Firm-Specific Capital and Welfare

Sveen, Tommy; Weinke, Lutz Working Paper Firm-Specific Capital and Welfare Working Paper, No. 2006/4 Provided in Cooperation with: Norges Bank, Oslo Suggested Citation: Sveen, Tommy; Weinke, Lutz (2006) : Firm-Specific Capital and Welfare, Working Paper, No. 2006/4, ISBN 82-7553-353-8, Norges Bank, Oslo, https://hdl.handle.net/11250/2498374 This Version is available at: https://hdl.handle.net/10419/209867 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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Hensikten er blant annet at forfatteren kan motta kommentarer fra kolleger og andre interesserte. Synspunkter og konklusjoner i arbeidene står for forfatternes regning. Firm-Speci…c Capital and Welfare Tommy Sveen Norges Bank Lutz Weinke Duke University April 3, 2006 Abstract What are the consequences for monetary policy design implied by the fact that price setting and investment takes typically place simultaneously at the …rm level? To address this question we analyze simple (constrained) optimal interest rate rules in the context of a dynamic New Keynesian model featuring …rm-speci…c capital accumulation as well as sticky prices and wages à la Calvo. We make the case for Taylor type rules. They are remarkably robust in the sense that their welfare implications do not appear to hinge neither on the speci…c assumptions regarding capital accumulation that are used in their derivation nor on the particular de…nition of natural output that is used to construct the output gap. On the other hand we …nd that rules prescribing that the central bank does not react to any measure of real economic activity are not robust in that sense. Keywords: Monetary Policy, Sticky Prices, Aggregate Investment. JEL Classi…cation: E22, E31, E52 Thanks to seminar participants at Norges Bank. Special thanks to Ida Wolden Bache, Egil Matsen, Øistein Røisland, Stephanie Schmitt-Grohé, and Fredrik Wulfsberg. The usual disclaimer applies. The views expressed in this paper are those of the authors and should not be attributed to Norges Bank. 1 1 Introduction How does …rm-speci…c capital accumulation a¤ect the desirability of alternative arrangements for the conduct of monetary policy? We address this question employing a New Keynesian (NK) framework, i.e. a dynamic stochastic general equilibrium model featuring nominal rigidities combined with monopolistic competition. Speci…cally, we consider an economic environment with sticky prices and wages à la Calvo (1983). Our model is therefore similar to the one developed in Erceg et al. (2000) except for the fact that we allow for capital accumulation.1The welfare criterion is derived from the utility of the representative household, along the lines of Rotemberg and Woodford (1997). What is the relevance of our analysis? Edge (2003) shows how the work by Rotemberg and Woodford (1997) can be extended to conduct a welfare analysis in the context of a NK model where capital accumulation is endogenous. She assumes, however, that …rms have access to a rental market for capital,2which is not an innocuous simpli…cation in a NK model, as analyzed in Sveen and Weinke (2003, 2004, 2005a) and Woodford (2003, Ch. 5, 2005).3In the present paper we show how a welfare analysis can be conducted in the context of a NK model featuring …rmspeci…c capital accumulation (FS for short). Moreover we explain how and why the conclusions regarding the desirability of monetary policy change if a rental market for capital (RM for short) is assumed instead. We obtain three results. First, the implied price stickiness is the main di¤erence between FS and RM as far as their welfare implications are concerned. Sveen and Weinke (2005a) show that this is the only di¤erence between the two models if atten1Erceg et al. (2000) assume that the aggregate capital stock is constant and that there exists a rental market for capital. 2Another di¤erence between our work and Edge’s is that she assumes frictionless investment whereas we follow Woodford (2003, Ch. 5) in assuming a convex adjustment cost at the …rm level. 3Schmitt-Grohé and Uribe (2004) argue that both the rental market assumption and the assumption of …rm-speci…c capital are somewhat extreme. However, the work by Altig et al. (2005) suggests that the assumption of …rm-speci…c capital is appealing on empirical grounds. 