Spillovers, Capital Flows and Prudential Regulation in Small Open Economies
|
|
- Shanon Sutton
- 6 years ago
- Views:
Transcription
1 Spillovers, Capital Flows and Prudential Regulation in Small Open Economies Paul Castillo, César Carrera, Marco Ortiz & Hugo Vega Presented by: Hugo Vega BIS CCA Research Network Conference Incorporating financial stability considerations into central bank policy models The opinions expressed in this paper are not necessarily shared by the institutions with which we are currently affiliated. Hugo Vega October 29th 213 1/42
2 Contents Motivation Literature The Model Workers Tradable Good Producers Non-Tradable Good Producers Results Policy Conclusions Hugo Vega October 29th 213 2/42
3 Motivation Some stylized facts we attempt to replicate: Strong capital inflows in Latin-American region. Rapid output growth in both tradable and non-tradable sectors. Increase in indebtedness, asset prices booms, real appreciation, and current account deficit. Active policy response using macroprudential instruments. Hugo Vega October 29th 213 3/42
4 Current8account8balance , USG Housing8Prices USG81857 S/ S/ III. 98 III. 99 III. III. 1 III. 2 III. 3 III. 4 III. 5 III. 6 III. 7 III. 8 III. 9 III. 1 III. 11 III. 12 III USN Constant.domestic.currency 15Y 1Y 5Y Output8Growth 12Y 115Y 11Y 15Y Multilateral8RER8Index Index.29.=.1 12Y 115Y 11Y 15Y Y g5y Y 95Y 1Y 95Y Tradable Nongtradable 9Y 85Y September 213:.92h56 MoM. Change: gh36 YoY.Change:.2h39 9Y 85Y 8Y 8Y Jang3 Julg3 Jang4 Julg4 Jang5 Julg5 Jang6 Julg6 Jang7 Julg7 Jang8 Julg8 Jang9 Julg9 Jang1 Julg1 Jang11 Julg11 Jang12 Julg12 Jang13 Julg13 Figure: Peru - Key Macroeconomic Variables
5 Literature Kiyotaki and Moore (1997): credit limits and asset prices. Role of financial development in the amplification of capital flow externalities (Aghion et al. (24), Aoki et al. (29)). Caballero and Krishnamurthy (21) study the interaction between domestic and foreign lending during periods of sudden stops, using collateral assumptions similar to ours. Paasche (21): Two credit constrained SOEs who borrow and export commodities to a third large one. A negative productivity shock in one SOE generates an adverse terms of trade shock on the other, which is amplified. Sudden stop episodes associated with higher borrowing (Mendoza (22), Jeanne and Korinek (21), Bianchi (211)). Hugo Vega October 29th 213 5/42
6 What we do We build a stylized two sector real business cycle model incorporating borrowing constraints that generates the co-movements pointed out in the data, emphasizing spill over effects from the tradable to the non-tradable sector. We propose a countercyclical LTV rule that manages to reduce output volatility in this economy, generating redistributive welfare effects. Hugo Vega October 29th 213 6/42
7 Some intuition 1. Borrowing constraints generate a link between entrepreneurs credit limits and the price of assets used as collateral. 2. This link is responsible for the co-movement between sectors in response to a productivity shock to the tradable sector. 3. When tradable productivity increases, factor demand pushes asset prices up, expanding the borrowing capacity of entrepreneurs in both sectors. 4. This yields output co-movement and increased borrowing in the non-tradable sector. Hugo Vega October 29th 213 7/42
8 The Model 1. Extension of the model of Aoki et al. (29) considering a 2 sector SOE in which entrepreneurs require collateral to borrow as in Iacoviello (25). 2. Real DSGE model without money or price rigidity. 3. Three agents: Workers (W ) and entrepreneurs/producers of tradable (T ) and non-tradable (NT ) goods. Hugo Vega October 29th 213 8/42
9 The Model (II) 4. Besides the markets for tradable and non-tradable goods, the model incorporates markets for labour, capital, housing and credit. 5. The credit market is segmented by collateral asset and production sector. 6. The tradable sector uses capital (k) as collateral to obtain foreign lending while the non-tradable sector uses housing (h) as collateral to borrow from domestic agents (the workers). 7. We assume a fixed aggregate supply for both capital and housing assets. Hugo Vega October 29th 213 9/42
