Economic Fluctuations and Growth Research Meeting

Article excerpt

The NBER's Program on Economic Fluctuations and Growth held its annual summer research meeting in Cambridge on July 12. Andrew B. Abel, Wharton School and NBER, and Ivan Werning, MIT and NBER, organized the meeting. These papers were discussed:

Andrew Atkeson, University of California, Los Angeles and NBER; V.V. Chari, University of Minnesota and NBER; and Patrick J. Kehoe, Federal Reserve Bank of Minneapolis and NBER, "Sophisticated Monetary Policies"

Critic: Marco Bassetto, Federal Reserve Bank of Chicago and NBER

George-Marios Angeletos, MIT and NBER, and Alessandro Pavan, Northwestern University, "Policy with Dispersed Information on Aggregate Shocks"

Critic: Harold Cole, University of Pennsylvania and NBER

Francisco J. Buera and Giorgio E. Primiceri, Northwestern University and NBER; and Alexander Monge-Naranjo, Northwestern University, "Learning the Wealth of Nations"

Critic: Daron Acemogtu, MIT and NBER

Valerie A. Ramey, University of California, San Diego and NBER,

"Identifying Government Spending Shocks: It's All in the Timing"

Critic: Jordi Gall, CREI and NBER

Mark Aguiar, University of Rochester and NBER, and Erik Hurst, University of Chicago and NBER, "Deconstructing Lifecycle Expenditure"

Critic: Fatih Guvenen, University of Minnesota and NBER

Robert E. Hall, Stanford University and NBER. "Sources and Mechanisms of Cyclical Fluctuations in the Labor Market"

Critic: Robert Shimer, University of Chicago and NBER

The Ramsey approach to policy analysis finds the best competitive equilibrium given available instruments but is silent about how to get there uniquely. Many ways of specifying monetary policy lead to indeterminacy. Sophisticated policies do not. They depend on the history of past actions and exogenous events, they differ on and off the equilibrium path, and they can uniquely produce any desired competitive equilibrium. This result holds in two standard monetary economies and is robust to trembles and imperfect monitoring. The result implies that adherence to the Taylor principle is unnecessary. Atkeson, Chari, and Kehoe also show that such adherence is inefficient.

Information regarding commonly-relevant fundamentals (such as aggregate productivity and demand conditions) is widely dispersed in society, is only imperfectly aggregated through prices or other indicators of aggregate activity, and cannot be centralized by the government or any other institution. Angeletos and Pavan seek to identify policies that can improve the decentralized use of such dispersed information without requiring the government to observe it. They show that this can be achieved by appropriately designing the contingency of taxation on ex post public information regarding the realized fundamentals and aggregate activity. When information is common (as in the Ramsey literature), or when agents have private information regarding only idiosyncratic shocks (as in the Mirrlees literature), the contingency on fundamentals alone suffices for efficiency. When agents instead have private information regarding aggregate shocks, the contingency on aggregate activity becomes crucial. An appropriate combination of the two contingencies then permits the government to achieve the following goals: 1) dampen the impact of noise on equilibrium activity, and hence reduce non-fundamental volatility, without also dampening the impact of fundamentals; 2) improve the aggregation of information through prices and macro data; 3) restore a certain form of constrained efficiency in the decentralized use of information; and 4) guarantee that welfare increases with the provision of any additional information.

Buera and his co-authors study the evolution of market-oriented policies over time and across countries. They consider a model in which own and neighbors' past experiences influence policy choices through their effect on policymakers' beliefs. …