2 tion is restricted to a …rst order approximation to the equilibrium dynamics. Here we show that the additional endogenous price stickiness implied by the presence of …rm-speci…c capital (and the lack thereof under RM) is also the key player as far as the welfare implications of the two alternative speci…cations are concerned. This is interesting and surprising because our welfare criterion, a second order approximation to the unconditional expectation of the household’s utility, is not identical in the two models if we change the price stickiness in one of them in such a way that the …rst order approximations to the respective equilibrium dynamics would be identical. Optimized interest rate rules therefore prescribe putting relatively more weight on price in‡ation than on wage in‡ation under FS, whereas the opposite is true under RM. This is important for the following reason. Suppose that the central bank does not react to any measure of real economic activity. Then using the optimized interest rate rule associated with RM in the FS speci…cation implies a large welfare loss, as we discuss. Let us relate that result to the existing literature. Schmitt-Grohé and Uribe (2005b) show in the context of a rental market model that the relative weight attached to priceand to wage in‡ation in an optimized interest rate rule depends crucially on which nominal variable is stickier.4We show that the di¤erence in policy implications between FS and RM can be understood in an analogous way. We also analyze Taylor type rules, i.e. interest rate rules prescribing that the central bank reacts to price in‡ation and to the output gap. Our second result is that these interest rate rules are remarkably robust in the following sense. If the optimized rule implied by one model is used in the other one then the resulting welfare loss is small compared with the outcome under the optimized rule associated with that model. Consequently, the central bank does not need to take a stand on 4In related work Schmitt-Grohé and Uribe (2005a) make the case for price stability as the central goal of optimal monetary policy. They show that desirable outcomes can be implemented by a combination of passive monetary and active …scal policy. In the present paper we focus exclusively on optimal monetary policy. 3 which speci…cation of capital accumulation is the empirically more plausible one if it uses a Taylor type rule. But how should the output gap be de…ned? So far there is no consensus in the literature on the answer to that question. Neiss and Nelson (2003) and Woodford (2003, Ch. 5) propose two alternative de…nitions. Our third result is that the difference between these two competing de…nitions matters very little for the resulting welfare implications and we explain why this is so. The remainder of the paper is organized as follows. The model is outlined in Section 2. We present the welfare criterion in Section 3. Our results are shown and interpreted in Section 4. Section 5 concludes. 2 The Model 2.1 Preferences, Market Structure and Technology 2.1.1 Households The model we use to analyze the implications of …rm-speci…c capital accumulation for monetary policy design is a NK framework with complete …nancial markets. Throughout the analysis the subscript tis used to indicate that a variable is dated as of that period. Households maximize expected discounted utility: Et 1 X k=0 kU(Ct+k; Nt+k(h)) ; where is the subjective discount factor. Moreover Nt(h)denotes hours worked by household hand Ctis a Dixit-Stiglitz consumption aggregate as of that time. Speci…cally, CtZ1 0 Ct(i)"1 "di" "1 ;(1) 4 where "is the elasticity of substitution between di¤erent varieties of goods Ct(i). The associated price index is de…ned as follows: PtZ1 0 Pt(i)1"di1 1" :(2) Requiring optimal allocation of any spending on the available goods implies that consumption expenditure can be written as PtCt. Household h’s period utility is given by the following function: U(Ct; Nt(h)) = C1 t 1Nt(h)1+ 1 + ;(3) where parameter denotes the household’s relative risk aversion and parameter  can be interpreted as the the inverse of the Frisch aggregate labor supply elasticity. Our assumptions of separable preferences combined with complete …nancial markets imply that the heterogeneity across households in their hours worked does not translate into consumption heterogeneity. This is re‡ected in our notation. Each household is assumed to be the monopolistically