10 Wages Labour supply Non-tradable goods supply (HH) Debt service (NT) Non-tradable entrepreneurs Final goods imports (NT) Intermediate goods imports (NT) Workers Credit (NT) Net housing demand (HH) Housing market Net housing demand(nt) T goods supply (NT) Net housing demand(t) NT goods supply (T) Net capital demand(t) Net capital demand(nt) Capital market Tradable goods supply (HH) Wages Labour supply Tradable entrepreneurs Final goods imports (T) Intermediate goods imports (T) Final goods imports (HH) Final goods exports Credit (T) Debt service (T) Foreign economy Figure: The Model
11 Workers Are the patient agents in the domestic economy. Lend to entrepreneurs producing non-tradable goods (b NT s ) charging the domestic interest rate (R s ). Consume a basket (C w,s ) of tradable (c T w,s) and non-tradable (c NT w,s ) goods; use housing services (h W s ) and supply labour (l s ). Worker Equations Hugo Vega October 29th /42
12 Tradable Good Producers/Entrepreneurs Consume the same basket of goods (C t,s ) as workers. Combine housing services (h T s ), capital (ks T ), labour (ls T ) and imported inputs (m T s ) to produce (ys+1 T ). Given the lag in production, entrepreneurs need working capital loans (b T s ). These are subject to borrowing constraints: R sb T s ] θs T E s [qs+1 k ks T where qs k is the price of capital, Rs is the foreign interest rate and θs T is the fraction of capital value accepted as collateral. Tradable Entrepreneur Equations Hugo Vega October 29th /42
13 Non-Tradable Good Producers/Entrepreneurs Consume the same basket of goods (C nt,s ) as workers. Use the same inputs (h NT s, ks NT producers to manufacture (y NT s+1 )., l NT s, m NT s ) as tradable good They are also subject to borrowing constraints in the domestic credit market that only admits housing as collateral. R s P W s b NT s ] θs NT E s [qs+1 h h NT s Producers of non-tradable goods sell at relative price p NT s which is expressed in units of tradable goods. Non-Tradable Entrepreneur Equations Hugo Vega October 29th /42
14 Results: A tradable productivity shock An increase in productivity in the tradable sector generates an expansion in the tradable and non-tradable sectors and boosts the price of both assets used as collateral. The positive wealth effect experienced by tradable entrepreneurs increases demand for non-tradable goods. This generates a real appreciation which leads to an expansion in the non-tradable sector. Given the increase in housing prices, the borrowing constraint of the non-tradable sector is relaxed. Non-tradable firms demand for housing decreases. Such a decrease is not big enough to outweigh the effect of higher housing prices on their borrowing. Hugo Vega October 29th /42
15 During the adjustment process, collateral assets are exchanged between the non-tradable and the tradable sector. Non-tradable firms use less housing and the excess is absorbed by tradable firms. The latter liberate capital which is acquired by their non-tradable counterparts. Workers experience a positive wealth effect because of higher wages. This stimulates savings, reducing the domestic interest rate. As a result, the borrowing constraints of non-tradable firms relax even further and housing becomes less attractive. Higher demand for imported inputs in both sectors explains the current account deficit that follows the shock. Hugo Vega October 29th /42
16 15 x 1 3 Agg. Output.2 Current Acc. 6 x 1 3 House prices x 1 3 Output (T) x 1 3 For. debt (T) 5 x 1 3 Capital prices x 1 3 Output (NT) x 1 3 Dom. debt (NT) 8 x 1 3 RER (p NT /p T ) Figure: Tradable Productivity Shock (γ =.98, R = 1.5, θ =.3) More shocks
17 The Role of Borrowing Constraints The next figure shows the dynamics of the model considering different values of θ. A larger θ implies less restrictive borrowing constraints on entrepreneurs. Consequently, when θ is relative large, the model does not generate spillover effects. On the contrary, output in the non-tradable sector falls instead of rising in response to a positive productivity shock in the tradable sector. Debt of non-tradable entrepreneurs falls instead of rising and both houses and capital prices are muted. Hugo Vega October 29th /42
