We provide a novel representation of the total n-th derivative of the multivariate composite function $f \circ g$, i.e. a generalized Fa\`a di Bruno's formula. To this end, we make use of properties of the Kronecker product and the n-th derivative of the left-composite $f$, which allow the use of a multivariate form of partial Bell polynomials to represent the generalized Fa\`a di Bruno's formula. We further show that standard recurrence relations that hold for the univariate partial Bell polynomial also hold for the multivariate partial Bell polynomial under a simple transformation. We apply this generalization of Fa\`a di Bruno's formula to the computation of multivariate moments of the normal distribution.

We present a simple model with financial frictions where inflation increases the cost faced by firms holding liquid assets to hedge risky production against expenditure shocks. Inflation tilts firms’ technology choice away from innovative activities and toward safer but return-dominated ones, and therefore reduces long-run growth. Our theory makes specific predictions about how the severity of this adverse effect depends on industry characteristics. We test these industry-specific predictions in a generalized difference-in-differences framework with novel harmonized firm-level data from 139 developing countries and a long panel of U.S. firms, overcoming small sample problems constraining previous work. We find that inflation affects the composition but not the overall quantity of investment. Moreover, consistent with our theoretical mechanism, we find that innovating firms display a stronger dependence on liquid assets, which, in turn, are negatively related to inflation.

In this paper, I provide a quantitative analysis of three different forms of fiscal federalism in monetary unions: fully decentralized regional fiscal authorities as the benchmark, fiscal equalization with nominal tax revenue sharing, and a common central fiscal authority. I assess the capability of the different arrangements to stabilize regional consumption, output, and employment over the business cycle. I also study the implications for interregional income, consumption risk sharing and welfare. From this analysis, the following results emerge. First, a central fiscal authority stabilizes consumption fluctuations and increases the scope of interregional income and consumption risk sharing. Second, fiscal equalization destabilizes consumption fluctuations and also reduces the scope of interregional income and consumption risk smoothing. Third, a central fiscal authority leads to welfare gains, whereas fiscal equalization leads to welfare losses.

There is a wide acceptance that gains to international monetary policy coordination are small at best and that the need of policy coordination is questionable. This conclusion, however, follows from the underlying presumption that monetary policy is concerned with the stabilization of macroeconomic fluctuations only. This paper presents a general short-run monetary policy analysis within a familiar two-country New Open Economy Macroeconomics (NOEM) framework where national monetary policy involves the choice of a deterministic growth trend of money supply (average inflation rate) and stochastic, state-dependent deviations of actual money supply from the deterministic trend (stabilization). Strategic “beggar-thy-neighbor” considerations induce the deviation of both policy choices from their socially optimal values. The gains from international coordination of the average inflation rate are of first-order and hence larger than the gains from the coordination of the stabilization policies which are of second-order.

This paper considers simple rules for federal fiscal transfers that automatically redistribute funds among member states of a monetary union to counteract adverse idiosyncratic shocks. The transfer rules target regional differences in nominal GDP, consumption spending, labor income, and fiscal deficits. Targeting regional fiscal deficits is the only rule that reduces consumption fluctuations and that promotes interregional consumption risk sharing, but the overall welfare effect is negative. In contrast, targeting regional differences in labor income yields the largest welfare gains, but it also yields the largest fluctuations in consumption and real GDP. It is demonstrated that the welfare gains primarily stem from reducing the allocative inefficiency of input factors caused by nominal rigidities. The optimal transfer rule essentially implies a combination of consumption spending and labor income targeting, and it primarily targets the allocative inefficiency of factor inputs at the cost of lower interregional consumption risk sharing.

Das Konstanzer Seminar zur Geldtheorie und Geldpolitik, das vom 26. bis 29. Mai 2009 auf der Insel Reichenau stattfand, feierte Jubilaum. Es war die 40. Auflage des Seminars, das von Karl Brunner und Allan Meltzer ins Leben gerufen wurde. Es steht noch immer fest in der Tradition der Begrunder, die zum Ziel hatten, junge Wissenschaftler mit internationalen Gelehrten, Notenbankern und wissenschaftlich ausgewiesenen Praktikern zusammenzubringen. Die Teilnehmer diskutieren im Rahmen des Seminars neuere Erkenntnisse zur Geldtheorie und aktuelle wirtschaftspolitische Themen. Um den gegenseitigen Austausch von Forschung und Politik zu fordern, wird das Seminar durch einen wirtschaftspolitischen Programmteil bereichert, zu dem hochrangige Personlichkeiten aus Zentralbanken und international fuhrenden Institutionen eingeladen werden. Im nun Folgenden sollen die Prasentationen der Referenten in alphabetischer Reihenfolge kurz vorgestellt werden.

