Macroeconomics. Part 3 Macroeconomics of Financial Markets. Lectures 1-2 Introduction. Intertemporal choice

Transcription

1 Macoeconomics Pa 3 Macoeconomics of Financial Makes Lecues -2 Inoducion. Ineempoal choice

2 Oganizaion of he Pa 3 Pa 3 5 lecues, 7 seminas 3 home assignmens (HA), 3 quizzes (Q), midem (MT) Home assignmens 25 poins pe assignmen You will eceive hem one week befoe he conol (o ealie) Conol is o solve one simila poblem in class (a he beginning of seminas No. 3, 5 and 7, don be lae!) Quizzes 5 poins pe quiz Tess (Tue/False, explain) based on pevious lecues and compulsoy lieaue (a he beginning of seminas No. 2, 4 and 6, don be lae!) Tess (wih jus Tue/False) ae available in advance. Discuss hem on Piazza! Gade fo he Pa 3 «Gade#3» = 0,6*MT + 0.4*(HA and Q ou of 20 poins) 2 Macoeconomics of Financial Makes

3 Ehics and policy We sicly follow all noms of academic ehics If you ae ill and miss some cuen conols (HAs o Qs) bing you valid sick vouche o you eache no mae wha happens, any HA and Q ae no subjec o epeaing, we will only coec you gading (and only if you sick vouche is valid) Example: you miss HA# and Q#2 and eceive ohe gades. Then you e-evaluaion goes like his: Gade#3 = HA# = Q#2 = X; X = 0,6*MT + 0.4*(X + HA#2 + HA#3 + Q# + X + Q#3) If you ae ill and miss MT Thee will be only one chance o epea i a he end of Decembe (he same dae fo MT#3 and MT#4) 3 Macoeconomics of Financial Makes

4 Ouline of he Pa 3 Ino Ineempoal choice Saving and capial accumulaion Ramsey model OLG model Consumpion LCH PIH and beyond Invesmen Use cos of capial, acceleao, value of he fim Tobin s q 4 Macoeconomics of Financial Makes

5 Ouline of he Pa 3 (coninued) Financial makes Efficiency and abiage, fundamenals and bubbles Inees aes Exchange aes and capial flows Money, cedi and financial inemediaion Financial cises A bief hisoy (980- ) Old and new heoies of financial cises 5 Macoeconomics of Financial Makes

6 Moivaion Why do we need igoous heoies of consumpion and invesmen? Consumpion is 2/3 of GDP Invesmen is mos volaile componen of GDP hus hey ae keys o undesand business cycles Saving ae is no exogenous Why wold financial makes ae impoan even fo hose who do no ade asses? Almos all ecessions sa fom financial cashes Finance is he main objec of globalizaion Wha ae he links beween finance and eal economy? Asse pices eac o he news on consumpion, employmen, ec. Consumpion and invesmen depend on asse pices 6 Macoeconomics of Financial Makes

7 Dynamics of consumpion 2000,0 Consumpion in USA, , ln. $ (base yea 2009) 0000,0 8000,0 6000,0 4000,0 2000,0 0,0 Why consumpion dynamics is smooh? 7 Macoeconomics of Financial Makes

8 Dynamics of consumpion 900 Consumpion in Russia, ln.$ (base yea 2005) and in he case of Russia 8 Macoeconomics of Financial Makes

9 Dynamics of consumpion Реальное потребление в США, млрд. $ (2005г. - базовый) Consumpion falls damaically in cises 9 Macoeconomics of Financial Makes

10 Consume confidence 0 Macoeconomics of Financial Makes

11 Dynamics of invesmen 3000,0 Invesmen in USA, , ln. $ (base yea 2009) 2500,0 2000,0 500,0 000,0 500,0 0,0 Invesmen is highly volaile. Why? Macoeconomics of Financial Makes

12 Volailiy: consumpion vs. invesmen 0,3 Gowh aes of consumpion (blue line) and invesmen (ed line) in USA, ,25 0,2 0,5 0, 0,05 0-0,05-0, -0,5-0,2 2 Macoeconomics of Financial Makes

13 A day in he sock make Why ae sock pices so volaile? 3 Macoeconomics of Financial Makes

14 Sock make dynamics Dow Jones Index /2/90 /2/906 /2/9 /2/96 /2/92 /2/926 /2/93 /2/936 /2/94 /2/946 /2/95 /2/956 /2/96 /2/966 /2/97 /2/976 /2/98 /2/986 /2/99 /2/996 /2/200 /2/2006 /2/20 Sock pices incease in he long un Bu someimes hee ae shap falls 4 Macoeconomics of Financial Makes