competitive supplier of its di¤erentiated type of labor, Nt(h). We also assume staggered wage setting à la Erceg et al. (2000), i.e. each …rm faces a constant and exogenous probability, w, of getting to reoptimize its wage in any given period. Optimizing behavior on the part of …rms implies that demand for type hlabor, Nd t(h), is given by: Nd t(h) = Wt(h) Wt"N Nd t;(4) where Wt(h)denotes the nominal wage posted by household hand "Ngives the elasticity of substitution between di¤erent types of labor. Finally, Wtand Nd tdenote, respectively, the aggregate nominal wage and aggregate labor demand. They are de…ned as the corresponding aggregate prices and quantities for goods. 5 Under standard assumptions the relevant budget constraint prescribes that the present value of all expenditures cannot be greater than the value of a household’s initial assets and the present value of its income. The latter derives from wage payments and pro…ts resulting from ownership of …rms net of taxes.5We assume that there are only lump sum taxes and the only role of the government is to levy these taxes to …nance subsidies in goods and factor markets which render the steady state of our model Pareto optimal. This assumption in turn is needed to compute our welfare criterion up to the second order using a …rst order approximation to the equilibrium dynamics. For future reference let us note two implications of households’optimizing behavior. First, we obtain a stochastic discount factor for random nominal payments, Qt;t+1, from a standard intertemporal optimality condition: Ct+1 CtPt Pt+1 =Qt;t+1:(5) The stochastic discount factor is linked to the gross nominal interest rate, Rt, by the relationship EtfQt;t+1g=R1 twhich holds in equilibrium. Second, under our assumptions the …rst order condition for wage setting reads: Et(1 X k=0 (w)kNd t+k(h)C t+kWt(h) Pt+k MRSt+k(h))= 0;(6) where MRSt(h)Nt(h)C tis the (negative of the) marginal rate of substitution of consumption for leisure of household h. 2.1.2 Firms There is a continuum of …rms and each of them is the monopolistically competitive producer of a di¤erentiated good. Each …rm iis assumed to maximize its market 5For details see Woodford (2003, Ch. 2). 6 make one key observation which allows us to overcome that di¢ culty. Woodford’s (2005) linearized rules for price setting and investment can be used to compute the relevant second moments with the accuracy that we need for our second order approximation to welfare. The details are explained in Appendix A. 3.2 Welfare with a Rental Market for Capital In the rental market case the welfare criterion reads, EWtW t UCC'ERM 1y2 t(y t)2+ RM 2c2 t(c t)2+ RM 3i2 t(i t)2 +RM 4(kt+1)2k t+12+ RM 5n2 t(n t)2 +RM 6t+ RM 7t+tip; (25) as we show in Appendix B where we also de…ne parameters RM 1to RM 7. Compared with FS the analysis is greatly simpli…ed in that case by the fact that the capital labor ratio is constant across …rms, as discussed in Edge (2003). 4 Results We consider two prominent families of monetary policy rules. Our ultimate goal is to explain how and why the associated constrained optimal values of the policy parameters change in each case depending on whether or not a rental market for capital is assumed. 13 4.1 The Welfare Consequences of Responding to Price and to Wage In‡ation We start by considering interest rate rules of the following kind, rt=+r(rt1) + s[!!t+ (1 !)t];(26) where parameter smeasures the overall responsiveness of the nominal interest rate to changes in in‡ation, whereas !is the relative weight put on wage in‡ation. The weight on price in‡ation is therefore given by (1 !). Finally, parameter r denotes the interest rate smoothing coe¢ cient. We analyze constrained optimal rules, i.e. we restrict attention to a particular subset of possible parameter values that parametrize the rule. Speci…cally, we consider only positive parameter values and moreover we require parameter !to be less or equal to one. We compare the optimized interest rate rules under FS and RM. In each case we report the optimized coe¢ cients entering the interest rate rule as well as the associated welfare loss. We follow Erceg et al. (2000) and measure the latter as a fraction of Pareto-optimal consumption, divided by the productivity innovation variance.11 The results are shown in Table 1. Table 1: Price and Wage In‡ation Rule Parameter FS RM r1:0156 0:9396 s2:1501 4:7857 !0:4419 0:7205 Welfare 8:7105 8:6403 11 Let us give a concrete example for the interpretation of the welfare numbers in our tables. Suppose the productivity innovation variance is 0:012. Then, the number 10 for welfare would mean that the representative houshold would be willing to give up 100:012100 = 0:1percentage points of steady state (Pareto optimal) consumption in order to avoid the business cycle cost associated with the presence of the nominal rigidities in our model. 