnification cystoscope, allowing observation of the bladder wall with magnification ranging between 30× for standard observation and 650×. The optical zooming setup allows adjusting the magnification continuously in situ. In the high-magnification (HM) regime, the smallest diameter of the field of view is 600 microns and the resolution is 2.5 microns when in contact with the bladder wall. With this cystoscope, we characterized the superficial vascularization of the fluorescing sites in order to discriminate cancerous from noncancerous tissues. This procedure allowed us to establish a classification based on observed vascular patterns. Seventy-two patients subject to Hexvix® fluorescence cystoscopy were included in the study. Comparison of HM cystoscopy classification with histopathology results confirmed 32?33 (97%) cancerous biopsies and rejected 17?20 (85%) noncancerous lesions.

Spanish pension system: population aging and immigration policy

There is a widespread consensus in the literature that, as consequence of the demographic transition, the current Spanish pension system will become unsustainable in the next decades. In this article we evaluate the sustainability of the contributory pensions' sub-system, taking into account the demographic projections by the Spanish Statistical Office (INE). A baseline scenario is projected as well as several reforms are simulated, focusing on: (i) selective immigration policy, (ii) changes in the way of setting the pensions and (iii) increase of the legal age of retirement up to 68. The main results are the following. The current system would not incur deficits until 2018, from then deficits will begin to be accumulated. The expenditure in pensions practically would double (from 8.3 % in 2005 to 17.2 % in 2050). A selective immigration policy -towards foreign young people- would help, but does not solve the long-term sustainability of the current system. A policy that combines a pensions' growth at a pace lower than productivity growth and extends the legal age of retirement up to 68 would give solvency to the system beyond 2029

The Monetary policy rules and the inflation process in open emerging

This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility.

The Committee on Climate Change: A policy analysis

Domestic action on climate change is increasingly important in the light of the difficulties with international agreements and requires a combination of solutions, in terms of institutions and policy instruments. One way of achieving government carbon policy goals may be the creation of an independent body to advise, set or monitor policy. This paper critically assesses the Committee on Climate Change (CCC), which was created in 2008 as an independent body to help move the UK towards a low carbon economy. We look at the motivation for its creation in terms of: information provision, advice, monitoring, or policy delegation. In particular we consider its ability to overcome a time inconsistency problem by comparing and contrasting it with another independent body, the Monetary Policy Committee of the Bank of England. In practice the Committee on Climate Change appears to be the ‘inverse’ of the Monetary Policy Committee, in that it advises on what the policy goal should be rather than being responsible for achieving it. The CCC incorporates both advisory and monitoring functions to inform government and achieve a credible carbon policy over a long time frame. This is a similar framework to that adopted by Stern (2006), but the CCC operates on a continuing basis. We therefore believe the CCC is best viewed as a "Rolling Stern plus" body. There are also concerns as to how binding the budgets actually are and how the budgets interact with other energy policy goals and instruments, such as Renewable Obligation Contracts and the EU Emissions Trading Scheme. The CCC could potentially be reformed to include: an explicit information provision role; consumption-based accounting of emissions and control of a policy instrument such as a balanced-budget carbon tax.

Multiple Objectives in Monetary Policy: A de Facto Analysis for ‘Advanced’ Countries

A statistical methodology is developed by which realised outcomes can be used to identify, for calendar years between 1974 and 2012, when policy makers in ‘advanced’ economies have successfully pursued single objectives of different kinds, or multiple objectives. A simple criterion is then used to distinguish between multiple objectives pure and simple and multiple objectives subject to a price stability constraint. The overall and individual country results which this methodology produces seem broadly plausible. Unconditional and conditional analyses of the inflation and growth associated with different types of objectives reveal that multiple objectives subject to a price stability constraint are associated with roughly as good economic performance as the single objective of inflation. A proposal is then made as to how the remit of an inflation-targeting central bank could be adjusted to allow it to pursue other objectives in extremis without losing the credibility effects associated with inflation targeting.

Global Warming and Fat Tailed-uncertainty: Rethinking the Timing and Intensity of Climate Policy

The possibility of low-probability extreme natural events has reignited the debate over the optimal intensity and timing of climate policy. In this paper, we contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real options model with “tail risk”. In a nutshell, our results indicate the importance of tail risk and call for foresighted pre-emptive climate policies.

From Bretton Woods to inflation targeting: financial change and monetary policy evolution in Europe

Different ‘monetary architectures’ are distinguished, as a background to a discussion of the change in developed country monetary policy frameworks from fixed exchange rates under the Bretton Woods international monetary system to, ultimately, formal or informal inflation targeting. The introduction and experience of monetary targets in the 1970s is considered, followed by an analysis of the changes in countries’ monetary architectures, with particular reference to money and bond markets and to France and Italy, in the 1980s. Exchange rate targeting in Europe in the 1980s and 1990s is examined, followed by the changes in central bank independence in the 1990s. This leads to a discussion of the introduction of inflation targeting, and the issues raised for inflation targeting by the financial crisis of the late 2000s.

