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Journal Article
Algebraic quantity equations before Fisher and Pigou
Readers of this Review are doubtlessly familiar with the famous equation of exchange, MV=PQ, frequently employed to analyze the price level effects of monetary shocks. One might think the algebraic formulation of the equation is an outgrowth of the 20th century tendency toward mathematical modeling and statistical testing. Indeed, textbooks typically associate the transaction velocity version of the equation with Irving Fisher and the alternative Cambridge cash balance version with A. C. Pigou, two early 20th century proponents of the application of mathematics to economic analysis. The ...
Discussion Paper
Measuring core inflation: notes from a 2007 Dallas Fed conference
In May 2007, the Federal Reserve Bank of Dallas hosted a conference, organized with the Federal Reserve Bank of Cleveland, titled "Price Measurement for Monetary Policy." The conference broadly focused on two issues - the measurement of core inflation and the measurement of inflation expectations. This paper summarizes the conference papers on core inflation.
Journal Article
Market conditions cause gasoline price hikes
Working Paper
Local price variation and labor supply behavior
In standard economic theory, labor supply decisions depend on the complete set of prices: the wage and the prices of relevant consumption goods. Nonetheless, most of theoretical and empirical work ignores prices other than wages when studying labor supply. The question we address in this paper is whether the common practice of ignoring local price variation in labor supply studies is as innocuous as has generally been assumed. We describe a simple model to demonstrate that the effects of wage and non-labor income on labor supply will typically differ by location. We show, in particular, the ...
Journal Article
Recent price developments
Journal Article
Formalizing the success of past policy
Working Paper
Why are goods and services more expensive in rich countries? demand complementarities and cross-country price differences
Empirical studies show that tradable consumption goods are more expensive in rich countries. This paper proposes a simple yet novel explanation for this apparent failure of the law of one price: Consumers? utility from tradable goods depends on their consumption of complementary goods and services. Monopolistically competitive firms charge higher prices in countries with more complementary goods and services because consumer demand is less elastic there. The paper embeds this explanation within a static Krugman (1980)-style model of international trade featuring differentiated tradable goods. ...
Working Paper
Optimal monetary policy in a two country model with firm-level heterogeneity
This paper studies non-cooperative monetary policy in a two country general equilibrium model where international economic integration is endogenised through firm-level heterogeneity and monopolistic competition. Economic integration between countries is a source of policy competition, generating higher long-run inflation, and increased gains from monetary cooperation.
Working Paper
Quality pricing-to-market
We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Mussa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct ...
Working Paper
The effect of commodity price shocks on underlying inflation: the role of central bank credibility
This paper seeks to document and explain the effect of a commodity price shock on underlying core inflation, and how that effect changes both across time and across countries. Impulse responses derived from a structural VAR model show that across many countries there was a break in the response of core inflation to a commodity price shock. In an earlier period, a shock to commodity prices would lead to a large and significant increase in core inflation, but in later periods, the effect was insignificant. ; To explain this, we construct a large-scale DSGE model with both headline and core ...