Discussion of The Transmission of Monetary Policy through Redistributions and Durables Purchases by Silvana Tenreyro and Vincent Sterk

Transcription

1 Discussion of The Transmission of Monetary Policy through Redistributions and Durables Purchases by Silvana Tenreyro and Vincent Sterk Adrien Auclert Stanford (visiting Princeton) Conference on Monetary Policy Implementation and Transmission in the Post-Crisis Period Federal Reserve Board November 2, 25 Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 / 7

2 Introduction What this paper does This paper: Provides impulse responses to monetary policy shocks without constraining impact price effect, following Gertler and Karadi (25) Rationalizes these responses in a flexible price model in which nominal redenomination provides a key redistributive impulse Brings back focus on nature of open market operations in implementation of monetary policy This discussion: Focuses on the model mechanism and its quantitative importance Identifies another channel that could act in the other direction Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 2 / 7

3 Introduction Key facts from S-VAR exercise Figure : Responses to an Expansionary Monetary Policy Shock in the VAR. year rate Consumer Price Index -points Durables Expenditures 2 3 Excess Bond Premium Non-Durables Expenditures 2 3 Public Debt 2 3 Note: horizontal axes denote months after the shock. Gertler-Karadi high-frequency identification, monthly data P is unrestricted better than Cholesky 75bp identified fall in i gradual increase in durables expenditures, up to about 2 percent. By contrast, the increase Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 3 / 7.5 sustained P increase -2 D increase -.5 ND incrase.5 fall in B But GK find P Difference?

4 Introduction Key mechanism Overlapping generations of households (HH), all nominal savers Government (G) nominal borrower OMO: M P, redistributes from HH to G G gains not fully rebated to the currently alive (OLG+fiscal policy rule) negative wealth effect Labor supply, Consumption Real rate r to clear markets In equilibrium: Labor and output, durables, nondurables i Qualitatively consistent with data, except for nondurables Quantitative responses are very small in benchmark model Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 4 / 7

5 5.2 The dynamic e ects of open market operations Introduction Figure 2 presents the responses to an expansionary monetary policy shock, implemented using Key results from calibrated model open market operations. The blue lines show the responses in the baseline model whereas the red lines show the responses when labour market frictions are added. The magnitude of the shock is scaled to imply a reduction in the nominal interest rate of about 75 basis points. Figure 2: Responses to an Expansionary Monetary Policy Shock in the Baseline Model and the Model with Search and Matching Frictions. Nominal Interest Rate (annualized) Price Level 2 -points Durables Expenditures Output Non-Durables Expenditures Public Debt 75bp identified fall in i 2 reversing P increase.3 D increase. ND decrease.2 Y increase.5 fall in B Baseline Search and Matching Note: horizontal axes denote quarters after the shock. First Adrien consider Auclert the (Stanford) baseline model. Following the Discussion monetary of expansion, Tenreyro theand price Sterk level in- November 2, 25 5 / 7

6 Introduction Outline Simplified version of model 2 Model mechanism and quantification 3 Alternative mechanism and conclusion Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 6 / 7

7 Simplified version of model Simplified version: OLG model Two groups: young y and old o. y o with probability ρ Old die with probability ρx Steady-state: ν y agents and ν o agents First death draw at retirement: ρ x = limit is ν = Calibration: ρ = 4 years, ρ x = 2 years, ν 2 3 No annuity markets: self-save for retirement Simplified model with only nondurable consumption: [ ] E β t c σ σ One real bond, gross real rate R. Endowment: y = for young, for old Calibration: R = 4 annual, β = annual, σ = Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 7 / 7

8 Simplified version of model Old problem (Fisher (93), Yaari (965)) o solve: V o (a) = max c σ σ + β ( ρ x) V o ( a ) c + a R = a ( ) Fisherian solution: ln ct+ c t r ρ ρx σ 4 5 = 2 c t+ = [βr ( ρ x )] σ ct c t = γa t Marginal propensity to consume: γ = [β ( ρ x )] σ R σ.39/quarter Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 8 / 7

