Discretionary Policy in a Monetary Union with Sovereign Debt

This paper examines the interactions between multiple national fiscal policy- makers and a single monetary policy maker in response to shocks to government debt in some or all of the countries of a monetary union. We assume that national governments respond to excess debt in an optimal manner, but that they do not have access to a commitment technology. This implies that national fi scal policy gradually reduces debt: the lack of a commitment technology precludes a random walk in steady state debt, but the need to maintain national competitiveness avoids excessively rapid debt reduction. If the central bank can commit, it adjusts its policies only slightly in response to higher debt, allowing national fiscal policy to undertake most of the adjustment. However if it cannot commit, then optimal monetary policy involves using interest rates to rapidly reduce debt, with signifi cant welfare costs. We show that in these circumstances the central bank would do better to ignore national fiscal policies in formulating its policy.

The Change Questionnaire predicts change in hazardous tobacco and alcohol use.

INTRODUCTION: Assessing motivation for change is deemed an important step in the treatment process that allows further refinement of the intervention in motivational interviewing (MI) and brief MI (BMI) adaptations. During MI (and BMI) sessions, motivation for change is expressed by the client as "change talk", i.e. all statements inclined toward or away from change. We tested the predictive validity of the Change Questionnaire, a 12-item instrument assessing motivation to change, on hazardous tobacco and alcohol use. METHODS: As part of the baseline measurements for a randomized controlled trial on multi-substance BMI at the Lausanne recruitment center (army conscription is mandatory in Switzerland for males at age 20, and thus provides a unique opportunity to address a non-clinical and largely representative sample of young men), 213 participants completed the questionnaire on tobacco and 95 on alcohol and were followed-up six months later. The overall Change Questionnaire score and its six subscales (Desire, Ability, Reasons, Need, Commitment, and Taking steps) were used as predictors of hazardous tobacco use (defined as daily smoking) and hazardous alcohol use (defined as more than one occasion with six standard drinks or more per month, and/or more than 21 standard drinks per week) in bivariate logistic regression models at follow-up. RESULTS: Higher overall Change scores were significant predictors of decreased risk for hazardous tobacco (odds ratio [OR] = 0.83, p = 0.046) and alcohol (OR = 0.76, p = 0.03) use. Several sub-dimensions were associated with the outcomes in bivariate analyses. Using a principal components analysis to reduce the number of predictors for multivariate models, we obtained two components. 'Ability to change' was strongly related to change in hazardous tobacco use (OR = 0.54, p < 0.001), the second we interpreted as 'Other change language dimensions' and which was significantly related to change in hazardous alcohol use (OR = 0.81, p = 0.05). CONCLUSIONS: The present findings lend initial support for the predictive validity of the Change Questionnaire on hazardous tobacco and alcohol use, making it an interesting and potentially useful tool for assessing motivation to change among young males.

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.

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.

How Optimal is US Monetary Policy?

Most of the literature estimating DSGE models for monetary policy analysis assume that policy follows a simple rule. In this paper we allow policy to be described by various forms of optimal policy - commitment, discretion and quasi-commitment. We find that, even after allowing for Markov switching in shock variances, the inflation target and/or rule parameters, the data preferred description of policy is that the US Fed operates under discretion with a marked increase in conservatism after the 1970s. Parameter estimates are similar to those obtained under simple rules, except that the degree of habits is significantly lower and the prevalence of cost-push shocks greater. Moreover, we find that the greatest welfare gains from the ‘Great Moderation’ arose from the reduction in the variances in shocks hitting the economy, rather than increased inflation aversion. However, much of the high inflation of the 1970s could have been avoided had policy makers been able to commit, even without adopting stronger anti-inflation objectives. More recently the Fed appears to have temporarily relaxed policy following the 1987 stock market crash, and has lost, without regaining, its post-Volcker conservatism following the bursting of the dot-com bubble in 2000.

Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price

We consider a frictional two-sided matching market in which one side uses public cheap talk announcements so as to attract the other side. We show that if the first-price auction is adopted as the trading protocol, then cheap talk can be perfectly informative, and the resulting market outcome is efficient, constrained only by search frictions. We also show that the performance of an alternative trading protocol in the cheap-talk environment depends on the level of price dispersion generated by the protocol: If a trading protocol compresses (spreads) the distribution of prices relative to the first-price auction, then an efficient fully revealing equilibrium always (never) exists. Our results identify the settings in which cheap talk can serve as an efficient competitive instrument, in the sense that the central insights from the literature on competing auctions and competitive search continue to hold unaltered even without ex ante price commitment.

