... The Great Depression and the Friedman-Schwartz Hypothesis Lawrence J. Christiano, Roberto Motto and Massimo Rostagno
|
|
- Aubrey Moody
- 5 years ago
- Views:
Transcription
1 The Great Depression and the Friedman-Schwartz Hypothesis Lawrence J. Christiano, Roberto Motto and Massimo Rostagno
2 Background Want to Construct a Dynamic Economic Model Useful for the Analysis of Monetary and Fiscal Policy in a Large Economy Such as the Euro Area or U.S. Would Like a Model That Can be Used to: Identify the Fundamental Shocks Driving Historical Data Identify the Mechanisms Responsible for Propagating the Shocks Serve as a Laboratory For Evaluating Alternative Strategies for Responding to Shocks. We Expand a Standard Monetary Business Cycle Model to Incorporate Multiple Shocks, Financial Frictions and a Banking Sector. We Use our Model to Address one of the Biggest Policy Questions: What Shocks Caused the US Great Depression? What Mechanisms Propagated the Shocks? Could the Monetary Authorities have Mitigated the Severity of the Great Depression By Reacting in a Different Way to the Shocks? 0
3 Great Depression is a Perfect Testing Ground for Our Model It Was a Big Deal! 6 Log, US GNP Years 3
4 Great Depression is a Perfect Testing Ground for Our Model Big Question: What Shocks? Exogenous Monetary Contraction in 920s (Bernanke, Hamilton) Increased Money Demand in Late 920s (Alexander Field). Deposit Withdrawals (Fear of Bank Closures and Dollar Devaluation). Stock Market Collapse. Institutional Changes, Especially New Deal (Cole and Ohanian). What Propagation Mechanisms? Stock Market Collapse (Mishkin, Romer). Nominal Wage and Debt Rigidities (Irving Fisher, Bordo et al). Banking System (Friedman and Schwartz). Policy Mistakes at Fed (Friedman and Schwartz, Cecchetti). 24
5 What We Do, and What We Find Incorporate Various Shocks and Propagation Mechanisms into a Single Dynamic General Equilibrium Model. Combine the Model with Data from 920s and 930s. Determine Which Shocks and Propagation Mechanisms Were Crucial. Results: A Liquidity Preference Shock is Important in Contraction Phase (Surprise, consistent with Alex Field?) Financial Frictions Somewhat Important for Investment Not Important Enough to Have a Major Impact on Aggregate Output and Employment (Surprising!) Increased Market Power of Workers Responsible for Duration of Great Depression. A More Responsive Monetary Policy Could Have Substantially Reduced the Severity of the Great Depression. 35
6 The Great Depression and the Zero Lower Bound on the Interest Rate In Recent Years: Interest In Understanding Monetary Policy in a Low Interest Rate Environment: Can Monetary Policy Resist Deflation and Output Collapse? What Sort of Monetary Policy Can do This? Interest Rates Near Zero In Most of the 930s Analysis of Monetary Policy in 930s Must Confront Zero Lower Bound Constraint Policy We Consider Avoids Zero Lower Bound By Committing to Temporarily High Future Money Growth. Credibility Issues (Eggertsson-Woodford, Krugman). 42
7 Previous Quantitative Anlyses of Great Depression Bordo-Choudhri-Schwartz, Could Stable Money Have Averted the Great Contraction?, EJ, 995. Bordo, Erceg and Evans, Money, Sticky Wages, and the Great Depression, AER, McCallum Could a Monetary Base Rule Have Prevented the Great Depression?, JME, 990. Sims, Christopher, The Role of Interest Rate Policy in the Generation and Propagation of Business Cycles: What Has Changed Since the 30s?
8 A Quick Look at the Data. The Model. Outline Model Estimation Calibration of Some Model Parameters Maximum Likelihood Estimation of Other Parameters Model Fit. Evaluating Alternative Monetary Policies. 44
9 real gnp 0.25 investment 0.65 consumption Total manhours (incl. military) GNP deflator real M Short term rate real DOW currency to deposits reserves to deposits Spread, BAA and AAA wage
10 Traditional Spending Transmission Real Wage Mechanism Rise in Real Wage Labor Demand Curve Drop in Employment Employment
11 Real Wage Modern Spending Transmission Mechanism No Change in Real Wage Labor Demand Curve (Markup,Capacity utilization,.) Drop in Employment Employment
12 GNP Falls Over 30%, 929 to 933 The Data Investment: Falls 80% I/Y Goes From 0.25 (P) to 0.06 (T) Consumption: Falls 25% C/Y initially rises from 0.68 in 929IV to 0.77 in 93IV and then falls back to 0.68 in 933IV Employment: Drops Less than GNP (i.e., Productivity Falls) and Never Fully Recovers Price Deflator: Drops and Never Fully Recovers 45
13 The Data, cont d What Started It? Was it the Fed? Probably Not (Note: M/P Roughly Constant, R Drops) Whatever it Was, it was Something that Hit Investment Hard Stock Prices Collapsed: Was that What Hurt Investment? Flight to Quality : Banks Accumulate Reserves, Households Accumulate Currency General Economic Uncertainty: Rises Big Time Starting 93, With Bank Panics. Real Wage Rose Continually: A Reason for the Long Duration of the Depression? 46
14 Model Features Suggested by Examination of Data Need a Good Model of: Investment, Employment, Market Power, Especially for Labor Suppliers. Need a Model that Allows for Interaction Between Financial Factors and Real Activity. Need Model That Can Come to Terms with Bank Reserves, Currency, Bank Deposits, etc. Model is a Marriage of Three: Christiano, Eichenbaum and Evans, Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy, forthcoming, JPE. Bernanke-Gertler-Gilchrist, Handbook of Macroeconomics, 999, Credit Market Frictions. Chari-Christiano-Eichenbaum JMCB, 995, Banking Structure. 50