18 The real appreciation is much smaller in this case, which also is consistent with a milder current account deficit. But, tradable (and aggregate) output response is not very different. The opposite is observed when θ is relative low: the real exchange rate appreciates substantially, and the current account deficit is much higher, output in the non-tradable sector expands, and the debt of the non-tradable sector increases. Asset prices also increase, amplifying the initial impact of productivity shocks. Hugo Vega October 29th /42
19 15 x 1 3 Agg. Output.3 Current Acc. 1 x 1 3 House prices x 1 3 Output (T) x 1 3 For. debt (T) 1 x 1 3 Capital prices x 1 3 Output (NT) x 1 3 Dom. debt (NT) 15 x 1 3 RER (p NT /p T ) 1 5 θ =.6 θ =.3 θ =.9 θ = Figure: Tradable Productivity Shock: The role of borrowing constraints
20 Policy The analysis of the role of borrowing constraints suggests a role for policy: minimize spillover effects. But the presence of borrowing constraints in our model is a structural one. The values for θ T and θ NT should be treated either as deep parameters or an endogenous response of agents to the frictions present in credit markets. For this reason, an authority that employs LTV ratios as a policy instrument faces an upper bound, as it is not possible to force lenders to accept less collateral than the one they privately deem adequate. We explore a (potentially) second best solution: time varying LTV rules in which the policy value of θ (θ int ) must be set below the private one (θ priv ). Hugo Vega October 29th 213 2/42
21 θ priv θ int τ + θ int time Figure: LTV Rules
22 Policy (II) We BANCO propose CENTRAL DE RESERVA a countercyclical DEL PERÚ rule that takes into account the position of the economy with respect to the business cycle. θ T,int s NT,int s θ T,int = θ θ NT,int = E s ( ) φθ Ys+1 where Y denotes aggregate output (value added) defined as and φ θ >. Y s = ( ys T p M s 1m T s 1 + p NT s ys NT p M s 1m NT s 1) /P W s Y Hugo Vega October 29th /42
23 Policy (III) An LTV rule targeting aggregate output does a good job dampening the spillover from the tradable to the non-tradable sector in the aftermath of a tradable productivity shock. Aggregate output is slightly affected, but there is a sizeable dampening on asset prices and the real exchange rate. Tighter LTV ratios imposed on the economy manage to curtail the expansion in debt in both sectors but the effect is bigger on non-tradable firms. Actually, borrowing taken by these firms diminishes, forcing non-tradable entrepreneurs to hold on to their houses. This reduces their demand for capital, explaining why tradable firms cannot exchange capital for housing. Hugo Vega October 29th /42
24 15 x 1 3 Agg. Output.2 Current Acc. 6 x 1 3 House prices x 1 3 Output (T) x 1 3 For. debt (T) 5 x 1 3 Capital prices x 1 3 Output (NT) x 1 3 Dom. debt (NT) 8 x 1 3 RER (p NT /p T ) Base LTV y Figure: Tradable Productivity Shock: Countercyclical LTV Rule
25 Welfare and Volatility In order to further analyse the impact of LTV rules, we solve the model using a second order approximation around the non-stochastic steady state. We find that the countercyclical rule reduces the volatility of output. Table We also investigate the second order effects on welfare. This measure is the difference between the mean welfare measure and its non-stochastic steady-state value. Results show that the introduction of a countercyclical LTV policy rule generates strong redistribution effects. Namely, its use produces welfare increases for a subset of agents in the economy, while the rest suffer a reversal. Hugo Vega October 29th /42
