Turn-taking behavior is observed in a variety of field and laboratory settings. An example of turn taking concerns the use of common-pool resources (CPRs) such as fisheries, irrigation systems, and forests. In communities that depend heavily on such resources for their economic livelihood, failure to resolve problems related to the use and preservation of these resources can lead to significant welfare loss and violent conflicts. One illustration of the conflicts studied in the CPR literature is the game of CPR assignment in Ostrom et al. (1994, pp. 58-61).
This game captures, in the simplest fashion, a situation in which two fishermen independently decide to go to one of two fishing spots in their community. The good spot has a value of h, and the bad spot has a value of l, where h>l> 0. If the two fishermen choose different spots, each will obtain the respective value of the spot. If they choose the same spot, they will split the value of the spot equally.
Not long ago the course title "Digital Photography" implied a course on Photoshop. As digital cameras have become increasingly popular, the introductory course has also gone digital so you are now introduced to photography using a digital camera. As this new era of digital photography matures, it won’t be long before the "digital" in "digital photography" becomes redundant. It will be assumed, because that is the way almost all photography will be done.
Recent years have seen great changes in monetary policy analysis, as economists in central banks and academia have come together on an analytical approach of the general type discussed by Rotemberg and Woodford (1997), Goodfriend and King (1997), Clarida, Galí, and Gertler (1999), Woodford (2003), and many others. This approach is characterized, as argued by McCallum (2002), by investigations of alternative rules for monetary policy conducted in models that are based on private-agent optimizing behavior but with specifications that include features designed to lend empirical veracity, thereby aspiring to be structural and accordingly usable (in principle) for policy analysis. Despite a widespread belief that this approach is fundamentally sound, and that recent work represents a major improvement over the practice typical 15 or 20 years ago, there are some reasons for unease. Prominent among these are the absence from the standard framework of any significant role for monetary aggregates, financial intermediation, or distinctions among various short-term interest rates that play different roles in the transmission mechanism.
A recent paper by Goodfriend (2005) develops a qualitative framework designed to overcome these particular weaknesses. Specifically, it “… integrates broad money demand, loan production, asset pricing, and arbitrage between banking and asset markets” (2005, p. 277) and illustrates the logical necessity (in principle) for monetary policy to take account of—among other things—the difference between the interbank rate of interest (used as the policy instrument) and other short rates including the government bond rate, the collateralized bank loan rate, the (nominal) net marginal product of capital, and a shadow nominal intertemporal rate—each of which differs from the others. As noted by Hess (2005), however, Goodfriend (2005) provides no evidence or argument concerning the quantitative importance of these features and distinctions. The primary objective of the present paper, accordingly, is to formulate a quantitative version of Goodfriend’s model, develop a plausible calibration, and utilize this model to assess the magnitude and policy relevance of the effects and distinctions just mentioned for steady state interest rates and aggregate variables, and for dynamic monetary policy simulations. Among other things, the paper will investigate the role of the “external finance premium” that is emphasized in the prominent work of Bernanke, Gertler, and Gilchrist (1999). It will do so using a model in which the external finance premium is endogenously determined by no-arbitrage relationships in an environment in which loan production depends upon both collateral and loan-monitoring inputs, with capital serving less efficiently as collateral than bonds, while bank-deposit money is crucial for facilitating transactions. In this setting, the external finance premium may move either pro-cyclically or counter-cyclically in response to shocks, depending upon parameters of the model.