14 Regardless of whether FS or RM is used the implied optimized rule prescribes to adjust the nominal interest rate in response to changes in both wage in‡ation and price in‡ation. That seems intuitive: both kinds of in‡ation are costly in welfare terms since we model two nominal rigidities. Interestingly, the optimized rule prescribes to react relatively more to price in‡ation in FS whereas the opposite holds true in RM. Our intuition is as follows. We observe two things. First, Sveen and Weinke (2005a) show that price stickiness can be used to measure the di¤erence between RM and FS, if attention is restricted to a …rst order approximation to the equilibrium dynamics: the feature of …rm-speci…c capital implies that price setters internalize the consequences of their price setting decisions for the marginal cost they face. That makes them more reluctant to change their prices in FS than under RM.12 Speci…cally, we show in our 2005a paper that a value of about 0:9is needed in RM in order to obtain equivalence with FS if the value 0:75 is assigned to the price stickiness parameter in the latter case and all the remaining parameters are held constant at conventional values. Put di¤erently, the rental market assumption turns o¤ the endogenous price stickiness which is implied by the alternative speci…cation with …rm-speci…c capital. Second, it is a well understood property of many New Keynesian models that the central bank achieves the most desirable welfare outcome if it cares relatively more about the nominal variable which is relatively stickier.13 Combining these two observations the previous …nding seems intuitive. Since the rental market assumption eliminates the endogenous part of the price stickiness the central bank should care relatively more about wage in‡ation in that model. The reason is endogenous wage stickiness. That feature is common to FS and RM: in both models households internalize the consequences of their wage setting decisions for the marginal disutility of labor they face. On the other hand, if …rm-speci…c 12 This kind of intuition has been originally developed in Sbordone (2002) and Galí et al. (2001) in the context of models where capital is assumed to be a constant factor. For an early model featuring di¤erences in the marginal cost across …rms see Woodford (1996). 13 See, e.g., Aoki (2001) and Benigno (2003). 15 capital is taken into account then the implied endogenous price stickiness is strong enough to make it worthwhile for the central bank to care relatively more about price in‡ation. So far our intuition relies on a …nding, namely our price stickiness metric, which has been obtained in the context of a …rst order approximation to the equilibrium dynamics. This kind of intuition could easily be misleading for our purposes here. The reason is that the second order approximation to the household’s expected utility, our welfare criterion, is not equivalent in both models if we just change the price stickiness in such a way that the two models would be identical up to the …rst order. We therefore challenge our intuition by conducting the following experiment whose results are shown in Table 2. Table 2: Robustness I: Rules from the RM Model Used in FS Parameter RM rule with = 0:75 RM rule with = 0:90 r0:9396 1:0162 s4:7857 0:5082 !0:7205 0:3288 Welfare 11:2425 9:0250 We compute welfare in FS as implied by the optimized policy rule in RM under the baseline calibration. The welfare loss increases by 29:1% with respect to the outcome under the optimized rule for FS. Now we compute constrained optimal policy in RM for a price stickiness parameter equal to 0:9. The implied optimized rule looks similar to the one associated with FS under the baseline calibration. Speci…cally, the rule prescribes to react relatively more to price in‡ation than to wage in‡ation. Moreover, the increase in welfare loss which obtains if that rule is used in FS is