26 Welfare and Volatility (II) Which agents are favoured by the rule depends on the source of the shocks and how limiting the borrowing constraints are, captured by θ. For example, when all shocks are taken into account, imposing the countercyclical rule on an economy with low θ makes the entrepreneurs better off and the workers worse off. This outcome is reversed when θ is high. The intuition is that at low values of θ the entrepreneurs are very constrained and shocks generate high domestic interest rate fluctuations which disappear at high levels of θ. Table Hugo Vega October 29th /42
27 Conclusions 1. A productivity shock in the tradable sector generates an increase in both asset prices and borrowing. Those effects spillover to the non-tradable sector and generate a real appreciation. 2. The appreciation and the increase in housing prices further reinforces this mechanism by increasing the ability of non-tradable firms to borrow. 3. As a result, non-tradable sector borrowing increases and a current account deficit appears. Hugo Vega October 29th /42
28 Conclusions (II) 4. In the model, the response to a positive tradable productivity shock is similar to the response that an increase in commodity prices would generate for economies where tradable sector production is mostly commodities. Therefore, the model simulations can also be interpreted as showing a positive correlation between capital flows and terms of trade, a stylized fact observed in many commodity producer economies, such as Chile, Peru and Canada. 5. On the policy side, we show that countercyclical LTV rules can dampen the spillover effects of borrowing constraints. 6. We find that these LTV rules reduce the volatility of output and generate redistributive welfare effects. Hugo Vega October 29th /42
29 Spillovers, Capital Flows and Prudential Regulation in Small Open Economies Paul Castillo, César Carrera, Marco Ortiz & Hugo Vega Presented by: Hugo Vega BIS CCA Research Network Conference Incorporating financial stability considerations into central bank policy models The opinions expressed in this paper are not necessarily shared by the institutions with which we are currently affiliated. Hugo Vega October 29th /42
30 Worker Equations Consumption basket: C w,s [ (γ T ) 1 ε ( c T w,s ε + ( 1 γ T ) 1 ( ] ε ε c NT ) ε 1 ε 1 ε ) ε 1 w,s Price index: [ Ps W = γ T + ( 1 γ T ) ( p NT s ) 1 ε ] 1 1 ε Euler equation: [ ] 1 R s Ps W = βe s C w,s C w,s+1 Ps+1 W Hugo Vega October 29th 213 3/42
31 Workers Equations (II) Labour supply: Housing demand: w s P W s q h s E s [ q h s+1 R s = C w,s λ (l s ) η ] = j ( h W s ) φ P W s C w,s Back Hugo Vega October 29th /42
32 Factor Demands (Tradable Goods Production) ( )] qs h = γe s [Fs T qs+1 h + yt s+1 h T s BANCO CENTRAL DE RESERVA ( DEL PERÚ )] ( ) + 1 R γe sf T s s θs T [ ] E s q k s+1 qs k = γe s [Fs T qs+1 k + yt s+1 k T s ] w s = γe s [Fs T ys+1 T ls T ] p M s = γe s [Fs T ys+1 T m T s where p M s is the price of the imported input in tradable good units and: Back F T s C t,s C t,s+1 P W s P W s+1 Hugo Vega October 29th /42
33 Factor Demands (Non-Tradable Goods Production) ( qs h = γe s Fs NT qs+1 h + pnt s+1 ( qs k = γe s [Fs NT qs+1 k + pnt s+1 ( )] w s = γe s [Fs NT p NT ys+1 NT p M s = γe s [Fs NT where s+1 ( p NT s+1 l NT s y NT s+1 m NT s ys+1 NT h NT s ys+1 NT k NT s )] ) ( + 1 R γe s sfs NT )] ) θ NT s E s q h s+1 Back F NT s C nt,s C nt,s+1 P W s P W s+1 Hugo Vega October 29th /42
34 Table: Parameter calibration Preferences β =.99 γ =.98 λ = 1 η = 1 γ T =.3 ε =.5 j = 5 φ = 3 Technologies α =.3 χ =.2 κ =.2 ν =.3 κ =.2 ψ =.2 ρ A =.7 ρ ζ =.7 Collateral constraint θ T =.3 θ NT =.3 Open economy R = 1.5 p M =.8 Rules φ θ =.8 φ b = 5 Hugo Vega October 29th /42
35 Results: A non-tradable productivity shock Non-tradable output expands, coupled with a very mild increase in tradable output, a fall in asset prices and a short lived current account surplus consistent with a real depreciation. The key difference between the non-tradable productivity shock and the tradable productivity shock is that the price of tradable goods is fixed by arbitrage with the foreign sector while the price of non-tradable goods is determined domestically under perfect competition. Hugo Vega October 29th /42