15 Private Agents in the Model Goods-Producing Firms Intermediate Goods, Final Goods and Capital Goods Entrepreneurs: Own and Rent Out Capital Banks Households Monetary and Fiscal Authorities. 5
16 Final Goods-Producing Firms: Private Agents in the Model Y t = Z 0 Y jt λ f,tdj λf,t 52
17 Final Goods-Producing Firms: Private Agents in the Model Y t = Z 0 Y jt λ f,tdj λf,t Intermediate ½ Goods-Producing Firms: t K Y jt = jt α (z tl jt ) α Φz t if t Kjt α (z tl jt ) α > Φz t, 0 <α<, 0, otherwise z t = µ z z t. Profits: P jt Y jt Prt k K jt ( + R t ) W t l jt. Price-setting: with probability ξ p : P jt chosen optimally with probability ξ p : P jt = π t P j,t. 53
18 Private Agents in the Model, cont d Producers of Physical Capital Buy Investment Goods and Old Capital and Make K t+ : K t+ =( δ) K t + F (I t,i t ). 54
19 Private Agents in the Model, cont d Entrepreneurs Buy K t+ at end of t and Rent it out in t + Borrowing: B t+ = Q K K 0,t t+ N t+ 0. Capital Services: K t+ = u t+ Kt+, Capital Utilization costs: a(u t+ ) K t+,a 0,a 00 > 0, Net worth N t+ = past net worth + earnings from renting capital + market value of physical capital - repayments of past debt to bank. total net worth is kept low because random fraction of entrepreneurial wealth is destroyed entrepreneurs receive a costly state verification contract from the bank 58
20 Entrepreneur of Type ω, Where Eω=. Bank Households Lend Funds to Banks Irving Fisher Debt-Deflation: Exists Because Households Receive Fixed Nominal Return on Time Deposits. 60
21 Private Agents in the Model, cont d Banks: Issue Liabilities (Time Deposits) Used to Finance Entrepreneurs Issue Liabilities (Demand Deposits) Used to Finance Working Capital Loans to Firms Households: Supply Labor, Consume, Hold Demand and Time Deposits X β l t {u(c t+l bc t+l ) z(h j,t+l ) E j t l=0 υ t+l l = ³Pt+lC t+l Z 0 M t+l ³ θt+l σq θt+l P t+l C t+l D h t+l σ q } (h j ) λ w,t dj λw,t, λ w,t <. 63
22 Private Agents in the Model, cont d Monetary and Fiscal Authorities Exogenous Government Spending Requirement. Taxes. Monetary Policy: Money µ Base Growth Feeds Back on Shocks: M b log t+ Mt b = µ X µi,t + i Agnostic About Nature of Monetary Policy Could Be Taylor Rule, McCallum Rule, Something Else... 66
23 Private Agents in the Model Goods-Producing Firms Intermediate Goods, Final Goods and Capital Goods Entrepreneurs: Own and Rent Out Capital Banks Households Monetary and Fiscal Authorities. 67
24 Steps in the Analysis Select Parameter Values for the Model.. Parameters that Control Nonstochastic Part of the Model Parameters Governing Exogenous Shocks and Monetary Response. Evaluate Model Empirically. Counterfactual Policy Analysis. 72
25 Selection of Model Parameters Nonstochastic Parameters Match Various Long-Run Averages Use Evidence on the Shocks in the 920s and 930s to Parameterize Exogenous Shocks. 75
26 Model Parameters (Time unit of Model: quarterly) Panel A: Household Sector β Discount rate b Habit persistence parameter 0.63 ξ w Probability of Not Reoptimizing Wage in Given Quarter 0.70 Panel B: Goods Producing Sector µ z Growth Rate of Technology (APR).50 ξ p Probability of Not Reoptimizing Price Within Quarter 0.50 δ Depreciation rate on capital α Power on capital in production function 0.36 Panel C: Entrepreneurs γ Quarterly Entrepreneurial Survival Probability µ Fraction of Realized Profits Lost in Bankruptcy 0.20 F ( ω) Percent of Businesses that go into Bankruptcy in a Quarter 0.80 Var(log(ω)) Variance of log of idiosyncratic productivity parameter 0.07 Panel E: Policy τ Bank Reserve Requirement 0.00 τ l Tax Rate on Labor Income 0.04 x Growth Rate of Monetary Base (APR).60 76
27 k Steady State Properties of the Model, Versus US Data Variable Model US, US, y i y c y g y N K N ( Equity to Debt ) Percent of Goods Output Lost to Bankruptcy 0.37% Percent of Aggregate Labor and Capital in Banking.00% % 3 2.5% 5 Inflation (APR) 0.% -0.6% % 6 78
28 Money Variable Model Monetary Base Velocity M Velocity Currency / Demand Deposits Currency / Monetary Base Curr. / Household D. Deposit
29 Shocks Incorporated Into Model Eight Shocks: Monopoly Power of Firms Monopoly Power of Households Demand for Reserves By Banks Two Household Money Demand Shocks Shock to Riskiness of Entrepreneurs Aggregate Technology Shock Shock to Rate of Destruction of Entrepreneurial Wealth 80
30 Parameterization of Shocks Each Shock, Say x t, Has 4 Parameters Representation: x t = ρx t + ε x,t,σ εx Monetary Policy Response: µ xt = ρ µ µ x,t + φε x,t There are 8 4=32Parameters to be Estimated Monetary Policy µ M b log t+ Mt b = µ X i µi,t + 8
31 Matrices, A, B Solution to Model z t = A z t + BΨ t. z t ~Core set of 23 Endogenous Variables Ψ t Exogenous Variables, Stacked
32 Estimation of Parameters of Exogenous Shock Processes Data Used in Estimation: Net Worth (Measured by Value of the DOW) Inflation log, hours Short Term Interest Rate Output Real Wage Investment Velocity of M Consumption Risk Premium (Baa - Aaa Bond Returns) Currency to Deposit Ratio Bank Reserves to Deposit Ratio 2
33 Data: X t =(log³ Nt+ P t Y t log ³ Wt P t Y t Stochastic Model log (π t )log(l t ) R b t log(y t ) log( I t Y t )log(v t )log( C t Y t ) P e t log(d c t)log(d r t)) 0 Here, N t+ Net Worth, Rt Short b Term Interest Rate Vt Velocity of M P e Premium d c Currency to Deposit Ratio d r Reserves to Deposit Ratio Representation of X t : X t = α + τz t + τ s Ψ t + τz t + τ s Ψ t. 3