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.

Chemical genetic analysis of cdc2p : new insights into the regulation of cytokinesis in "Schizosaccharomyces pombe"

RÉSUMÉ La protéine kinase cyciine-cdc2p (Cdk) joue un rôle fondamental dans la progression du cycle cellulaire dans la levure de fission Schizosaccharomyces pombe. Nous avons étudié le rôle de cdc2p dans la régulation de la cascade de septation ou SIN (septation initiation network) en mitose et en méiose. Le SIN contrôle l'initiation de la cytokinèse à la fin de la mitose, et est supposé être négativement régulé par cdc2p. Nous avons mutagénéisé le site actif de cdc2p afin qu'il puisse lier un analogue de l'ATP (PP1) qui agit comme inhibiteur. Cet analogue ne peut pas lier la kinase de type sauvage. Cette approche dite «chemical genetics» permet une meilleure résolution temporelle comparée à l'approche classique utilisant les mutants sensibles à une température élevée. Nous avons montré que ce mutant cdc2-as (analogue sensitive) est fonctionnel et que, in vitro, l'activité kinase est inhibée en présence de l'analogue. Les cellules portant cette mutation, contrairement aux cellules de type sauvage s'arrêtent de manière irréversible soit en G2 soit en G1 et G2, suivant la concentration de l'inhibiteur. L'inactivation de cdc2p-as dans des cellules arrêtées en métaphase conduit au recrutement asymétrique des protéines du SIN sur le pôle du fuseau mitotique et au recrutement des composants du SIN, ainsi que de la ß-(1,3)glucan synthase à l'anneau contractile. De plus, nos résultats montrent que l'orthologue de la phosphatase cdc14p dans S. pombe, fip1p/clp1p, joue un rôle dans la régulation de la localisation des protéines du SIN suite à l'inactivation de cdc2p. Finalement, l'activité de cdc2p est requise pour maintenir la polo-like kinase plo1p sur les pôles du fuseau mitotique dans les premiers stages de la mitose. C'est pourquoi nous concluons que l'inactivation de cdc2p est suffisante pour activer le SIN et promouvoir la cytokinèse. Dans une étude séparée, nous avons caractérisé des potentiellement nouveaux composants ou régulateurs du SIN qui ont été isolés dans deux criblages génétiques visant à isoler des mutants atténuants la signalisation du SIN. Summary : The cyclin dependent protein kinase (Cdk) cdc2p plays a central role in the cell cycle progression of fission yeast Schizosaccharomyces pombe. We have studied the role of cdc2p in regulating the septation initiation network (SIN) in mitosis and meiosis. The SIN regulates the initiation of cytokinesis at the end of mitosis and is thought to be inhibited by cdc2p. We have mutated the active site of cdc2p to permit binding of an inhibitory ATP analogue (PP1), which is unable to bind unmodified kinases. This "chemical genetic" approach provides a much higher temporal resolution than it can be achieved with classical temperature-sensitive mutants. We demonstrate that cdc2-as (analogue sensitive) is functional and that addition of PP1 inhibits cdc2p kinase activity in vitro. Cells carrying the cdc2-as allele, but not cdc2+, undergo reversible cell cycle arrest following addition of PP1 either in G2, or at both major commitment points in the cell cycle (G1 and G2), depending upon the concentration of PP1. Inactivation of cdc2p-as in cells arrested in early mitosis promotes both the asymmetric recruitment of SIN proteins to the spindle pole bodies (SPBs), and the recruitment of the most downstream SIN components and ß-(1,3)-glucan synthase to the contractile ring. Furthermore, our results indicate that the S. pombe orthologue of Cdc14p, flp1p/clp1p, plays a role in regulating the relocalisation of SIN proteins following inactivation of cdc2p, and that cdc2p activity is required to retain the polo like kinase plot p on the SPBs in early mitosis. Thus, we conclude that inactivation of cdc2p is sufficient to activate the SIN and to promote cytokinesis. In a separate study, we have initially characterised potential novel components or regulators of the SIN pathway identified by two genetic screens for mutants attenuating SIN signaling.