36 Thus, the increase in productivity in the non-tradable sector is assimilated in the form of lower prices, generating a significant depreciation. As a result, asset and input prices are virtually unchanged and there is hardly any shift in factor allocation. The depreciation has the added benefit of relaxing the non-tradable sector s borrowing constraint. This is a balance-sheet effect: firms in the non-tradable sector contract debt in domestic (basket) units, therefore non-tradable debt in tradable good units expands. Hugo Vega October 29th /42
37 8 x 1 3 Agg. Output x 1 3 Current Acc x 1 4 House prices x 1 5 Output (T) 1 3 x 1 4 For. debt (T) 2.5 x 1 4 Capital prices x 1 3 Output (NT) 8 x 1 3 Dom. debt (NT) RER (p NT /p T ) Figure: Non-Tradable Productivity Shock
38 Results: A foreign interest rate shock A higher foreign interest rate tightens the borrowing constraint of tradable firms, forcing a fall in tradable output. Lower input demand by tradable firms leads to a fall in the prices of houses and labour. The negative wealth effect on tradable entrepreneurs reduces demand for non-tradable goods, triggering a real depreciation. Output in the non-tradable sector falls as well, reducing demand for capital and labour further. The decline in wages prompts workers to borrow, pushing the domestic interest rate up, and discouraging borrowing by non-tradable firms. Hugo Vega October 29th /42
39 Given tighter borrowing constraints, housing is reallocated from the tradable to the non-tradable sector, and capital is reallocated from the non-tradable to the tradable sector, allowing the later to borrow more. The contraction in foreign debt and the depreciation that occurs when the shock hits is consistent with a current account surplus. This shock is basically the opposite of the tradable productivity shock. Thus, a fall in the foreign interest rate that generates capital inflows into this SOE would produce: higher asset prices, current account deficit, real depreciation and a boom in the non-tradable sector coupled with higher debt. Hugo Vega October 29th /42
40 2 x 1 3 Agg. Output.2 Current Acc. House prices x 1 3 Output (T) 4 x 1 3 For. debt (T) Capital prices x 1 3 Output (NT).1 Dom. debt (NT).1 RER (p NT /p T ) Figure: Foreign Interest Rate Shock Back
41 Table: Coefficient of variability θ =.3 θ =.6 θ =.9 V ariable φ θ = φ θ =.8 φ θ = φ θ =.8 φ θ = φ θ =.8 All shocks BANCO CENTRAL YDE RESERVA 2.88 DEL PERÚ Y NT Y T T radable productivity shock Y Y NT Y T Non tradable productivity shock Y Y NT Y T F oreign interest rate shock Y Y NT Y T Back Hugo Vega October 29th /42
42 Table: Welfare θ =.3 θ =.6 θ =.9 V ariable φ θ = φ θ =.8 φ θ = φ θ =.8 φ θ = φ θ =.8 All shocks BANCO CENTRAL WDE w RESERVA DEL PERÚ W NT W T T radable productivity shock W w W NT W T Non tradable productivity shock W w W NT W T F oreign interest rate shock W w W NT W T Back Hugo Vega October 29th /42
Spillovers: The Role of Prudential Regulation and Monetary Policy in Small Open Economies
Spillovers: The Role of Prudential Regulation and Monetary Policy in Small Open Economies Paul Castillo, César Carrera, Marco Ortiz & Hugo Vega Presented by: Marco Ortiz Closing Conference of the BIS CCA
More informationMacroprudential Policies in a Low Interest-Rate Environment
Macroprudential Policies in a Low Interest-Rate Environment Margarita Rubio 1 Fang Yao 2 1 University of Nottingham 2 Reserve Bank of New Zealand. The views expressed in this paper do not necessarily reflect
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 informationConcerted Efforts? Monetary Policy and Macro-Prudential Tools
Concerted Efforts? Monetary Policy and Macro-Prudential Tools Andrea Ferrero Richard Harrison Benjamin Nelson University of Oxford Bank of England Rokos Capital 20 th Central Bank Macroeconomic Modeling
More informationDeflation, Credit Collapse and Great Depressions. Enrique G. Mendoza
Deflation, Credit Collapse and Great Depressions Enrique G. Mendoza Main points In economies where agents are highly leveraged, deflation amplifies the real effects of credit crunches Credit frictions