34 State-Observer System State, ξ t ξ t = z t z t Ψ t Ψ t. Law of Motion of State: z t+ z t Ψ t+ Ψ t = A 0 Bρ 0 I ρ I 0 z t z t Ψ t Ψ t + BD 0 D 0 ˆϕ t+, ξ t+ = Fξ t + v t+. 7
35 Observer Equation y t = Hξ t + w t, where H = τ τ ˆτ s b τ s. Estimate by Maximum Likelihood, Given Parameters of Nonstochastic Part. 8
36 Results of Model Fit Overall, Model Fit Seems Reasonable Places Where Model Misses Understates Fall in Labor Productivity Overstates Rise in Real Wage Understates Fall in Consumption. Shocks Seem Reasonable 86
37 Figure 5: Actual and Fitted Data, Converted to Levels Log, real net worth Policy Rate Log, Investment Log, Money Base Premium (APR) Log, Price Level Log, Output Log, M Log, Currency to Deposit ratio Log, Hours Worked Log, Real Wage Log, Consumption -0.6 Log, bank reserve to deposit ratio Notes: (i) Dotted, Solid Line - Model, Actual Data. (ii) Results Obtained by First Adding Actual Data Sample Mean to Results Displayed in Figure 4 and then Aggregating to Levels. (iii) Currency-Deposit, Reserves-Deposit Ratio, Premium Reproduced from Figure 4.
38 Figure 7: Estimated Economic Shocks Firm Markup, λ f,t Banking Money Demand Shock, ξ t Money Demand, θ t % dev. from steady state Fraction Fraction ratio to steady state Labor Market Power, ζ t Technology Shock, ε t % dev. from steady state Liquidity Demand, υ t Riskiness of Entrepreneurs, σ t Fraction Financial Wealth Shock, γ t 0.85
39 Liquidity Preference Shock Demand Deposits Drop Working Capital Loans Drop Consumption Drops Liquidity Shock Time Deposits Fall Net Worth Falls Entrepreneur Loans Fall Financial Accelerator Investment Falls Asset Price Falls Output Drops Debt Deflation Price Level Drops Rental Rate Of Capital Falls
40 Response to One-Standard Deviation Innovation to Liquidity Preference, υ t.0 Household Currency Relative to SS Household Deposits Relative to SS ratio.005 ratio Household Time Deposits Relative to SS Consumption ratio Percent Interbank Loan Rate Investment APR Percent Output Percent quarters
41 Figure 9: Model Response with Only υ t Shocks, and Data Log, real net worth Policy Rate Log, Investment Premium (APR) Log, Money Base Log, Price Level Log, Output Log, M Log, Currency to Deposit ratio -.8 Notes: Results Correspond to Those in Figure 5, Except Model Simulation Only Includes Estimated υ t Shocks Log, Hours Worked Log, Real Wage Log, Consumption Log, bank reserve to deposit ratio
42 consumption quarters investment quarters percent deviation from unshocked path percent deviation from unshocked path Dynamic Response to a v Shock - benchmark (*); no entrepreneur (o) output quarters price of installed capital, in units of C quarters percent deviation from unshocked path percent deviation from unshocked path
43 Counterfactual Experiment Identify Alternative Monetary µ Policy Within a Particular Class M b log t+ Mt b = µ X µi,t + i µ it = θ 0 ε i,t + θ ε i,t + θ 2 µ i,t Trade-off: Immediate Monetary Response Delayed Monetary Response Selected Quantities in Baseline and Counterfactual, 929IV - 939IV Counterfactual Growth, APR Baseline Delayed Response Immediate Response Real Output Inflation Monetary Base M (max R min R)
44 Figure 2: Baseline Estimated Policy (Solid Line) and Counterfactual Policy (Dotted Line) Log, real net worth Log, Price Level Log, Hours Worked Policy Rate Log, Output Log, Real Wage Log, Investment Log, M Log, Consumption Premium (APR) Log, Currency to Deposit ratio Log, bank reserve to deposit ratio Log, Money Base
45 Concluding Remarks Fit A Model to 920s and 930s data Liquidity Preference Shock Important in Contraction Increased Worker Bargaining Power Important in Delaying Recovery Financial Frictions: Exacerbate Fall in Investment But, Not Enough to Have a Major Impact on Aggregate Output and Employment Question: Could the Great Depression Have Been Substantially Mitigated Under an Alternative Monetary Policy? Answer: Yes. 02
... The Great Depression and the Friedman-Schwartz Hypothesis Lawrence J. Christiano, Roberto Motto and Massimo Rostagno
The Great Depression and the Friedman-Schwartz Hypothesis Lawrence J. Christiano, Roberto Motto and Massimo Rostagno 1 Background Want to Construct a Dynamic Economic Model Useful for the Analysis of Monetary
More informationNotes for a Model With Banks and Net Worth Constraints
Notes for a Model With Banks and Net Worth Constraints 1 (Revised) Joint work with Roberto Motto and Massimo Rostagno Combines Previous Model with Banking Model of Chari, Christiano, Eichenbaum (JMCB,
More informationA Model with Costly-State Verification
A Model with Costly-State Verification Jesús Fernández-Villaverde University of Pennsylvania December 19, 2012 Jesús Fernández-Villaverde (PENN) Costly-State December 19, 2012 1 / 47 A Model with Costly-State
More informationIncorporate Financial Frictions into a
Incorporate Financial Frictions into a Business Cycle Model General idea: Standard model assumes borrowers and lenders are the same people..no conflict of interest Financial friction models suppose borrowers
More informationFinancial Factors in Business Cycles
Financial Factors in Business Cycles Lawrence J. Christiano, Roberto Motto, Massimo Rostagno 30 November 2007 The views expressed are those of the authors only What We Do? Integrate financial factors into