just 3:6%, which we regard as being negligible. The last result suggests that our price stickiness metric is useful from a welfare point of view.14 14 In principle, wether or not the price stickiness metric is useful to tell the di¤erence in welfare 16 To further illustrate the macroeconomic consequences of three di¤erent monetary policy rules in Tables 1 and 2 we construct impulse responses to a one standard deviation shock to productivity for price in‡ation and wage in‡ation. They are shown in Figure 1. Under the baseline calibration the optimal simple rule for FS implies that price in‡ation is stabilized relatively more than it is the case if the optimized rule for RM is used instead. However, if the price stickiness parameter is set to 0:9in RM then the implied optimized rule delivers an outcome in FS that is almost identical to the one under the optimized rule for that model. 0 2 4 6 8 10 12 14 16 18 20 -0.2 -0.1 0 Price Inflation 0 2 4 6 8 10 12 14 16 18 20 0 0.1 0.2 Wage Inflation 0 2 4 6 8 10 12 14 16 18 20 -0.1 -0.05 0Nominal Interest Rate FS rule RM-0.75 rule RM-0.9 rule Figure 1: Impulse responses to a technology shock with di¤erent price and wage in‡ation rules. implications between FS and RM could depend on the speci…cation of monetary policy. For all the policies we consider, however, our metric turns out to be useful. 17 Next we consider the welfare implications of interest rate rules prescribing that the central bank adjusts the nominal interest rate not only in response to nominal variables but also as a function of a measure of real economic activity. 4.2 The Welfare Consequences of Taylor Type Rules We now turn to the welfare implications of Taylor type rules, rt=+r(rt1) + s[yygap t+ (1 y)t];(27) where parameter ydenotes the relative weight put on the output gap. The resulting weight on price in‡ation is therefore given by (1 y). The output gap, ygap t, is generally de…ned as the di¤erence between the equilibrium output in an economy with frictions and natural output, i.e. the equilibrium output that would obtain in the absence of nominal frictions. In the context of a model featuring endogenous capital accumulation Woodford (2003, Ch. 5) proposes to re…ne the notion of natural output in the following way. He uses the equilibrium output that would obtain if the nominal rigidities were absent and expected to be absent in the future but taking as given the capital stock resulting from optimizing investment behavior in the past in an environment with the nominal rigidities present. Woodford argues that this measure of natural output is more closely related to equilibrium determination than the alternative measure which has been used by Neiss and Nelson (2003). Under their de…nition natural output is the equilibrium output that would obtain if nominal rigidities were not only currently absent and expected to be absent in the future but had also been absent in the past. Indeed, intuitively, the Neiss and Nelson de…nition of natural output appears to be a bit arti…cial. We …nd, however, that from a practical point of view it does not matter for the design of constrained optimal interest rate rules which concept of natural output is used to compute the output 18 gap. We will come back to this point. Before that let us consider some welfare implications of Taylor type rules using Woodford’s de…nition of the output gap.15 The results are shown in Table 3. Table 3: Taylor-type rule with Woodford Output Gap Parameter FS RM r1:0043 1:3723 s0:0715 0:5173 y1:0000 0:6678 Welfare 8:7850 8:6552 The optimal rule implied by FS prescribes a zero weight on price in‡ation. On the other hand, under RM, we …nd that the central bank should attach some weight to both price in‡ation and the output gap. More importantly, however, the loss is negligible if we compute welfare in FS using the optimized rule implied by RM. We therefore argue that Taylor type rules are very robust. The results are shown in table 4. Table 4: Robustness II: Rules from the RM Model Used in FS Parameter RM rule with = 0:75 RM rule with = 0:90 r1:3723 1:0105 s0:5173 0:0577 y0:6678 0:3983 Welfare 9:0712 8:8861 As the last table also indicates the welfare loss associated with using the rule implied by RM in FS can be further reduced if the price stickiness is adjusted in RM 15 Our computational strategy to calculate natural output under Woodford’s de…nition is straightforward. First, we calculate the parameters of the linear function mapping aggregate capital and technology into equilibrium aggregate output in an environment without any nominal frictions present. Second, we take the equilibrium value of aggregate capital as implied by FS (or by RM when we study that case) combine it with the the level of technology and compute Woodford’s natural output invoking the above mapping. 