More informationManaging Capital Flows in the Presence of External Risks
Managing Capital Flows in the Presence of External Risks Ricardo Reyes-Heroles Federal Reserve Board Gabriel Tenorio The Boston Consulting Group IEA World Congress 2017 Mexico City, Mexico June 20, 2017
More informationCapital Flows, Financial Intermediation and Macroprudential Policies
Capital Flows, Financial Intermediation and Macroprudential Policies Matteo F. Ghilardi International Monetary Fund 14 th November 2014 14 th November Capital Flows, 2014 Financial 1 / 24 Inte Introduction
More informationCapital Controls and Optimal Chinese Monetary Policy 1
Capital Controls and Optimal Chinese Monetary Policy 1 Chun Chang a Zheng Liu b Mark Spiegel b a Shanghai Advanced Institute of Finance b Federal Reserve Bank of San Francisco International Monetary Fund
More informationHousehold Debt, Financial Intermediation, and Monetary Policy
Household Debt, Financial Intermediation, and Monetary Policy Shutao Cao 1 Yahong Zhang 2 1 Bank of Canada 2 Western University October 21, 2014 Motivation The US experience suggests that the collapse
More informationSudden Stops and Output Drops
Federal Reserve Bank of Minneapolis Research Department Staff Report 353 January 2005 Sudden Stops and Output Drops V. V. Chari University of Minnesota and Federal Reserve Bank of Minneapolis Patrick J.
More informationEstimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach
Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach Gianluca Benigno 1 Andrew Foerster 2 Christopher Otrok 3 Alessandro Rebucci 4 1 London School of Economics and
More informationOverborrowing, Financial Crises and Macro-prudential Policy. Macro Financial Modelling Meeting, Chicago May 2-3, 2013
Overborrowing, Financial Crises and Macro-prudential Policy Javier Bianchi University of Wisconsin & NBER Enrique G. Mendoza Universtiy of Pennsylvania & NBER Macro Financial Modelling Meeting, Chicago
More information2. Preceded (followed) by expansions (contractions) in domestic. 3. Capital, labor account for small fraction of output drop,
Mendoza (AER) Sudden Stop facts 1. Large, abrupt reversals in capital flows 2. Preceded (followed) by expansions (contractions) in domestic production, absorption, asset prices, credit & leverage 3. Capital,
More informationHousehold Leverage, Housing Markets, and Macroeconomic Fluctuations
Household Leverage, Housing Markets, and Macroeconomic Fluctuations Phuong V. Ngo a, a Department of Economics, Cleveland State University, 2121 Euclid Avenue, Cleveland, OH 4411 Abstract This paper examines
More informationThe International Transmission of Credit Bubbles: Theory and Policy
The International Transmission of Credit Bubbles: Theory and Policy Alberto Martin and Jaume Ventura CREI, UPF and Barcelona GSE March 14, 2015 Martin and Ventura (CREI, UPF and Barcelona GSE) BIS Research
More informationHousehold Leverage, Housing Markets, and Macroeconomic Fluctuations
Household Leverage, Housing Markets, and Macroeconomic Fluctuations Phuong V. Ngo a, a Department of Economics, Cleveland State University, 2121 Euclid Avenue, Cleveland, OH 4411 Abstract This paper examines
More informationSudden Stops and Output Drops
NEW PERSPECTIVES ON REPUTATION AND DEBT Sudden Stops and Output Drops By V. V. CHARI, PATRICK J. KEHOE, AND ELLEN R. MCGRATTAN* Discussants: Andrew Atkeson, University of California; Olivier Jeanne, International
More informationDSGE model with collateral constraint: estimation on Czech data
Proceedings of 3th International Conference Mathematical Methods in Economics DSGE model with collateral constraint: estimation on Czech data Introduction Miroslav Hloušek Abstract. Czech data shows positive
More informationCAPITAL FLOWS AND FINANCIAL FRAGILITY IN EMERGING ASIAN ECONOMIES: A DSGE APPROACH α. Nur M. Adhi Purwanto
CAPITAL FLOWS AND FINANCIAL FRAGILITY IN EMERGING ASIAN ECONOMIES: A DSGE APPROACH α Nur M. Adhi Purwanto Abstract The objective of this paper is to study the interaction of monetary, macroprudential and