More informationNotes on Financial Frictions Under Asymmetric Information and Costly State Verification. Lawrence Christiano
Notes on Financial Frictions Under Asymmetric Information and Costly State Verification by Lawrence Christiano Incorporating Financial Frictions into a Business Cycle Model General idea: Standard model
More informationFluctuations. Roberto Motto
Financial Factors in Economic Fluctuations Lawrence Christiano Roberto Motto Massimo Rostagno What we do Integrate t financial i frictions into a standard d equilibrium i model and estimate the model using
More informationFinancial Frictions Under Asymmetric Information and Costly State Verification
Financial Frictions Under Asymmetric Information and Costly State Verification General Idea Standard dsge model assumes borrowers and lenders are the same people..no conflict of interest. Financial friction
More informationMonetary Policy and a Stock Market Boom-Bust Cycle
Monetary Policy and a Stock Market Boom-Bust Cycle Lawrence Christiano, Cosmin Ilut, Roberto Motto, and Massimo Rostagno Asset markets have been volatile Should monetary policy react to the volatility?
More informationRisk Shocks and Economic Fluctuations. Summary of work by Christiano, Motto and Rostagno
Risk Shocks and Economic Fluctuations Summary of work by Christiano, Motto and Rostagno Outline Simple summary of standard New Keynesian DSGE model (CEE, JPE 2005 model). Modifications to introduce CSV
More informationRisk Shocks. Lawrence Christiano (Northwestern University), Roberto Motto (ECB) and Massimo Rostagno (ECB)
Risk Shocks Lawrence Christiano (Northwestern University), Roberto Motto (ECB) and Massimo Rostagno (ECB) Finding Countercyclical fluctuations in the cross sectional variance of a technology shock, when
More informationOn the new Keynesian model
Department of Economics University of Bern April 7, 26 The new Keynesian model is [... ] the closest thing there is to a standard specification... (McCallum). But it has many important limitations. It
More informationTFP Decline and Japanese Unemployment in the 1990s
TFP Decline and Japanese Unemployment in the 1990s Julen Esteban-Pretel Ryo Nakajima Ryuichi Tanaka GRIPS Tokyo, June 27, 2008 Japan in the 1990s The performance of the Japanese economy in the 1990s was
More informationDiscussion of: Financial Factors in Economic Fluctuations by Christiano, Motto, and Rostagno
Discussion of: Financial Factors in Economic Fluctuations by Christiano, Motto, and Rostagno Guido Lorenzoni Bank of Canada-Minneapolis FED Conference, October 2008 This paper Rich DSGE model with: financial
More informationUnderstanding the Great Recession
Understanding the Great Recession Lawrence Christiano Martin Eichenbaum Mathias Trabandt Ortigia 13-14 June 214. Background Background GDP appears to have suffered a permanent (1%?) fall since 28. Background
More informationLeverage Restrictions in a Business Cycle Model
Leverage Restrictions in a Business Cycle Model Lawrence J. Christiano Daisuke Ikeda Disclaimer: The views expressed are those of the authors and do not necessarily reflect those of the Bank of Japan.
More informationShocks, Structures or Monetary Policies? The Euro Area and US After 2001
Shocks, Structures or Monetary Policies? The Euro Area and US After 2001 Lawrence Christiano, Roberto Motto, and Massimo Rostagno April 23, 2007 Abstract We describe a model we have estimated using US
More informationThe Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting
RIETI Discussion Paper Series 9-E-3 The Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting INABA Masaru The Canon Institute for Global Studies NUTAHARA Kengo Senshu
More informationOn the Merits of Conventional vs Unconventional Fiscal Policy
On the Merits of Conventional vs Unconventional Fiscal Policy Matthieu Lemoine and Jesper Lindé Banque de France and Sveriges Riksbank The views expressed in this paper do not necessarily reflect those
More informationRisky Mortgages in a DSGE Model
1 / 29 Risky Mortgages in a DSGE Model Chiara Forlati 1 Luisa Lambertini 1 1 École Polytechnique Fédérale de Lausanne CMSG November 6, 21 2 / 29 Motivation The global financial crisis started with an increase
More informationLecture 4. Extensions to the Open Economy. and. Emerging Market Crises
Lecture 4 Extensions to the Open Economy and Emerging Market Crises Mark Gertler NYU June 2009 0 Objectives Develop micro-founded open-economy quantitative macro model with real/financial interactions
More informationHousehold income risk, nominal frictions, and incomplete markets 1
Household income risk, nominal frictions, and incomplete markets 1 2013 North American Summer Meeting Ralph Lütticke 13.06.2013 1 Joint-work with Christian Bayer, Lien Pham, and Volker Tjaden 1 / 30 Research
More informationNot All Oil Price Shocks Are Alike: A Neoclassical Perspective
Not All Oil Price Shocks Are Alike: A Neoclassical Perspective Vipin Arora Pedro Gomis-Porqueras Junsang Lee U.S. EIA Deakin Univ. SKKU December 16, 2013 GRIPS Junsang Lee (SKKU) Oil Price Dynamics in
More informationLeverage Restrictions in a Business Cycle Model. Lawrence J. Christiano Daisuke Ikeda
Leverage Restrictions in a Business Cycle Model Lawrence J. Christiano Daisuke Ikeda Background Increasing interest in the following sorts of questions: What restrictions should be placed on bank leverage?