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.

Educational spillovers and parental migration

Impacts of parental emigration on educational outcomes of children and, in turn, the children’s influence on peers are theoretically ambiguous. Using novel data I collected on migration experiences and timing, family background and school performance of lower secondary pupils in Poland, I analyse empirically whether children with parents working abroad (PWA) influence school performance of their classmates. Migration is mostly temporary in nature, with one parent engaging in employment abroad. As many as 63% of migrant parents have vocational qualifications, 29% graduated from high school, 4% have no qualifications and the remaining 4% graduated from university. Almost 18% of all children are affected by parental migration and, on average, 6.5% of pupils in a class have a parent abroad. Perhaps surprisingly, estimates suggest that pupils benefit from the presence of PWA classmates. PWA pupils whose parents graduated from high school exert the biggest positive impact on their classroom peers. Further, classmates are differently affected by PWA children; those who themselves experienced migration within the family benefit most. This positive effect is likely driven by the student level interactions or increased teachers’ commitment to classes with students from migrant families.

Dynamic Relational Contracts under Complete Information

This paper considers a long-term relationship between two agents who both undertake a costly action or investment that together produces a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. Two cases are considered: (i) where agents are risk neutral and are subject to limited liability constraints and (ii) where agents are risk averse, have quasi-linear preferences in consumption and actions but where limited liability constraints do not bind. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. In the risk-neutral case, there may be an initial phase in which one agent overinvests and the other underinvests. However, both actions and surplus converge monotonically to a stationary state in which there is no overinvestment and surplus is at its maximum subject to the constraints. In the risk-averse case, there is no overinvestment. For this case, we establish that dynamics may or may not be monotonic depending on whether or not it is possible to sustain a first-best allocation. If the first-best allocation is not sustainable, then there is a trade-off between risk sharing and surplus maximization. In general, surplus will not be at its constrained maximum even in the long run.

Bilateral oligopoly and quantity competition

Bilateral oligopoly is a strategic market game with two commodities, allowing strategic behavior on both sides of the market. When the number of buyers is large, such a game approximates a game of quantity competition played by sellers. We present examples which show that this is not typically a Cournot game. Rather, we introduce an alternative game of quantity competition (the market share game) and, appealing to results in the literature on contests, show that this yields the same equilibria as the many-buyer limit of bilateral oligopoly, under standard assumptions on costs and preferences. We also show that the market share and Cournot games have the same equilibria if and only if the price elasticity of the latter is one. These results lead to necessary and sufficient conditions for the Cournot game to be a good approximation to bilateral oligopoly with many buyers and to an ordering of total output when they are not satisfied.

US Monetary and Fiscal Policies - Conflict or Cooperation?

Most of the literature estimating DSGE models for monetary policy analysis ignores fiscal policy and assumes that monetary policy follows a simple rule. In this paper we allow both fiscal and monetary policy to be described by rules and/or optimal policy which are subject to switches over time. We find that US monetary and fiscal policy have often been in conflict, and that it is relatively rare that we observe the benign policy combination of an conservative monetary policy paired with a debt stabilizing fiscal policy. In a series of counterfactuals, a conservative central bank following a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. However, if policy makers cannot credibly commit to such a regime, monetary accommodation of the prevailing fiscal regime may actually be welfare improving.

Administering brief motivational interventions to young men: Results from a pilot census transmissible study among 19 year-old francophone Swiss men.

