NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS by Richard H. Thaler and Cass R. Sunstein Penguin Books, 2009, 312 pp, ISBN 978-0-14-311526-7This book is best described formally as a general explanation of and advocacy for libertarian paternalism, a term coined by the authors in earlier publications. Informally, it is about how leaders, systems, organizations, and governments can nudge people to do the things the nudgers want and need done for the betterment of the nudgees, or of society. It is paternalism in the sense that "it is legitimate for choice architects to try to influence people's behavior in order to make their lives longer, healthier, and better", (p. 5) It is libertarian in that "people should be free to do what they like - and to opt out of undesirable arrangements if they want to do so", (p. 5) The built-in possibility of opting out or making a different choice preserves freedom of choice even though people's behavior has been influenced by the nature of the presentation of the information or by the structure of the decisionmaking system. I had never heard of libertarian paternalism before reading this book, and I now find it fascinating.Written for a general audience, this book contains mostly social and behavioral science theory and models, but there is considerable discussion of structure and process that has roots in mathematical and quantitative modeling. One of the main applications of this social system is economic choice in investing, selecting and purchasing products and services, systems of taxes, banking (mortgages, borrowing, savings), and retirement systems. Other quantitative social choice systems discussed include environmental effects, health care plans, gambling, and organ donations. Softer issues that are also subject to a nudge-based approach are marriage, education, eating, drinking, smoking, influence, spread of information, and politics. There is something in this book for everyone.The basis for this libertarian paternalism concept is in the social theory called "science of choice", the study of the design and implementation of influence systems on various kinds of people. The terms Econs and Humans, are used to refer to people with either considerable or little rational decision-making talent, respectively. The various libertarian paternalism concepts and systems presented are tested and compared in light of these two types of people. Two foundational issues that this book has in common with another book, Network of Echoes: Imitation, Innovation and Invisible Leaders, that was also reviewed for this issue of the Journal are that 1 ) there are two modes of thinking (or components of the brain) - an automatic (intuitive) process and a reflective (rational) process and 2) the need for conformity and the desire for imitation are powerful forces in human behavior. …

Nudge: Improving Decisions about Health, Wealth, and Happiness

Econometric policy evaluation: A critique

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 data 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.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w8180.pdf?abstractid=264434&mirid=1

Forecasting Output and Inflation: The Role of Asset Prices

Publisher Summary The class of stochastic volatility (SV) models has its roots in both, mathematical finance and financial econometrics. In fact, several variations of SV models originated from research looking at very different issues. Volatility plays a central role in the pricing of derivative securities. The Black-Scholes model for the pricing of an European option is by far the most widely used formula even when the underlying assumptions are known to be violated. The Black-Scholes model predicts a flat term structure of volatilities. In reality, the term structure of at-the-money implied volatilities is typically upward sloping when short term volatilities are low and the reverse when they are high. The Black-Scholes model is taken as a reference point from which several notions of volatility are presented. Several stylized facts regarding volatility and option prices are also presented. Both sections set the scene for a formal framework defining stochastic volatility. The chapter introduces the statistical models of stochastic volatility.

5 Stochastic volatility

Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication-mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication, can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. However, the large variation in communication, strategies across central banks suggests that a. consensus has yet to emerge, on what constitutes an optimal communication strategy.

/pdf/central-bank-communication-and-monetary-policy-a-survey-of-qnyqvbkzrj.pdf

Central bank communication and monetary policy: A survey of theory and evidence

This paper explores the domestic and international effects of an increase in observed interest rates (conventional monetary policy) and expected interest rates (forward guidance). We find significant spillovers to a broad range of countries when both are subject to a tightening shock: Output growth and inflation decelerate and equity returns decline. Currencies of euro area neighboring countries tend to depreciate against the euro. A tightening forward guidance shock triggers more persistent effects on euro area and international interest rates. We find that international effects vary over the sample period when either interest rates are shocked.

International effects of euro area forward guidance

Inflation, Disinflation, and Deflation in China: Identifying the Shocks Driving Inflation*

Die Einfuhrung von Inflationszielen in Kanada im Jahr 1991 verdeutlichte angeblich das Ziel der Geldpolitik, namlich Preisstabilitat. Mit der neuen Politik sollte unter anderem die Offentlichkeit fortan den Erfolg der Geldpolitik leichter daran messen konnen, inwieweit es der Bank von Kanada gelingt, die Inflation stabil auf niedrigem Niveau zu halten. Deshalb liegt die Frage nahe, ob tatsachlich - wie der Prasident der Zentralbank kurzlich feststellte - ' ... die Erfolge der Bank von Kanada in der offentlichen Kommentierung der Geldpolitik seit 1991 fairer beurteilt werden.' Anhand von Kommentaren in den uberregionalen Zeitungen Globe and Mail und Financial Post, die sich mit der Bank von Kanada sowie der Geldpolitik allgemein befassen, werten wir aus, wie positiv oder kritisch diese Kommentare seit 1986 ausgefallen sind. Dabei untersuchen wir eine Stichprobe aus der Zeit vor Einfuhrung der Inflationsziele sowie aus der Zeit danach. Die Bank von Kanada versucht auch, die Erwartungen und die Einschatzung ihrer Politik an den Finanzmarkten zu beeinflussen. Ob ihr dies gelingt, wird mit Hilfe von zusatzlichen Tests untersucht, die sich auf tagliche Zinssatze und Wechselkurse sowie monatliche Inflationsdaten und Inflationsprognosedaten stutzen.

https://www.econstor.eu/bitstream/10419/19536/1/200008dkp.pdf

Monetary policy transparency, public commentary, and market perceptions about monetary policy in Canada

This paper begins with the observation that short-selling bans spread globally in 2008. We find some evidence that the bans were unsuccessful at least insofar as they did not take into account the global component a short-selling ban which reduced equity returns in about a third of the 17 countries sampled, most notably in some of the major advanced economies. In the individual countries we examine, the bans had relatively little impact. Our results are suggestive as evidence that the bans stemmed further deterioration in stock prices that policy makers sought to avoid, at least in a few economies.

/pdf/short-selling-bans-and-the-global-financial-crisis-are-they-gi8rl8oh7s.pdf

Short-selling Bans and the Global Financial Crisis: Are They Interconnected?

In recognition of the severe consequences of the recent international financial crisis, the topic of macroprudential policy has elicited considerable research effort. The present study constructs, for 46 economies around the globe, an index of the capacity to deploy macroprudential policies. Building on elements that have been the subject of recent research, we develop an index that aims to represent the essence of what constitutes a macroprudential regime. Specifically, the index quantifies: (1) how existing macroprudential frameworks are organized; and (2) how far a particular jurisdiction is from reaching the goals established by the Group of Twenty (G20) and the Financial Stability Board (FSB). The latter is a benchmark that has not been considered in the burgeoning literature that seeks to quantify the role of macroprudential policies.

/pdf/benchmarking-macroprudential-policies-an-initial-assessment-ebk2w43ozs.pdf

Benchmarking Macroprudential Policies: An Initial Assessment

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