More informationOptimal Credit Market Policy. CEF 2018, Milan
Optimal Credit Market Policy Matteo Iacoviello 1 Ricardo Nunes 2 Andrea Prestipino 1 1 Federal Reserve Board 2 University of Surrey CEF 218, Milan June 2, 218 Disclaimer: The views expressed are solely
More informationStructural Reforms in a Debt Overhang
in a Debt Overhang Javier Andrés, Óscar Arce and Carlos Thomas 3 9/5/5 - Birkbeck Center for Applied Macroeconomics Universidad de Valencia, Banco de España Banco de España 3 Banco de España 9/5/5 - Birkbeck
More informationPrecautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Mercantilism
Precautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Mercantilism Ceyhun Bora Durdu Enrique G. Mendoza Marco E. Terrones Board of Governors of the University of Maryland
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 informationIdentifying the exchange-rate balance sheet effect over firms
Identifying the exchange-rate balance sheet effect over firms CÉSAR CARRERA Banco Central de Reserva del Perú Abstract: This version: May 2014 I use firm-level data on investment and evaluate the balance
More informationAsset purchase policy at the effective lower bound for interest rates
at the effective lower bound for interest rates Bank of England 12 March 2010 Plan Introduction The model The policy problem Results Summary & conclusions Plan Introduction Motivation Aims and scope The
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 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 information1. Borrowing Constraints on Firms The Financial Accelerator
Part 7 1. Borrowing Constraints on Firms The Financial Accelerator The model presented is a modifed version of Jermann-Quadrini (27). Earlier papers: Kiyotaki and Moore (1997), Bernanke, Gertler and Gilchrist
More informationA Policy Model for Analyzing Macroprudential and Monetary Policies
A Policy Model for Analyzing Macroprudential and Monetary Policies Sami Alpanda Gino Cateau Cesaire Meh Bank of Canada November 2013 Alpanda, Cateau, Meh (Bank of Canada) ()Macroprudential - Monetary Policy
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 informationMacro-prudential Policies in a Commodity Exporting Economy
Macro-prudential Policies in a Commodity Exporting Economy Andrés González 1 Franz Hamann 2 Diego Rodríguez 2 1 Department of Economics Universidad de los Andes 2 Gerencia Técnica Banco de la República
More informationInterest rate policies, banking and the macro-economy
Interest rate policies, banking and the macro-economy Vincenzo Quadrini University of Southern California and CEPR November 10, 2017 VERY PRELIMINARY AND INCOMPLETE Abstract Low interest rates may stimulate
More informationOptimal Time-Consistent Macroprudential Policy
Optimal Time-Consistent Macroprudential Policy Javier Bianchi Minneapolis Fed & NBER Enrique G. Mendoza Univ. of Pennsylvania, NBER & PIER Why study macroprudential policy? MPP has gained relevance as
More informationQuantitative Significance of Collateral Constraints as an Amplification Mechanism
RIETI Discussion Paper Series 09-E-05 Quantitative Significance of Collateral Constraints as an Amplification Mechanism INABA Masaru The Canon Institute for Global Studies KOBAYASHI Keiichiro RIETI The
More informationTerms of Trade Shocks and Investment in Commodity-Exporting Economies 1
Terms of Trade Shocks and Investment in Commodity-Exporting Economies Jorge Fornero Markus Kirchner Andrés Yany Research Division Central Bank of Chile XXXII Economist Meeting of the Central Bank of Peru
More informationTaxing Firms Facing Financial Frictions
Taxing Firms Facing Financial Frictions Daniel Wills 1 Gustavo Camilo 2 1 Universidad de los Andes 2 Cornerstone November 11, 2017 NTA 2017 Conference Corporate income is often taxed at different sources
More informationConsumption Dynamics, Housing Collateral and Stabilisation Policy
Consumption Dynamics, Housing Collateral and Stabilisation Policy A Way Forward for Macro-Prudential Instruments? Effective Macroprudential Instruments - CFCM-MMF-MMPM Conference Jagjit S. Chadha University
