On empowering the central bank with goals to stimulate economic growth

The specifics of the inflation targeting policy pursued by the Bank of Russia lead to the emergence of proposals to empower it with aims, goals or targets to promote economic growth. In the study, the feasibility of such proposals is considered from the point of view of targeting policy properties, arguments in favor of using growth indicators, the possibility of planning with multiple goal-setting conditions, and the impact on expectations. It has been established that the direct empowerment of growth targeting will only lead to the Bank’s claim that there is no opportunity to increase the growth rate. The imposition of the target value can be seen as the erosion of the independence of the Bank. The failure to coordinate goals (if they are set autonomously by the fiscal and monetary policy authorities) will lead to inefficiency. Planning in the context of multiple goals will return the Bank to a situation of dynamic inefficiency, evaporating the low inflationary expectations. The position of the Bank of Russia regarding assessments of potential economic growth and the ability to influence it needs much more detailed presentation than is currently declared in official documents.

Dynamic inefficiency and fiscal interventions in an economy with land and transaction costs

The paper contributes to the discussion on whether real interest rates below real growth rates can be taken as evidence of dynamic inefficiency so that some fiscal intervention may be called for. A seemingly killing objection points to land, a non-produced durable asset in positive supply, as a reason why dynamic inefficiency can be ruled out. If real interest rates were expected to be below real growth rates forever, the value of land would be unbounded, which is incompatible with equilibrium. The paper shows that this objection is not robust to the presence of an arbitrarily small per-unit-of-value transaction cost. The paper also specifies fiscal interventions that provide for Pareto improvements even though they involve a resource cost. For the debate about public debt policy, the land argument is a red herring because it is incompatible with the presence of fiat money and debt denominated in units of fiat money.

The Effect of Vertical Relationships on Investment Timing

Billette de Villemeur et al. [Billette de Villemeur, E., Ruble, R. and Versaevel, B. [2014] Investment timing and vertical relationships, Int. J. Industrial Organization 33, 110–123] discuss the case of a firm undertaking a project in order to serve an uncertain demand. They show that when the investor requires an outside supplier with market power to provide it with a discrete input the investment occurs too late from an industry stand point. In this paper, we extend their work assuming that the input production cost is also uncertain. We show that upstream market power results in dynamic inefficiency also in our framework. We also demonstrate how this inefficiency is affected by the correlation between the two stochastic terms.