Genomic determinants of the efficiency of internal ribosomal entry sites of viral and cellular origin

Summary : Internal ribosome entry sites (IRES) are used by viruses as a strategy to bypass inhibition of cap-dependent translation that commonly results from viral infection. IRES are also used in eukaryotic cells to control mRNA translation under conditions of cellular stress (apoptosis, heat shock) or during the G2 phase of the cell cycle when general protein synthesis is inhibited. Variation in cellular expression levels has been shown to be inherited. Expression is controlled, among others, by transcriptional factors and by the efficiency of cap-mediated translation and ribosome activity. We aimed at identifying genomic determinants of variability in IRES-mediated translation of two representative IRES [Encephalomyocarditis virus (EMCV) and X-linked Inhibitor-of-Apoptosis (XIAP) IRES]. We used bicistronic lentiviral constructions expressing two fluorescent reporter transgenes. Lentiviruses were used to transduce seven different laboratory cell lines and B lymphoblastoid cell lines from the Centre d'Etude du Polymorphisme Humain (CEPH; 15 pedigrees; n=209); representing an in vitro approach to family structure allowing genome scan analyses. The relative expression of the two markers was assessed by FACS. IRES efficiency varies according to cellular background, but also varies, for a same cell type, among individuals. The control of IRES activity presents an inherited component (h2) of 0.47 and 0.36 for EMCV and XIAP IRES, respectively. A genome scan identified a suggestive Quantitative Trait Loci (LOD 2.35) involved in the control of XIAP IRES activity. Résumé : Les sites internes d'entrée des ribosomes (IRES = internal ribosome entry sites) sont utilisés par les virus comme une stratégie afin d'outrepasser l'inhibition de traduction qui résulte communément d'une infection virale. Les IRES sont également utilisés par les cellules eucaryotes pour contrôler la traduction de l'ARN messager dans des conditions de stress cellulaire (apoptose, choc thermique) ou durant la phase G2 du cycle cellulaire, situations durant lesquelles la synthèse générale des protéines est inhibée. La variation des niveaux d'expression cellulaire de transcription est un caractère héréditaire. L'expression des gènes est contrôlée entre autre par les facteurs de transcription et par l'efficacité de la traduction initiée par la coiffe ainsi que par l'activité des ribosomes. Durant cette étude nous avons eu pour but d'identifier les déterminants génomiques responsables de la variabilité de la traduction contrôlée par l'IRES. Ceci a été effectué en étudiant deux IRES représentatifs : l'IRES du virus de l'encéphalomyocardite (EMCV) et l'IRES de l'inhibiteur de l'apoptose XIAP (X-linked Inhibitor-of-Apoptosis). Nous avons utilisés des lentivirus délivrant un transgène bicistronique codant pour deux gènes rapporteurs fluorescents. Ces lentivirus ont été utilisés pour transduire sept différentes lignées cellulaires de laboratoire et des lignées cellulaires lymphoblastoïdes B du Centre d'Etude du Polymorphisme Humain (CEPH; 15 pedigrees; n=209) qui représentent une approche in vitro de la structure familiale et qui permettent des analyses par balayage du génome. L'expression relative des deux marqueurs fluorescents a été analysée par FACS. Nos résultats montrent que l'efficacité des IRES varie en fonction du type de cellules. Il varie aussi, pour le même type de cellules, selon les individus. Le contrôle de l'activité de l'IRES est un caractère héritable (héritabilité h2) de 0.47 et 0.36 pour les IRES de EMCV et XIAP respectivement. Le balayage du génome a permis l'identification d'un locus à effets quantitatifs [QTL Quantitative Trait Loci (LOD 2.35)] impliqué dans le contôle de l'activité de l'IRES de XIAP.

Monetary policy strategies, financial institutions and financial markets in the Middle East and North Africa: an overview

Three polar types of monetary architecture are identified together with the institutional and market infrastructure required for each type and the kinds of monetary policy feasible in each case: a ‘basic’ architecture where there is little or no financial system as such but an elementary central bank which is able to fix the exchange rate, as a substitute for a proper monetary policy; a ‘modern’ monetary architecture with developed banks, financial markets and central bank where policy choices include types of inflation targeting; and an ‘intermediate’ monetary architecture where less market-based monetary policies involving less discretion are feasible. A range of data is used to locate the various MENA countries with respect to these polar types. Five countries (Iran, Libya, Sudan, Syria and Yemen) are identified as those with the least developed monetary architecture, while Bahrain and Jordan are identified as the group at the other end of the spectrum, reaching beyond the intermediate polar type in some dimensions but not others. The countries in between vary on different dimensions but all lie between basic and intermediate architectures. The key general findings are that the MENA countries are both less differentiated and less ‘developed’ than might have been expected. The paper ends by calling for research on the costs and benefits of different types of monetary architecture.