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In 2010 all ECB publications feature a motif taken from the €500 banknote. for helpful comments. We thank T. Blattner and P. Gertler for excellent research assistance and we are grateful to H. James for editorial assistance. NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are(More)
Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why does global information access not eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly , even when home investors(More)
We explore the dynamic effects of news about a future technology improvement which turns out ex post to be overoptimistic. We find that it is difficult to generate a boom-bust cycle (a period in which stock prices, consumption, investment and employment all rise and then crash) in response to such a news shock, in a standard real business cycle model.(More)
We augment a standard monetary DSGE model to include financial markets, and fit the model to EA and US data. The empirical results draw attention to a new shock and to an important new nominal rigidity. The new shock originates in the financial sector and accounts for a significant portion of business cycle fluctuations. We do a detailed study of the role(More)
In 2004 all publications will carry a motif taken from the €100 banknote. 1 The views expressed in this paper do not necessarily reflect those of the European Central Bank or the Eurosystem.We are very grateful for advice and encouragement from David Altig, Klaus Masuch and Hans-Joachim Klöckers.The careful editorial assistance of Monica Crabtree is much(More)
We study the e®ects of electoral institutions on the size and composition of public expenditure in OECD and Latin American countries. We emphasize the distinction between purchases of goods and services , which are easier to target geographically, and transfers, which are easier to target across social groups.We present a theoretical model in which voters(More)
Using a series of examples, we review various ways in which a monetary policy characterized by the Taylor rule can inject volatility into the economy. In the examples, the incorporation of an escape clause into the Taylor rule can reduce or even entirely eliminate the problems. Under the escape clause, the central bank monitors the money growth rate and(More)
Historical data and model simulations support the following conclusion. In ‡ation is low during stock market booms, so that an interest rate rule that is too narrowly focused on in ‡ation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this source of welfare-reducing instability. For example, allowing an(More)
In 2004 all publications will carry a motif taken from the €100 banknote. 1 Views expressed are those of the author, and not related to views of the ECB.This paper has been prepared as a contribution to the " operational frameworks " study group within the Operations Analysis Division of DG Operations. I wish to thank and Hercules Voridis for comments and(More)