TY - JOUR
AU - Ehrenberg,Ronald G.
AU - Milkovich,George T.
TI - Compensation and Firm Performance
JF - National Bureau of Economic Research Working Paper Series
VL - No. 2145
PY - 1987
Y2 - 1987
UR - http://www.nber.org/papers/w2145
L1 - http://www.nber.org/papers/w2145.pdf
N1 - Author contact info:
Ronald G. Ehrenberg
Cornell Higher Education Research Institute
271 Ives Hall East
Ithaca, NY 14853-3901
Tel: 607/255-3026
Fax: 607 255 4496
E-Mail: rge2@cornell.edu
M1 - published as Martin Conyon, Richard B. Freeman. "Shared Modes of Compensation and Firm Performance U.K. Evidence," in David Card, Richard Blundell and Richard B. Freeman, editors, "Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000" University of Chicago Press (2004)
AB - This paper uses stochastic simulation and my U.S. econometric model to examine the optimal choice of monetary policy instruments. Are the variances, covariances, and parameters in the model such as to favor one instrument over the other, in particular the interest rate over the money supply? The results show that the interest rate and the money supply are about equally good as policy instruments in terms of minimizing the variance of real GNP. The variances of some of the components of GNP are, however, much larger when the money supply is the policy instrument, as is the variance of the change in stock prices. Therefore, if one's loss function is expanded beyond simply the variance of real GNP to variances of other variables, the interest rate policy does better. The results thus provide some support for what seems to be the Fed's current choice of using the interest rate as its primary instrument. Stochastic simulation is also used to estimate how much of the variance of real GNP is due to the error terms in the demand for money equations. The results show that the contribution is not very great even when the money supply is the policy instrument.
ER -