9 Simplified version of model Young problem y solve: V y (a) = max c σ σ + β ( ρ ) V y ( a ) + βρ ( ρ x ) V o ( a ) c + a R = a + y Euler equation shows precautionary savings c σ t = βr ( ρ ) c σ t+ + βrρ ( ρ x ) (γa t+ ) σ Insert c t = a t at+ R + y, find second-order ODE in a t+ ( Steady state has buffer stock a = y γ a =.8 annual income [ βrρ( ρ x ) βr( ρ ) Shooting solution: given a, find a such that a = a ] σ + R ) Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 9 / 7

10 Simplified version of model Solution assuming young starts at a = a Assets Consumption and income Assets / quarterly income Consumption, Income Quarters c y Quarters Representative young agent Large c jump at retirement βr in steady-state Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 / 7

11 Simplified version of model Solution assuming young starts away from a Assets Consumption and income Assets / quarterly income Consumption, Income Quarters c y Quarters Long transition to a Explains slow unwind of P Depressed c in transition Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 / 7

12 Model mechanism and quantification Explaining the model mechanism Wealth distribution has closed-form solution. Total a = νa + ( ν) (.3) a young own 87 of wealth In full calibrated model, wealth is a = ( δ) d + m + Rb ( δ) d: durables, real, 55 of annual GDP m: money, nominal, 6 of annual GDP Rb: government debt, nominal, 6 of annual GDP OMO: P a i with da i = (m i + Rb i ) dp P NNP i dp P NNPi : i s net nominal position (Doepke-Schneider) prolonged c and n r, imbalance correction from durables (substitution effect) Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 2 / 7

13 Model mechanism and quantification Explaining the model mechanism Doepke-Schneider (26) evidence 82 journal of political economy Type of Instrument TABLE Net Nominal Positions of U.S. Households in 989 Age Cohort A. All Households Short-term Bonds Mortgages Equity Total NNP B. Poor Short-term Bonds Mortgages Equity Total NNP NNPs are negative for most working agents! (mortgages) They experience a positive wealth effect of P C. Middle Class Adrien Auclert Short-term (Stanford) 4.6 Discussion 2.of Tenreyro 6.2and Sterk. 7.6 November 3.7 2, 25 3 / 7

14 Model mechanism and quantification Why are the responses small? In the calibration MPH i = MPC i So individual c and h respond to dp P by dc i MPC i NNP i dp P dh i MPC i NNP i dp P Here: dp P = 2, MPC = 5, NNP = 76 4 total dhi, dc i less than.3 even though dp P large GE: government rebate and r dampen even more! Root cause of small aggregate effect small MPCs and MPHs short asset durations But MPCs are not small in the (nonlinearized) model Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 4 / 7

15 c Model mechanism and quantification Implications for the cross-section of young agents C function Quarterly MPCs MPC a/y a/y Concave (Carroll-Kimball) Aggregation only if all at a SS: MPC=.5/quarter Away: huge heterogeneity Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 5 / 7

16 Alternative mechanism and conclusion Plausible alternative mechanism MPCs are large for the young, negative-nnp agents MPCs are small for the old, positive-nnp agents. Within-household redistribution pushes up consumption (Fisher effect) 2. Households as a whole lose to government, pushes down consumption (Pigou effect) Which effect dominates? Depends on Cov (MPC, NNP) and government fiscal rule Empirical evaluation is possible Very different role for P redistribution in transmission of MP: Under it is an amplification mechanism Under 2 it is a source of real interest rate effects of MP Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 6 / 7

17 Alternative mechanism and conclusion Conclusion Very nice and tractable framework, very well written paper Plausible mechanism that explains effects of monetary policy with flexible prices (great) Allows one to think about consequences of MP implementation via OMOs vs Helicopter Drops (nice) Benchmark effects are small, higher MPCs and MPHs would increase them Going forward: more work needs to be done to evaluate Fisher vs Pigou hypotheses Adrien Auclert (Stanford) Discussion of Tenreyro and Sterk November 2, 25 7 / 7