More informationHabit Formation in State-Dependent Pricing Models: Implications for the Dynamics of Output and Prices
Habit Formation in State-Dependent Pricing Models: Implications for the Dynamics of Output and Prices Phuong V. Ngo,a a Department of Economics, Cleveland State University, 22 Euclid Avenue, Cleveland,
More informationLeverage Restrictions in a Business Cycle Model
Leverage Restrictions in a Business Cycle Model Lawrence J. Christiano Daisuke Ikeda SAIF, December 2014. Background Increasing interest in the following sorts of questions: What restrictions should be
More informationThe Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting
MPRA Munich Personal RePEc Archive The Role of Investment Wedges in the Carlstrom-Fuerst Economy and Business Cycle Accounting Masaru Inaba and Kengo Nutahara Research Institute of Economy, Trade, and
More informationBank Capital, Agency Costs, and Monetary Policy. Césaire Meh Kevin Moran Department of Monetary and Financial Analysis Bank of Canada
Bank Capital, Agency Costs, and Monetary Policy Césaire Meh Kevin Moran Department of Monetary and Financial Analysis Bank of Canada Motivation A large literature quantitatively studies the role of financial
More informationBank Leverage Regulation and Macroeconomic Dynamics
Bank Leverage Regulation and Macroeconomic Dynamics Ian Christensen Bank of Canada Césaire Meh Bank of Canada February 15, 21 Kevin Moran Université Laval PRELIMINARY AND INCOMPLETE Abstract Regulatory
More informationAnalysis of DSGE Models. Lawrence Christiano
Specification, Estimation and Analysis of DSGE Models Lawrence Christiano Overview A consensus model has emerged as a device for forecasting, analysis, and as a platform for additional analysis of financial
More informationMacroeconomics 2. Lecture 5 - Money February. Sciences Po
Macroeconomics 2 Lecture 5 - Money Zsófia L. Bárány Sciences Po 2014 February A brief history of money in macro 1. 1. Hume: money has a wealth effect more money increase in aggregate demand Y 2. Friedman
More information... Monetary Policy and a Stock Market Boom-Bust Cycle. Lawrence Christiano, Roberto Motto, Massimo Rostagno
... Monetary Policy and a Stock Market Boom-Bust Cycle Lawrence Christiano, Roberto Motto, Massimo Rostagno ... Stock Market Boom-Bust Cycle: Episode in Which: Stock Prices, Consumption, Investment, Employment,
More informationFinancial intermediaries in an estimated DSGE model for the UK
Financial intermediaries in an estimated DSGE model for the UK Stefania Villa a Jing Yang b a Birkbeck College b Bank of England Cambridge Conference - New Instruments of Monetary Policy: The Challenges
More informationNotes on Financial Frictions Under Asymmetric Information and Costly State Verification. Lawrence Christiano
Notes on Financial Frictions Under Asymmetric Information and Costly State Verification by Lawrence Christiano Incorporating Financial Frictions into a Business Cycle Model General idea: Standard model
More informationThe Liquidity Effect in Bank-Based and Market-Based Financial Systems. Johann Scharler *) Working Paper No October 2007
DEPARTMENT OF ECONOMICS JOHANNES KEPLER UNIVERSITY OF LINZ The Liquidity Effect in Bank-Based and Market-Based Financial Systems by Johann Scharler *) Working Paper No. 0718 October 2007 Johannes Kepler
More informationUnconventional Monetary Policy
Unconventional Monetary Policy Mark Gertler (based on joint work with Peter Karadi) NYU October 29 Old Macro Analyzes pre versus post 1984:Q4. 1 New Macro Analyzes pre versus post August 27 Post August
More informationBooms and Banking Crises
Booms and Banking Crises F. Boissay, F. Collard and F. Smets Macro Financial Modeling Conference Boston, 12 October 2013 MFM October 2013 Conference 1 / Disclaimer The views expressed in this presentation
More informationThe Zero Lower Bound
The Zero Lower Bound Eric Sims University of Notre Dame Spring 4 Introduction In the standard New Keynesian model, monetary policy is often described by an interest rate rule (e.g. a Taylor rule) that
More informationCredit Frictions and Optimal Monetary Policy. Vasco Curdia (FRB New York) Michael Woodford (Columbia University)
MACRO-LINKAGES, OIL PRICES AND DEFLATION WORKSHOP JANUARY 6 9, 2009 Credit Frictions and Optimal Monetary Policy Vasco Curdia (FRB New York) Michael Woodford (Columbia University) Credit Frictions and
More informationState-Dependent Pricing and the Paradox of Flexibility
State-Dependent Pricing and the Paradox of Flexibility Luca Dedola and Anton Nakov ECB and CEPR May 24 Dedola and Nakov (ECB and CEPR) SDP and the Paradox of Flexibility 5/4 / 28 Policy rates in major
More informationExamining the Bond Premium Puzzle in a DSGE Model