This paper develops a model of strategic monetary and fiscal policy interaction in open economies. In particular, I show that international policy coordination requires to include both monetary as well as fiscal policy. The coordination of only a part of national macroeconomic policies through an international agreement leads to a strategically motivated shift in the conduct of the remaining independent policy instruments in order to still unilaterally manipulate the terms of trade. In a simple and tractable dynamic stochastic two-country sticky-wage model in line with the recent New Open Economy Macroeconomics I demonstrate that potential gains from international monetary policy coordination are squandered or even may turn negative by independently acting noncooperative fiscal policies.

In the literature on international monetary policy, the paradigm is that gains from coordination are fairly small. Monetary policy is conducted to stabilize macroeconomic fluctuations and gains from policy coordination arise from preventing national monetary authorities from strategically manipulating the terms of trade by means of these stabilization policy instruments. However, as it has been emphasized by Lucas (2003), welfare gains from stabilizing fluctuations are generically small since they are of second order. In this paper, I develop a dynamic stochastic two-country model with sticky wages and a cash-in-advance restriction which is in the spirit of the New Open Economy Macroeconomics framework. In this environment, monetary authorities can manipulate the terms of trade by conducting a general short-run monetary policy using both the nominal interest rate and the money supply. The money supply affects the terms of trade by altering the nominal exchange rate ex post and it is used in the traditional way so as to stabilize macroeconomic fluctuations. The nominal interest rate affects the terms of trade by changing expected inflation ex ante. Self-oriented national policymakers use the nominal interest rates to raise the terms of trade ex ante. This leads to an inefficient inflation tax whose welfare effects are of first order. Consequently, gains from monetary policy coordination are of first order.

This paper employs a dynamic stochastic general equilibrium model with a finan- cial market friction to rationalize the empirically observed negative relationship between inflation and total factor productivity (TFP). Specifically, an empirical analysis of US macroeconomic time series establishes that there is a negative causal eect of inflation on aggregate productivity. Rather than taking the productivity process as exogenous, the model is therefore set up to feature an endogenous component of TFP. This is achieved by allowing physical investment to be channelled into two distinct technologies: a safe, but return-dominated technology and a superior technology which is subject to idiosyn- cratic liquidity risk. An agency problem prevents complete insurance against liquidity risk, and the scope for insurance is endogenously determined via the relevant liquidity premium. Since the liquidity premium is positively related to the rate of inflation, the model demonstrates how nominal fluctuations have an influence not only on the overall amount, but also on the qualitative composition of aggregate investment and hence on TFP. The quantitative relevance of the underlying transmission mechanism which links nominal fluctuations to TFP via corporate liquidity holdings and the composition of ag- gregate investment is corroborated by means of the quantitative analysis of the calibrated model economy as well as a detailed analysis of industry-level and firm-level panel data. Notably, the empirical findings are consistent with both the properties of the agency problem postulated in the theoretical model and its implications for corporate liquidity holdings and physical investment portfolios.

This paper demonstrates a negative relation between inflation and long-run productivity growth. Inflation generates long-run real eects due to a link from the short-run interplay between nominal and financial frictions to a firm’s qualitative investment decision. First, we employ country panel data to investigate the robustness of a negative causal eect of inflation on long-run TFP-growth. Second, we develop an endogenous growth model whose key ingredients are (i) a nominal short-run portfolio choice for households, (ii) an agency problem which gives rise to financial market incompleteness, (iii) a firmlevel technology choice between a return-dominated but secure and a more productive but risky project. In this framework, inflation increases the costs of corporate insurance against productive but risky projects and hence a firm’s choice of technology. It follows that economies (time periods) that feature a higher level of inflation are predicted to exhibit lower TFP-growth in the long-run. That is, each level of inflation is associated with a dierent long-run balanced growth path as long as financial markets are incomplete. Finally, we apply industry as well as U.S. firm level dynamic panel data to test the relevance of our specific microeconomic mechanism. The firm-level results demonstrate that smaller U.S. firms with riskier cash-flows and higher R&D investments systematically adjust the composition of their asset and investment portfolios in periods of higher inflation. In particular, we find that (i) they insure systematically against risky R&D investments by means of corporate liquidity holdings, measured by the ratio of cash and marketable securities to total assets, (ii) periods of higher inflation restrain firm-level R&D investments by reducing corporate liquidity holdings.

In the debate over EMU, a widely accepted view is that a federal fiscal mechanism is needed for the participating states to cope with asymmetric shocks. In this paper, we explore the properties of federal fiscal transfer schemes with regard to their capability to stabilize national consumption, production and employment. We consider direct transfers among private sectors and indirect transfers among national fiscal authorities. We show that federal fiscal arrangements can provide perfect insurance. Our analysis builds on the New Open Economy Macroeconomics framework which allows us to portray the transmission of shocks and the properties of transfers in detail.