19 in such a way that both models would be identical up to the …rst order. Once again, our price stickiness metric turns out to be useful. The policy implications of RM are surprisingly accurate if an upward biased estimate of the price stickiness parameter (of the kind that the econometrician actually obtains if she looks at the data through the lens of that model) is used in the analysis. Somewhat surprisingly, however, the optimal relative weight attached to the output gap in RM becomes smaller (and hence less in line with the corresponding value implied by FS) if the price stickiness is increased. That feature appears, however, to be speci…c to Woodford’s de…nition of natural output, as we are going to see next. Finally, we analyze Taylor type rules using Neiss and Nelson’s (2003) de…nition of the output gap. Our results are reported in table 5. Table 5: Taylor-Type Rule with Neiss and Nelson Output Gap Parameter FS RM r1:0055 1:4523 s0:0628 0:3556 y1:0000 0:6676 Welfare 8:7510 8:7485 Overall, optimized rules implied by FS and RM are very similar to the ones obtained before under Woodford’s de…nition of the output gap. In particular, we …nd again that under RM the optimized rule prescribes to react to both in‡ation and the output gap, whereas a zero weight is attached to in‡ation under the optimized rule associated with FS. We also con…rm our previous …nding that Taylor type rules are very robust. If the optimized rule implied by RM is used under FS then the resulting welfare loss is negligible and, moreover, the loss can be further reduced if the price stickiness parameter is adjusted in RM according to our metric. The results are shown in table 6. 20 Table 6: Robustness III: Rules from the RM Model Used in FS Parameter RM rule with = 0:75 RM rule with = 0:90 r1:4523 1:0069 s0:3556 0:0396 y0:6676 0:9983 Welfare 9:2120 8:7810 There is only one (small) di¤erence with respect to the previous analysis of Taylor type rules featuring an output gap à la Woodford. Under the Neiss and Nelson de…nition the resulting interest rate rules become more similar between FS and RM if we adjust the price stickiness in RM as prescribed by our metric.16 Our intuition for why the particular de…nition of the output gap that is used in the analysis of optimal monetary policy matters so little is simple. The capital stock does not change much at business-cycle frequencies and the di¤erence between the change in capital implied by a model with and without nominal rigidities present is even less important. Regardless of the de…nition of the output gap Taylor type rules appear to be very robust. The output gap is of course not directly observable. However, our results stress the importance of constructing (theory consistent) observable measures of that variable. 5 Conclusion The present paper makes progress in explaining the welfare consequences of …rmspeci…c capital accumulation. We analyze (constrained) optimal interest rate rules prescribing that the nominal interest rate is set as a function of a small number of 16 The …nding that, if anything, small details of the optimized interest rate rules change depending on which measure of the output gap is used is also con…rmed by further robustness checks that we have conducted experimenting with alternative interst rate rules. 21 macroeconomic variables. Our results suggest that Taylor type interest rate rules are very robust. 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Woodford, Michael (2005): “In‡ation and Output Dynamics with Firm-Speci…c Investment”, International Journal of Central Banking, 1(2), 1-46. 