15 Sock make dynamics Dow Jones индекс (Великая Депрессия) /2/925 /2/926 /2/927 /2/928 /2/929 /2/930 /2/93 /2/932 /2/933 /2/934 /2/935 /2/936 /2/937 /2/938 /2/939 5 Macoeconomics of Financial Makes

16 Sock make dynamics 20000,00 Dow Jones Index, , , , , , , , , ,00 0,00 6 Macoeconomics of Financial Makes

17 Sock make dynamics NASDAQ Composie 6, , , , ,000.00, /6/993 0/6/993 4/6/994 0/6/994 4/6/995 0/6/995 4/6/996 0/6/996 4/6/997 0/6/997 4/6/998 0/6/998 4/6/999 0/6/999 4/6/2000 0/6/2000 4/6/200 0/6/200 4/6/2002 0/6/2002 4/6/2003 0/6/2003 4/6/2004 0/6/ Macoeconomics of Financial Makes

18 Sock make dynamics 3000 РТС, Macoeconomics of Financial Makes

19 03/3/988 2/3/988 09/30/989 06/30/990 03/3/99 2/3/99 09/30/992 06/30/993 03/3/994 2/3/994 09/30/995 06/30/996 03/3/997 2/3/997 09/30/998 06/30/999 03/3/2000 2/3/ /30/200 06/30/ /3/ /30/ /30/ /3/2006 2/3/ /30/ /30/ /3/2009 2/3/ /30/200 06/30/20 03/3/202 2/3/202 09/30/203 06/30/204 03/3/205 Sock make dynamics 2500, ,00 500,00 000,00 S&P 500 2M OEPS 500,00 0,00 Do dividends explain sock pices? 9 Macoeconomics of Financial Makes

20 Sock make dynamics 20 Macoeconomics of Financial Makes

21 Housing pices The los decade in Japan saed fom he bus of housing bubble 2 Macoeconomics of Financial Makes

22 Housing pices 22 Macoeconomics of Financial Makes

23 Housing pice in Moscow 23 Macoeconomics of Financial Makes

24 Housing pices 24 Macoeconomics of Financial Makes

25 Cisis in Russia Capial accoun (ln.$, lef scale), exchange ae (ub/$, igh scale) and oil pice ($ pe bael, igh scale) счет движения капитала USDRUDCB BRENT Macoeconomics of Financial Makes

26 Quesions Wha deemines consumpion, saving, and invesmen? Why consumpion is smooh, while invesmen is volaile? Why financial cashes cause shap dops in (eal) pivae spending? Should govenmens boow and spend moe when pivae seco saves oo much? Financial insabiliy? Why asse pices and exchange aes ae so volaile? Wha causes asse bubbles? Wha causes meldowns? Wha causes massive capial inflows and ouflows? Is hee any (moneay/fiscal/macopudencial) policy cue fo financial insabiliy? 26 Macoeconomics of Financial Makes

27 Ineempoal choice

28 Moivaion We need mico-foundaion fo consumpion/saving decisions Almos all moden macoeconomic models sa wih mico-foundaions Sandad micoeconomics gives a saic soy, while saving is a dynamic phenomenon Which facos apa fom he cuen disposable income deemine consumpion and saving and hus consume confidence? Do fiscal simulus have any effec on consumpion in ecession? 28 Macoeconomics of Financial Makes

29 The essenial of moden consumpion heoies Consume choice is ineempoal: i akes ino accoun cuen and fuue saes of he economy Consumes fom aional expecaions abou fuue saes Sa fom he simplifying assumpion of pefec knowledge: consumes know all hei fuue income (life-ime hoizon, inees aes, ec.) Consumpion is fowad-looking vaiable Dynamic choice Life-ime uiliy fom consumpion in diffeen peiods Dynamic o ineempoal budge consain 29 Macoeconomics of Financial Makes

30 Life-ime uiliy Conside a consume wih he T-peiod life span, who maximizes (2.) T 0 u( C ) ( ) max C Consumpion in peiod povides insananeous uiliy u(c ) wih sandad neoclassical popeies: u (C) > 0, u (C) < 0 Insananeous pefeences do no change ove ime Consume is impaien and discouns fuue flow of uiliy a he ae ρ (subjecive discoun ae) Alenaive noaion: inoduce subjecive discoun faco β = /(+ ρ) 30 Macoeconomics of Financial Makes

31 Digession Time-inconsisen pefeences Subjecive discouning of fuue uiliy is a behavioal phenomenon While i simplifies modeling, geomeic discouning may be unealisic In ealiy we cae less abou oo disan fuue Fo example, one disciminaes only beween oday and all he fuue U u( C T ) u( C 0 ) Hypebolic subjecive discouning seems o be moe ealisic, bu complicaes algeba ( ) 3 Macoeconomics of Financial Makes