Examining the Bond Premium Puzzle in a DSGE Model Glenn D. Rudebusch Eric T. Swanson Economic Research Federal Reserve Bank of San Francisco John Taylor s Contributions to Monetary Theory and Policy Federal
More informationBank Capital Requirements: A Quantitative Analysis
Bank Capital Requirements: A Quantitative Analysis Thiên T. Nguyễn Introduction Motivation Motivation Key regulatory reform: Bank capital requirements 1 Introduction Motivation Motivation Key regulatory
More informationMacroeconomics 2. Lecture 6 - New Keynesian Business Cycles March. Sciences Po
Macroeconomics 2 Lecture 6 - New Keynesian Business Cycles 2. Zsófia L. Bárány Sciences Po 2014 March Main idea: introduce nominal rigidities Why? in classical monetary models the price level ensures money
More informationMonetary Economics. Financial Markets and the Business Cycle: The Bernanke and Gertler Model. Nicola Viegi. September 2010
Monetary Economics Financial Markets and the Business Cycle: The Bernanke and Gertler Model Nicola Viegi September 2010 Monetary Economics () Lecture 7 September 2010 1 / 35 Introduction Conventional Model
More informationMoney, Sticky Wages, and the Great Depression
Money, Sticky Wages, and the Great Depression American Economic Review, 2000 Michael D. Bordo 1 Christopher J. Erceg 2 Charles L. Evans 3 1. Rutgers University, Department of Economics 2. Federal Reserve
More informationState Dependency of Monetary Policy: The Refinancing Channel
State Dependency of Monetary Policy: The Refinancing Channel Martin Eichenbaum, Sergio Rebelo, and Arlene Wong May 2018 Motivation In the US, bulk of household borrowing is in fixed rate mortgages with
More informationCredit Crises, Precautionary Savings and the Liquidity Trap October (R&R Quarterly 31, 2016Journal 1 / of19
Credit Crises, Precautionary Savings and the Liquidity Trap (R&R Quarterly Journal of nomics) October 31, 2016 Credit Crises, Precautionary Savings and the Liquidity Trap October (R&R Quarterly 31, 2016Journal
More informationA Macroeconomic Model with Financial Panics
A Macroeconomic Model with Financial Panics Mark Gertler, Nobuhiro Kiyotaki, Andrea Prestipino NYU, Princeton, Federal Reserve Board 1 September 218 1 The views expressed in this paper are those of the
More informationInterbank Market Turmoils and the Macroeconomy 1
Interbank Market Turmoils and the Macroeconomy 1 Paweł Kopiec Narodowy Bank Polski 1 The views presented in this paper are those of the author, and should not be attributed to Narodowy Bank Polski. Intro
More informationFiscal Consolidation in a Currency Union: Spending Cuts Vs. Tax Hikes
Fiscal Consolidation in a Currency Union: Spending Cuts Vs. Tax Hikes Christopher J. Erceg and Jesper Lindé Federal Reserve Board October, 2012 Erceg and Lindé (Federal Reserve Board) Fiscal Consolidations
More informationFiscal Consolidations in Currency Unions: Spending Cuts Vs. Tax Hikes
Fiscal Consolidations in Currency Unions: Spending Cuts Vs. Tax Hikes Christopher J. Erceg and Jesper Lindé Federal Reserve Board June, 2011 Erceg and Lindé (Federal Reserve Board) Fiscal Consolidations
More informationTechnology shocks and Monetary Policy: Assessing the Fed s performance
Technology shocks and Monetary Policy: Assessing the Fed s performance (J.Gali et al., JME 2003) Miguel Angel Alcobendas, Laura Desplans, Dong Hee Joe March 5, 2010 M.A.Alcobendas, L. Desplans, D.H.Joe
More informationA Macroeconomic Model with Financial Panics
A Macroeconomic Model with Financial Panics Mark Gertler, Nobuhiro Kiyotaki, Andrea Prestipino NYU, Princeton, Federal Reserve Board 1 March 218 1 The views expressed in this paper are those of the authors
More informationForeign Competition and Banking Industry Dynamics: An Application to Mexico
Foreign Competition and Banking Industry Dynamics: An Application to Mexico Dean Corbae Pablo D Erasmo 1 Univ. of Wisconsin FRB Philadelphia June 12, 2014 1 The views expressed here do not necessarily
More informationInflation Dynamics During the Financial Crisis
Inflation Dynamics During the Financial Crisis S. Gilchrist 1 1 Boston University and NBER MFM Summer Camp June 12, 2016 DISCLAIMER: The views expressed are solely the responsibility of the authors and
More informationInflation Dynamics During the Financial Crisis
Inflation Dynamics During the Financial Crisis S. Gilchrist 1 R. Schoenle 2 J. W. Sim 3 E. Zakrajšek 3 1 Boston University and NBER 2 Brandeis University 3 Federal Reserve Board Theory and Methods in Macroeconomics
More informationRemarks on Unconventional Monetary Policy
Remarks on Unconventional Monetary Policy Lawrence Christiano Northwestern University To be useful in discussions about the rationale and effectiveness of unconventional monetary policy, models of monetary
More informationLeverage Restrictions in a Business Cycle Model. March 13-14, 2015, Macro Financial Modeling, NYU Stern.