30 31 WORKING PAPERS (ANO) FROM NORGES BANK 2002-2006 Working Papers were previously issued as Arbeidsnotater from Norges Bank, see Norges Bank’s website http://www.norges-bank.no 2002/1 Ida Wolden Bache Empirical Modelling of Norwegian Import Prices Research Department, 44 p 2002/2 Gunnar Bårdsen og Ragnar Nymoen Rente og inflasjon Forskningsavdelingen, 24 s 2002/3 Ketil Johan Rakkestad Estimering av indikatorer for volatilitet Avd. for verdipapirer og internasjonal finans, 33 s 2002/4 Qaisar Farooq Akram PPP in the medium run despite oil shocks: The case of Norway Research Department, 34 p 2002/5 Gunnar Bårdsen, Eilev S. Jansen and Ragnar Nymoen Testing the New Keynesian Phillips curve Research Department, 38 p 2002/6 Kjersti-Gro Lindquist The Effect of New Technology in Payment Services on Banks’ Intermediation Research Department, 28 p 2002/7 Victoria Sparrman Kan pengepolitikken påvirke koordineringsgraden i lønnsdannelsen? En empirisk analyse Forskningsavdelingen, 44 s 2002/8 Steinar Holden, The costs of price stability - downward nominal wage rigidity in Europe Research Department, 43 p 2002/9 Kai Leitemo and Ingunn Lønning Simple Monetary Policymaking without the Output Gap Research Department, 29 p 2002/10 Kai Leitemo Inflation Targeting Rules: History-Dependent or Forward-Looking? Research Department, 12 p 2002/11 Carl Andreas Claussen Persistent inefficient redistribution International Department, 19 p 2002/12 Randi Næs and Johannes A. Skjeltorp Equity Trading by Institutional Investors: Evidence on Order Submission Strategies Research Department, 51 p 2002/13 Stig Arild Syrdal A Study of Implied Risk-Neutral Density Functions in the Norwegian Option Market Securities Markets and International Finance Department, 104 p 2002/14 Steinar Holden and John C. Driscoll A Note on Inflation Persistence Research Department, 12 p 2002/15 John C. Driscoll and Steinar Holden Coordination, Fair Treatment and Inflation Persistence Research Department, 40 p 2003/1 Solveig Erlandsen Age structure effects and consumption in Norway, 1968(3) – 1998(4) Research Department, 27 p 2003/2 Bjørn Bakke og Asbjørn Enge Risiko i det norske betalingssystemet Avdeling for finansiell infrastruktur og betalingssystemer, 15 s 2003/3 Egil Matsen and Ragnar Torvik Optimal Dutch Disease Research Department, 26 p 2003/4 Ida Wolden Bache Critical Realism and Econometrics Research Department, 18 p 2003/5 David B. Humphrey and Bent Vale Scale economies, bank mergers, and electronic payments: A spline function approach Research Department, 34 p 32 2003/6 Harald Moen Nåverdien av statens investeringer i og støtte til norske banker Avdeling for finansiell analyse og struktur, 24 s 2003/7 Geir H.Bjønnes, Dagfinn Rime and Haakon O.Aa. Solheim Volume and volatility in the FX market: Does it matter who you are? Research Department, 24 p 2003/8 Olaf Gresvik and Grete Øwre Costs and Income in the Norwegian Payment System 2001. An application of the Activity Based Costing framework Financial Infrastructure and Payment Systems Department, 51 p 2003/9 Randi Næs and Johannes A.Skjeltorp Volume Strategic Investor Behaviour and the Volume-Volatility Relation in Equity Markets Research Department, 43 p 2003/10 Geir Høidal Bjønnes and Dagfinn Rime Dealer Behavior and Trading Systems in Foreign Exchange Markets Research Department, 32 p 2003/11 Kjersti-Gro Lindquist Banks’ buffer capital: How important is risk Research Department, 31 p 2004/1 Tommy Sveen and Lutz Weinke Pitfalls in the Modelling of Forward-Looking Price Setting and Investment Decisions Research Department, 27 p 2004/2 Olga Andreeva Aggregate bankruptcy probabilities and their role in explaining banks’ loan losses Research Department, 44 p 2004/3 Tommy Sveen and Lutz Weinke New Perspectives on Capital and Sticky Prices Research Department, 23 p 2004/4 Gunnar Bårdsen, Jurgen Doornik and Jan Tore Klovland A European-type wage equation from an American-style labor market: Evidence from a panel of Norwegian manufacturing industries in the 1930s Research Department, 22 p 2004/5 Steinar Holden and Fredrik Wulfsberg Downward Nominal Wage Rigidity in Europe Research Department, 33 p 2004/6 Randi Næs Ownership Structure and Stock Market Liquidity Research Department, 50 p 2004/7 Johannes A. Skjeltorp and Bernt-Arne Ødegaard The ownership structure of repurchasing firms Research Department, 54 p 2004/8 Johannes A. Skjeltorp The market impact and timing of open market share repurchases in Norway Research Department, 51 p 2004/9 Christopher Bowdler and Eilev S. Jansen Testing for a time-varying price-cost markup in the Euro area inflation process Research Department, 19 p 2004/10 Eilev S. Jansen Modelling inflation in the Euro Area Research Department, 49 p 2004/11 Claudia M. Buch, John C. Driscoll, and Charlotte