32 Dynamic (flow) budge consain Y d disposable income in peiod income minus ne lump-sum axes, Y d = Y - T S = Y d C saving in peiod his is flow vaiable! A asses a he beginning of peiod if posiive, o deb, if negaive his is sock vaiable! inees ae consan o simplify noaion (his is no impoan) we sa by assuming no liquidiy consain ( 2.2) A A S d A Y C 32 Macoeconomics of Financial Makes

33 0 0 ) ( ) ( T d T C Y A A C u 0 ) ( ) ( C u C ) ( ) ( (2.3) C u C u 0 ) ( ) ( C u C Macoeconomics of Financial Makes 33 C T C u max ) ( ) ( (2.) 0 C Y A A d 2.2) ( 0 A

34 Eule equaion (Ramsey-Keynes ule) (2.3) u( C u( C ) ) uc C Nomalize he pice of consumpion in peiod o Then (+) - is he elaive pice of consumpion in peiod + The maginal ae of subsiuion (MRS) beween consumpion in peiods and + should be equal o he aio of hei pices u 34 Macoeconomics of Financial Makes

35 Ineempoal subsiuion effec An incease in he inees ae leads o a decease in he elaive pice of consumpion in peiod + and o an incease in he maginal ae of subsiuion beween consumpion in peiods and + As maginal uiliy is deceasing in consumpion, his implies a decease in peiod consumpion, an incease in peiod saving, and an incease in consumpion in peiod + ) ( ) ( (2.3) C u C u Macoeconomics of Financial Makes 35,, ) ( ) ( C S C C u C u

36 Income effec (2.3) u( C u( C ) ) An incease in he inees ae leads o an incease in capial income in peiod + and hus o an incease in oal income S C, C S, Noe: Y is a flow of endowmen (o labo income), no a oal income I allows o incease consumpion in boh peiods 36 Macoeconomics of Financial Makes

37 Popeies of saving Ineempoal subsiuion and income effecs wok in opposie diecions wih espec o saving (and consumpion) in peiod The oveall effec depends on he ineempoal (insananeous) elasiciy of subsiuion: u( c) u( c) c S 37 0 if 0 if 0 if u( c) u( c) c we will assume his case lim ( c, c ), ( c, c ) d ln c c d ln MRS( c, c Macoeconomics of Financial Makes )

38 Dynamics of consumpion (2.3) u( C u( C ) ) If > ρ, consumpion ises ove he life If < ρ, consumpion declines ove he life If = ρ, hen opimal choice is consan consumpion Impoan: hese dynamic chaaceisics do no depend on whehe income is gowing, falling o consan ove ime 38 Macoeconomics of Financial Makes

39 Fom dynamic o ineempoal budge consain Macoeconomics of Financial Makes 39 S A A 2.2) (, S A A 2 S A A A S S S A S S A T T T A S A 0

40 No-Ponzi game condiion AT ( 2.4) T 0 Raional consume should no leave any asses afe his deah assuming hee is no beques moive Raional cedios should no lend o a consume, who is no going o epay he deb Thus fowad ieaions of Eq. (2.2) and condiion (2.4) imply (2.5) A T 0 S 40 Macoeconomics of Financial Makes

41 Ineempoal budge consain Holding asses oday allows fo negaive pesen value of saving in he fuue A 0 T 0 i.e., consume can spend moe han his income, consume ou of income and ou of wealh S 0 Indebedness oday should be backed by posiive pesen value of saving in he fuue A 0 T 0 i.e., consume should spend less han his income, use income o consume and epay he deb S 0 Noe: NPG condiion is a consain on fuue consume choice while dynamics of A is backwad-looking 4 Macoeconomics of Financial Makes

42 Ineempoal budge consain 0 0 (2.6) T d T Y A C In each peiod pesen discouned value of fuue consumpion spending should be equal o he sum of wealh and pesen discouned value of fuue disposable income Macoeconomics of Financial Makes (2.5) T d T C Y S A

43 Digession Alenaive specificaion of he consume poblem You can easily show, ha alenaive specificaion of consume poblem gives he same FOC/Eule Eq. (2.3) (2.) T 0 u( C ) ( ) max C (2.6') T C T A Y d I equies jus one Lagange muliplie 43 Macoeconomics of Financial Makes

44 No-Ponzi game condiion (infinie hoizon) AT ( 2.7) lim T T 0 Pesen value of asses/deb a infinie ime hoizon is nil Asses/deb should no gow a a ae, highe han make inees ae 44 Macoeconomics of Financial Makes

45 Ineempoal budge consain (infinie hoizon) S A A 2.2) ( 0 (2.8) S A 0 0 (2.9) Y A C d 0 lim 2.7) ( T T T A Macoeconomics of Financial Makes 45 T T T A S A 0