Leverage Restrictions in a Business Cycle Model Lawrence J. Christiano Daisuke Ikeda Northwestern University Bank of Japan March 13-14, 2015, Macro Financial Modeling, NYU Stern. Background Wish to address
More informationAsset Prices, Collateral and Unconventional Monetary Policy in a DSGE model
Asset Prices, Collateral and Unconventional Monetary Policy in a DSGE model Bundesbank and Goethe-University Frankfurt Department of Money and Macroeconomics January 24th, 212 Bank of England Motivation
More informationLabor market search, sticky prices, and interest rate policies
Review of Economic Dynamics 8 (2005) 829 849 www.elsevier.com/locate/red Labor market search, sticky prices, and interest rate policies Carl E. Walsh Department of Economics, University of California,
More informationLecture Notes. Petrosky-Nadeau, Zhang, and Kuehn (2015, Endogenous Disasters) Lu Zhang 1. BUSFIN 8210 The Ohio State University
Lecture Notes Petrosky-Nadeau, Zhang, and Kuehn (2015, Endogenous Disasters) Lu Zhang 1 1 The Ohio State University BUSFIN 8210 The Ohio State University Insight The textbook Diamond-Mortensen-Pissarides
More informationFiscal Multipliers in Recessions
Fiscal Multipliers in Recessions Matthew Canzoneri Fabrice Collard Harris Dellas Behzad Diba March 10, 2015 Matthew Canzoneri Fabrice Collard Harris Dellas Fiscal Behzad Multipliers Diba (University in
More informationThe Zero Bound and Fiscal Policy
The Zero Bound and Fiscal Policy Based on work by: Eggertsson and Woodford, 2003, The Zero Interest Rate Bound and Optimal Monetary Policy, Brookings Panel on Economic Activity. Christiano, Eichenbaum,
More informationOptimality of Inflation and Nominal Output Targeting
Optimality of Inflation and Nominal Output Targeting Julio Garín Department of Economics University of Georgia Robert Lester Department of Economics University of Notre Dame First Draft: January 7, 15
More informationUsing VARs to Estimate a DSGE Model. Lawrence Christiano
Using VARs to Estimate a DSGE Model Lawrence Christiano Objectives Describe and motivate key features of standard monetary DSGE models. Estimate a DSGE model using VAR impulse responses reported in Eichenbaum
More informationDSGE Models with Financial Frictions
DSGE Models with Financial Frictions Simon Gilchrist 1 1 Boston University and NBER September 2014 Overview OLG Model New Keynesian Model with Capital New Keynesian Model with Financial Accelerator Introduction
More informationHeterogeneous Firm, Financial Market Integration and International Risk Sharing
Heterogeneous Firm, Financial Market Integration and International Risk Sharing Ming-Jen Chang, Shikuan Chen and Yen-Chen Wu National DongHwa University Thursday 22 nd November 2018 Department of Economics,
More informationAsset Price Bubbles and Monetary Policy in a Small Open Economy
Asset Price Bubbles and Monetary Policy in a Small Open Economy Martha López Central Bank of Colombia Sixth BIS CCA Research Conference 13 April 2015 López (Central Bank of Colombia) (Central A. P. Bubbles
More informationThe Impact of Model Periodicity on Inflation Persistence in Sticky Price and Sticky Information Models
The Impact of Model Periodicity on Inflation Persistence in Sticky Price and Sticky Information Models By Mohamed Safouane Ben Aïssa CEDERS & GREQAM, Université de la Méditerranée & Université Paris X-anterre
More informationMacroeconomic Models. with Financial Frictions
Macroeconomic Models with Financial Frictions Jesús Fernández-Villaverde University of Pennsylvania May 31, 2010 Jesús Fernández-Villaverde (PENN) Macro-Finance May 31, 2010 1 / 69 Motivation I Traditional
More informationWas The New Deal Contractionary? Appendix C:Proofs of Propositions (not intended for publication)
Was The New Deal Contractionary? Gauti B. Eggertsson Web Appendix VIII. Appendix C:Proofs of Propositions (not intended for publication) ProofofProposition3:The social planner s problem at date is X min
More informationState-Dependent Fiscal Multipliers: Calvo vs. Rotemberg *
State-Dependent Fiscal Multipliers: Calvo vs. Rotemberg * Eric Sims University of Notre Dame & NBER Jonathan Wolff Miami University May 31, 2017 Abstract This paper studies the properties of the fiscal
More information1 Explaining Labor Market Volatility
Christiano Economics 416 Advanced Macroeconomics Take home midterm exam. 1 Explaining Labor Market Volatility The purpose of this question is to explore a labor market puzzle that has bedeviled business
More informationMacroeconomic Effects of Financial Shocks: Comment
Macroeconomic Effects of Financial Shocks: Comment Johannes Pfeifer (University of Cologne) 1st Research Conference of the CEPR Network on Macroeconomic Modelling and Model Comparison (MMCN) June 2, 217
More informationGraduate Macro Theory II: The Basics of Financial Constraints
Graduate Macro Theory II: The Basics of Financial Constraints Eric Sims University of Notre Dame Spring Introduction The recent Great Recession has highlighted the potential importance of financial market
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Preliminary Examination: Macroeconomics Fall, 2009
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Preliminary Examination: Macroeconomics Fall, 2009 Instructions: Read the questions carefully and make sure to show your work. You
More informationProbably Too Little, Certainly Too Late. An Assessment of the Juncker Investment Plan
Probably Too Little, Certainly Too Late. An Assessment of the Juncker Investment Plan Mathilde Le Moigne 1 Francesco Saraceno 2,3 Sébastien Villemot 2 1 École Normale Supérieure 2 OFCE Sciences Po 3 LUISS-SEP
More informationDual Wage Rigidities: Theory and Some Evidence
MPRA Munich Personal RePEc Archive Dual Wage Rigidities: Theory and Some Evidence Insu Kim University of California, Riverside October 29 Online at http://mpra.ub.uni-muenchen.de/18345/ MPRA Paper No.
More informationFiscal Multipliers in Recessions. M. Canzoneri, F. Collard, H. Dellas and B. Diba
1 / 52 Fiscal Multipliers in Recessions M. Canzoneri, F. Collard, H. Dellas and B. Diba 2 / 52 Policy Practice Motivation Standard policy practice: Fiscal expansions during recessions as a means of stimulating
More informationFinancial Amplification, Regulation and Long-term Lending
Financial Amplification, Regulation and Long-term Lending Michael Reiter 1 Leopold Zessner 2 1 Instiute for Advances Studies, Vienna 2 Vienna Graduate School of Economics Barcelona GSE Summer Forum ADEMU,
More informationAnatomy of a Credit Crunch: from Capital to Labor Markets
Anatomy of a Credit Crunch: from Capital to Labor Markets Francisco Buera 1 Roberto Fattal Jaef 2 Yongseok Shin 3 1 Federal Reserve Bank of Chicago and UCLA 2 World Bank 3 Wash U St. Louis & St. Louis
More informationBernanke and Gertler [1989]
Bernanke and Gertler [1989] Econ 235, Spring 2013 1 Background: Townsend [1979] An entrepreneur requires x to produce output y f with Ey > x but does not have money, so he needs a lender Once y is realized,
More informationWhen Does a Central Bank s Balance Sheet Require Fiscal Support?
