Knowledge that Transforms

It is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule, either a general targeting rule (explicit objectives for monetary policy) or a specific targeting rule (a criterion for the forecasts of the target variables to be fulfilled), essentially the equality of the marginal rates of transformation and substitution between the target variables. Targeting rules allow the use of judgment and extra model information, are more robust and easier to verify than optimal instrument rules, and can bring the economy close to the socially optimal equilibrium.

The article deals with the phenomenon of the soft budget constraint (SBC). Though originally it was formulated to illuminate economic behavior in socialist economies, this concept is increasingly acknowledged to be pertinent well beyond their realm. The authors have two main objectives: conceptual clarification and survey of formal theoretical literature on SBC. In the first part of the article the accent is made on analyzing the essence of the SBC syndrome, means of its softening and corresponding expectations of organizations. Formal models of SBC in socialist and transition economies are also analyzed.

No man during, either the whole of his life, or that of any considerable part of it, ever trod steadily and uniformly in the path … of justice, … whose conduct was not principally directed by a regard to the sentiments of the supposed impartial spectator, of the great inmate of the breast, the great judge and arbiter of conduct. – Adam Smith (1759) p. 357. This paper evaluates numerous positive and normative theories of justice in positive terms, i.e., in terms of how accurately they describe the impartial fairness preferences of real people. In addition, the paper proposes and defends an integrated justice theory based on preferences over four distinct and sometimes conflicting forces. These forces frame the analysis of the individual theories and inspire four corresponding theoretical classes: equality and need, utilitarianism and welfare economics, equity and desert, and context. This synthesis enables one to treat justice rigorously and to reconcile results that often appear contradictory or at odds with alternative theories.

This paper examines old and new evidence on the predictive performance of asset prices for inflation and real output growth. We first review the large literature on this topic, focusing on the past dozen years. We then undertake an empirical analysis of quarterly date on up to 38 candidate indicators (mainly asset prices) for seven OECD countries for a span of up to 41 years (1959 - 1999). The conclusions from the literature review and the empirical analysis are the same. Some asset prices predict either inflation or output growth in some countries in some periods. Which series predicts what, when and where is, however, itself difficult to predict: good forecasting performance by an indicator in one period seems to be unrelated to whether it is a useful predictor in a later period. Intriguingly, forecasts produced by combining these unstable individual forecasts appear to improve reliably upon univariate benchmarks.

Are asset prices useful predictors of inflation and real output growth? After reviewing the large literature on this topic, we undertake an empirical analysis of quarterly data for seven OECD countries spanning 1959-99. The literature review and the empirical analysis yield the same conclusions. Some asset prices predict inflation or output growth in some countries in some periods. Which series predicts what, when, and where is difficult to predict; being a good predictor historically is largely unrelated to subsequent performance. Intriguingly, forecasts that combine these individually unstable forecasts appear to improve reliably upon univariate benchmarks.

I discuss mechanisms linking health and inequality and review evidence for effects of income inequality on aggregate and individual mortality, over time and over space. I conclude that there is no direct link. Correlations come from factors other than income inequality itself, some of which are linked to broader notions of inequality and inequity that are most likely important for health. Whether income redistribution can improve population health does not depend on the existence of a direct link between income inequality and health and remains an open question.

task in financial markets, and it has held the attention of academics and practitioners over the last two decades. At the time of

Potential home buyers may initiate contact with a real estate agent by asking to see a particular advertised house. This paper asks whether an agent's response to such a request depends on the race of the buyer or on whether the house is located in an integrated neighborhood. Like previous research about the causes of housing discrimination, this paper uses data from fair housing audits, a matched-pair technique for comparing the treatment of equally qualified black and white home buyers. However, we shift the focus from differences in the treatment of paired buyers to agent decisions concerning an individual house. Using a sample of all houses seen during the 1989 national Housing Discrimination Study, we estimate a random-effect, multinomial logit model to explain a real estate agent's joint decisions concerning whether to show each house to a black auditor and to a white auditor. We find evidence that agents interpret an initial housing request as an indication of a customer's preferences, but also are more likely to withhold a house from all customers when it is in an integrated suburban neighborhood (redlining). Moreover, agents' marketing efforts increase with asking price for white, but not for black, customers; blacks are more likely than whites to see houses in suburban, integrated areas (steering); and the houses agents show are more likely to deviate from the initial request when the customer is black than when the customer is white. These three findings are consistent with the possibility that agents act upon the belief that some types of transactions are relatively unlikely for black customers (statistical discrimination).