46 Case sudy: Consume confidence fall in 2008 T C T A 0 0 Y d How one can explain a shap dop in consume confidence in 2008? Busing housing bubble? Sock make meldown? Highe cedi aes? Feas o loose job (o salay cu)? Why did no fiscal simulus help? 46 Macoeconomics of Financial Makes

47 The Economis May s Macoeconomics of Financial Makes

48 Dynamic govenmen budge consain G govenmen puchases in peiod T ne lump-sum axes in peiod b public deb a he beginning of peiod if posiive, o public asses, if negaive d = G T pimay budge defici in peiod pimay means ne of deb sevice inees ae consan, as befoe and he same as fo he pivae agens ( 2.0) b b d b G T 48 Macoeconomics of Financial Makes

49 d b b 2.0) (, d b b 2 d b b b d d d b d d b T T T b d b 0 Macoeconomics of Financial Makes 49

50 NPG condiion fo public deb bt ( 2.) lim T T 0 Pesen value of public deb a infinie ime hoizon is nil Public deb should no gow oo fas, a a gowh ae highe han inees ae Noe: naually, govenmen has infinie ime hoizon 50 Macoeconomics of Financial Makes

51 Fom dynamic o ineempoal govenmen budge consain d b b 2.0) ( 0 (2.2) d b 0 0 (2.3) T b G 0 lim 2.) ( T T T b Macoeconomics of Financial Makes 5 T T T b d b 0

52 Ineempoal govenmen budge consain (2.3) G b 0 0 T In evey peiod he sum of pesen value of fuue govenmen spending and public deb should be equal o he pesen value of fuue ax evenues b 0 0 d 0 Public deb should be backed by appopiae pesen value of fuue budge supluses his is he pinciple of susainable fiscal policy NPG condiion fo public deb is a consain on fuue fiscal policy, while he dynamics of public deb is backwad-looking 52 Macoeconomics of Financial Makes

53 Deb buden in USA Отношение государственного долга к ВВП, % Macoeconomics of Financial Makes

54 Public Deb o GDP (202) 54 Macoeconomics of Financial Makes

55 Deb in seleced counies 55 Macoeconomics of Financial Makes

56 Consolidaing ineempoal budge consains Assume ha govenmen bonds ae he only asses in he economy, i.e. A = b 0 0 (2.3) T b G 0 0 (2.9) T Y A C Macoeconomics of Financial Makes (2.4) G Y C By subsiuing (2.3) ino (2.9) we aive a

57 Ricadian equivalence The way how govenmen finances is expendiues axes o deb - does no affec consumpion decisions Only pesen discouned value of fuue govenmen expendiues maes Unde susainable fiscal policy lowe axes oday equie highe axes in he fuue o keep appopiae backing of he public deb Robe Bao: Ae Govenmen Bonds Ne Wealh? No! Bao R. J. (974) Ae Govenmen Bonds Ne Wealh? Jounal of Poliical Economy, 82(6), pp Macoeconomics of Financial Makes

58 Disubances o he Ricadian equivalence Finie ime hoizons and he lack of inegeneaional aluism Financial impefecions / liquidiy consains In paicula, diffeen inees aes fo pivae agens and he govenmen Disoionay axaion 58 Macoeconomics of Financial Makes

59 Fiscal muliplies (Rome and Bensein, 2009) 59 Macoeconomics of Financial Makes

60 Govenmen expendiues muliplie s esimaes Souce Couny One-yea muliplie Blanchad and Peoi (2002) USA 0,5-0,6 Byan and ohes (988) USA 0,6-2,0 Cogan and ohes (2009) USA 0,7-0,9 Dalsgaad, Andé, and Richadson (200) USA, Japan,7 Elmendof and Fuman (2008) USA Gemany 0,4 Spain 0,5 HM Teasuy (2003) Fance 0,5 Pougal 0,7 Sweden 0,4 UK 0,3 Ilzezki and Végh (2008) IMF (2008) Developed economies 0,7 Developing economies 0,4 Developed economies 0,2 Developing economies 0, 60 Macoeconomics of Financial Makes

61 Tax muliplie s esimaes Souce Couny One-yea muliplie Blanchad and Peoi (2002) USA 0,7-, Cogan and ohes (2009) USA 0,7-0,9 Gemany 0,2 Spain 0, HM Teasuy (2003) Fance 0, Pougal 0-0, Sweden 0,3 UK 0,2 IMF (2008) Developed economies 0 Developing economies 0, Rome and Rome (2008) USA,2 6 Macoeconomics of Financial Makes

62 Labo ax Laffe cuve (Taband and Uhlig, 202) 62 Macoeconomics of Financial Makes

63 Reading lis Бурда-Виплош, , Приложение Э. Эйбел, Рикардианская теорема эквивалентности P. Kugman, 202, End This Depession Now!, Ch Macoeconomics of Financial Makes