When Does a Central Bank s Balance Sheet Require Fiscal Support? Marco Del Negro Federal Reserve Bank of New York Christopher A. Sims Princeton University ECB Public Finance Conference, December 214 Disclaimer:
More informationConsumption and House Prices in the Great Recession: Model Meets Evidence
Consumption and House Prices in the Great Recession: Model Meets Evidence Greg Kaplan Kurt Mitman Gianluca Violante MFM 9-10 March, 2017 Outline 1. Overview 2. Model 3. Questions Q1: What shock(s) drove
More informationInflation in the Great Recession and New Keynesian Models
Inflation in the Great Recession and New Keynesian Models Marco Del Negro, Marc Giannoni Federal Reserve Bank of New York Frank Schorfheide University of Pennsylvania BU / FRB of Boston Conference on Macro-Finance
More informationIntroduction Model Results Conclusion Discussion. The Value Premium. Zhang, JF 2005 Presented by: Rustom Irani, NYU Stern.
, JF 2005 Presented by: Rustom Irani, NYU Stern November 13, 2009 Outline 1 Motivation Production-Based Asset Pricing Framework 2 Assumptions Firm s Problem Equilibrium 3 Main Findings Mechanism Testable
More informationOptimal Monetary Policy in a Sudden Stop
... Optimal Monetary Policy in a Sudden Stop with Jorge Roldos (IMF) and Fabio Braggion (Northwestern, Tilburg) 1 Modeling Issues/Tools Small, Open Economy Model Interaction Between Asset Markets and Monetary
More informationPreference Shocks, Liquidity Shocks, and Price Dynamics
Preference Shocks, Liquidity Shocks, and Price Dynamics Nao Sudo 21st April 21 at GRIPS () 21st April 21 at GRIPS 1 / 47 Directions Motivation Literature Model Extracting Shocks (BOJ) 21st April 21 at
More informationUnemployment Fluctuations and Nominal GDP Targeting
Unemployment Fluctuations and Nominal GDP Targeting Roberto M. Billi Sveriges Riksbank 3 January 219 Abstract I evaluate the welfare performance of a target for the level of nominal GDP in the context
More informationOptimal monetary policy when asset markets are incomplete
Optimal monetary policy when asset markets are incomplete R. Anton Braun Tomoyuki Nakajima 2 University of Tokyo, and CREI 2 Kyoto University, and RIETI December 9, 28 Outline Introduction 2 Model Individuals
More informationInternational Debt Deleveraging
International Debt Deleveraging Luca Fornaro London School of Economics ECB-Bank of Canada joint workshop on Exchange Rates Frankfurt, June 213 1 Motivating facts: Household debt/gdp Household debt/gdp
More informationInterest-rate pegs and central bank asset purchases: Perfect foresight and the reversal puzzle
Interest-rate pegs and central bank asset purchases: Perfect foresight and the reversal puzzle Rafael Gerke Sebastian Giesen Daniel Kienzler Jörn Tenhofen Deutsche Bundesbank Swiss National Bank The views
More informationThe Great Depression in the United States From A Neoclassical Perspective
Federal Reserve Bank of Minneapolis Quarterly Review Winter 1999, vol. 23, no. 1, pp. 2 24 The Great Depression in the United States From A Neoclassical Perspective Harold L. Cole Senior Economist Research
More informationMicrofoundations of DSGE Models: III Lecture
Microfoundations of DSGE Models: III Lecture Barbara Annicchiarico BBLM del Dipartimento del Tesoro 2 Giugno 2. Annicchiarico (Università di Tor Vergata) (Institute) Microfoundations of DSGE Models 2 Giugno
More informationThe Risky Steady State and the Interest Rate Lower Bound
The Risky Steady State and the Interest Rate Lower Bound Timothy Hills Taisuke Nakata Sebastian Schmidt New York University Federal Reserve Board European Central Bank 1 September 2016 1 The views expressed
More informationReforms in a Debt Overhang
Structural Javier Andrés, Óscar Arce and Carlos Thomas 3 National Bank of Belgium, June 8 4 Universidad de Valencia, Banco de España Banco de España 3 Banco de España National Bank of Belgium, June 8 4
More informationCredit Frictions and Optimal Monetary Policy
Credit Frictions and Optimal Monetary Policy Vasco Cúrdia FRB New York Michael Woodford Columbia University Conference on Monetary Policy and Financial Frictions Cúrdia and Woodford () Credit Frictions
More informationLecture 23 The New Keynesian Model Labor Flows and Unemployment. Noah Williams
Lecture 23 The New Keynesian Model Labor Flows and Unemployment Noah Williams University of Wisconsin - Madison Economics 312/702 Basic New Keynesian Model of Transmission Can be derived from primitives:
More informationMonetary Policy and the Great Recession
Monetary Policy and the Great Recession Author: Brent Bundick Persistent link: http://hdl.handle.net/2345/379 This work is posted on escholarship@bc, Boston College University Libraries. Boston College
More informationOptimal Monetary Policy Rules and House Prices: The Role of Financial Frictions
Optimal Monetary Policy Rules and House Prices: The Role of Financial Frictions A. Notarpietro S. Siviero Banca d Italia 1 Housing, Stability and the Macroeconomy: International Perspectives Dallas Fed
More information