Østergaard Cross-Border Diversification in Bank Asset Portfolios Research Department, 39 p 2004/12 Tommy Sveen and Lutz Weinke Firm-Specific Investment, Sticky Prices, and the Taylor Principle Research Department, 23 p 2004/13 Geir Høidal Bjønnes, Dagfinn Rime and Haakon O.Aa. Solheim Liquidity provision in the overnight foreign exchange market Research Department, 33 p 2004/14 Steinar Holden Wage formation under low inflation Research Department, 25 p 2004/15 Roger Hammersland Large T and small N: A three-step approach to the identification of cointegrating relationships in time series models with a small cross-sectional dimension Research Department, 66 p 33 2004/16 Q. Farooq Akram Oil wealth and real exchange rates: The FEER for Norway Research Department, 31 p 2004/17 Q. Farooq Akram En effisient handlingsregel for bruk av petroleumsinntekter Forskningsavdelingen, 40 s 2004/18 Egil Matsen,Tommy Sveen and Ragnar Torvik Savers, Spenders and Fiscal Policy in a Small Open Economy Research Department, 31 p 2004/19 Roger Hammersland The degree of independence in European goods markets: An I(2) analysis of German and Norwegian trade data Research Department, 45 p 2004/20 Roger Hammersland Who was in the driving seat in Europe during the nineties, International financial markets or the BUBA? Research Department, 35 p 2004/21 Øyvind Eitrheim and Solveig K. Erlandsen House prices in Norway 1819–1989 Research Department, 35 p 2004/22 Solveig Erlandsen and Ragnar Nymoen Consumption and population age structure Research Department, 22 p 2005/1 Q. Farooq Akram Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues Research Department, 33 p 2005/2 Q. Farooq Akram, Øyvind Eitrheim and Lucio Sarno Non-linear dynamics in output, real exchange rates and real money balances: Norway, 18302003 Research Department, 53 p 2005/3 Carl Andreas Claussen and Øistein Røisland Collective economic decisions and the discursive dilemma Monetary Policy Department, 21 p 2005/4 Øistein Røisland Inflation inertia and the optimal hybrid inflation/price level target Monetary Policy Department, 8 p 2005/5 Ragna Alstadheim Is the price level in Norway determined by fiscal policy? Research Department, 21 p 2005/6 Tommy Sveen and Lutz Weinke Is lumpy investment really irrelevant for the business cycle? Research Department, 26 p 2005/7 Bjørn-Roger Wilhelmsen and Andrea Zaghini Monetary policy predictability in the euro area: An international comparison Economics Department, 28 p 2005/8 Moshe Kim, Eirik Gaard Kristiansen and Bent Vale What determines banks’ market power? Akerlof versus Herfindahl Research Department, 38 p 2005/9 Q. Farooq Akram, Gunnar Bårdsen and Øyvind Eitrheim Monetary policy and asset prices: To respond or not? Research Department, 28 p 2005/10 Eirik Gard Kristiansen Strategic bank monitoring and firms’ debt structure Research Department, 35 p 2005/11 Hilde C. Bjørnland Monetary policy and the illusionary exchange rate puzzle Research Department, 30 p 2005/12 Q. Farooq Akram, Dagfinn Rime and Lucio Sarno Arbitrage in the foreign exchange market: Turning on the microscope Research Department, 43 p 2005/13 Geir H. Bjønnes, Steinar Holden, Dagfinn Rime and Haakon O.Aa. Solheim ”Large” vs. ”small” players: A closer look at the dynamics of speculative attacks Research Department, 31 p 34 2005/14 Julien Garnier and Bjørn-Roger Wilhelmsen The natural real interest rate and the output gap in the euro area: A joint estimation Economics Department, 27 p 2005/15 Egil Matsen Portfolio choice when managers control returns Research Department, 31 p 2005/16 Hilde C. Bjørnland Monetary policy and exchange rate interactions in a small open economy Research Department, 28 p 2006/1 Gunnar Bårdsen, Kjersti-Gro Lindquist and Dimitrios P. Tsomocos Evaluation of macroeconomic models for financial stability analysis Financial Markets Department, 45 p 2006/2 Hilde C. Bjørnland, Leif Brubakk and Anne Sofie Jore Forecasting inflation with an uncertain output gap Economics Department, 37 p 2006/3 Ragna Alstadheim and Dale Henderseon Price-level determinacy, lower bounds on the nominal interest rate, and liquidity traps Research Department, 34 p 2006/4 Tommy Sveen and Lutz Weinke Firm-specific capital and welfare Research Department, 34 p Tommy Sveen and Lutz Weinke: Firm-specific capital and welfare KEYWORDS: Monetary policy Sticky prices Aggregate investment - 36138 Working Paper 2006/4