AIMS - To pilot the implementation of brief motivational intervention (BMI) among conscripts, and to test the effectiveness of BMI in young men voluntarily showing up for a single face-to-face alcohol BMI session. Participants were conscripts attending the army recruitment process in Lausanne. This process is mandatory for all Swiss males at age 19 and Lausanne serves all francophone Swiss men. METHODS - Of 3'227 young men that were seen during the army recruitment procedures, 445 voluntarily showed up for a BMI and 367 were included in the study (exclusions were random and unsystematic and related to organizational aspects in the recruitment center). After an initial assessment, subjects were randomized into two groups: an immediate BMI and a 6-month delayed BMI (waiting list design). A 6-month follow-up assessment was conducted in both groups. BMI was a face-to-face 20 minutes counseling session with a psychologist trained in motivational interviewing at baseline and a telephone session for the control group at follow-up. Strategies of BMI included the exploration and evocation of a possible behavior change, importance of future change, readiness to change, and commitment to change. A filmed example of such an intervention is available in French at www.alcoologie.ch. RESULTS - All procedures are now fully implemented and working and the provision of preventive efforts found general approval by the army. 3'227 were eligible for BMI and 445 of them (13.8%) showed up for receiving a BMI. 367 were included in the study, 181 in the BMI group and 186 in the control group. More than 86% of those included were reached at follow-up. With one exception all findings on alcohol use went in the expected direction, i.e. a stronger decrease in alcohol use (or a smaller increase as for usual weekly drinking amount) in the BMI group. The risk for risky single occasion drinking (RSOD) decreased from 57% at-risk users at baseline to 50.6%, i.e. a 6.4% point decrease in the BMI group, while there was only a 0.6% point decrease (from 57.5% to 56.9%) in the control group. Moreover, the study showed that there was a likelihood of crossover effects for other substances like tobacco smoking and cannabis use. Despite these encouraging and consistent positive findings, none reached significance at conventional levels (p < 0.05). DISCUSSION - Data suggest a beneficial impact of BMI on alcohol use outcomes and potential effect on other substance use in 19-year old men attending the army recruitment and showing up voluntarily for BMI. As the main aim was to implement and test feasibility of conducting BMI in this setting none of our findings reached statistical significance. The consistency of findings across measures and substances, however, raises hope that non-significance in the present study does not mean no effect, but mainly insufficient power of this pilot study. [Authors]

Estudi exploratori per a la reconstrucció de temperatures de l'aigua i de l'aire en la conca central del llac Baikal (Sibèria) en els últims 40000 anys

Aquest estudi consisteix en un anàlisi exploratori que té per objectiu principal la realització d’una reconstrucció de la temperatura de l’aigua i l’aire del llac Baikal durant els últims 40.000 anys. El treball s’ha dut a terme mitjançant l’ús de les proxys de reconstrucció de la temperatura y la utilització dels mètodes TEX86, MAAT, i la d’aportació de matèria orgànica d’origen terrestre, el BIT, aplicant-les a la mostra VER93-2 st GC-24, extreta pel Baikal Drilling Project a la conca central, amb l’objectiu de fer una aportació de dades paleoclimàtiques per tal d’aconseguir una millora en les interpretacions de futurs esdeveniments climàtics, i d’identificar esdeveniments climàtics sobtats, tals com els Heinrich events i els Youngers Dryas. Abans de la realització de l’anàlisi de les mostres s’ha dut a terme una extrapolació de l’edat en el testimoni, degut a que l’edat del core BDP VER93-2.st.GC-24 havia estat extrapolada fins a 277,5 cm de profunditat i en el present estudi s’ha ampliat l’anàlisi fins als 460 cm. de profunditat. Un cop obtinguts els resultats s’ha realitzat un càlcul de precisió i reproductibilitat per tal de conèixer una estimació quantitativa de la variabilitat de les dades obtingudes en les diferents proxys, en el qual ha estat demostrat una baixa variabilitat de les dades, exceptuant la variabilitat del TEX86 i la precisió del MAAT. Per a la localització dels diferents esdeveniments climàtics donats durant l’Holocè i el Plistocè s’han realitzat anàlisis gràfics dels propis resultats, juntament i en comparació dels resultats realitzats per Escala et al. (r.n.p [resultats no publicats]) en la conca sud, i de l’estudi publicat per Prokopenko et al., en el que s’analitza la presència de diatomees i matèria orgànica l’Atlàntic Nord. Els resultats integrats d’Escala et al.,(r.n.p) i els d’aquest estudi coincideixen en la datació dels diferents esdeveniments, amb alguna variació hipotèticament produïda per l’extrapolació d’edat realitzada en el present estudi i la gran aportació de matèria orgànica en el lloc d’extracció del testimoni per part del riu Selenga. Aquests resultats mostren una possible relació entre els esdeveniments climàtics i la variació de la temperatura de l’aigua.