More informationHouse Prices, Credit Growth, and Excess Volatility:
House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy Paolo Gelain Kevin J. Lansing 2 Caterina Mendicino 3 4th Annual IJCB Fall Conference New Frameworks
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 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 informationOverborrowing, Financial Crises and Macro-prudential Policy
Overborrowing, Financial Crises and Macro-prudential Policy Javier Bianchi University of Wisconsin Enrique G. Mendoza University of Maryland & NBER The case for macro-prudential policies Credit booms are
More informationOn the (in)effectiveness of LTV regulation in a multiconstraint framework
On the (in)effectiveness of LTV regulation in a multiconstraint framework Anna Grodecka February 8, 7 Abstract Models in the macro-housing literature often assume that borrowers are constrained exclusively
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 informationDiscussion of Gerali, Neri, Sessa, Signoretti. Credit and Banking in a DSGE Model
Discussion of Gerali, Neri, Sessa and Signoretti Credit and Banking in a DSGE Model Jesper Lindé Federal Reserve Board ty ECB, Frankfurt December 15, 2008 Summary of paper This interesting paper... Extends
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 informationThe Eurozone Debt Crisis: A New-Keynesian DSGE model with default risk
The Eurozone Debt Crisis: A New-Keynesian DSGE model with default risk Daniel Cohen 1,2 Mathilde Viennot 1 Sébastien Villemot 3 1 Paris School of Economics 2 CEPR 3 OFCE Sciences Po PANORisk workshop 7
More informationThe Role of the Net Worth of Banks in the Propagation of Shocks
The Role of the Net Worth of Banks in the Propagation of Shocks Preliminary Césaire Meh Department of Monetary and Financial Analysis Bank of Canada Kevin Moran Université Laval The Role of the Net Worth
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 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 informationNBER WORKING PAPER SERIES EXCESSIVE VOLATILITY IN CAPITAL FLOWS: A PIGOUVIAN TAXATION APPROACH. Olivier Jeanne Anton Korinek
NBER WORKING PAPER SERIES EXCESSIVE VOLATILITY IN CAPITAL FLOWS: A PIGOUVIAN TAXATION APPROACH Olivier Jeanne Anton Korinek Working Paper 5927 http://www.nber.org/papers/w5927 NATIONAL BUREAU OF ECONOMIC
More informationCredit Disruptions and the Spillover Effects between the Household and Business Sectors
Credit Disruptions and the Spillover Effects between the Household and Business Sectors Rachatar Nilavongse Preliminary Draft Department of Economics, Uppsala University February 20, 2014 Abstract This
More informationInternational recessions
International recessions Fabrizio Perri University of Minnesota Vincenzo Quadrini University of Southern California December 17, 2009 Abstract One key feature of the 2009 crisis has been its international
More informationUnemployment (Fears), Precautionary Savings, and Aggregate Demand
Unemployment (Fears), Precautionary Savings, and Aggregate Demand Wouter J. Den Haan (LSE/CEPR/CFM) Pontus Rendahl (University of Cambridge/CEPR/CFM) Markus Riegler (University of Bonn/CFM) June 19, 2016
More informationA Small Open Economy DSGE Model for an Oil Exporting Emerging Economy
A Small Open Economy DSGE Model for an Oil Exporting Emerging Economy Iklaga, Fred Ogli University of Surrey f.iklaga@surrey.ac.uk Presented at the 33rd USAEE/IAEE North American Conference, October 25-28,
More informationUninsured Unemployment Risk and Optimal Monetary Policy
Uninsured Unemployment Risk and Optimal Monetary Policy Edouard Challe CREST & Ecole Polytechnique ASSA 2018 Strong precautionary motive Low consumption Bad aggregate shock High unemployment Low output
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 informationUnemployment (fears), Precautionary Savings, and Aggregate Demand
Unemployment (fears), Precautionary Savings, and Aggregate Demand Wouter den Haan (LSE), Pontus Rendahl (Cambridge), Markus Riegler (LSE) ESSIM 2014 Introduction A FT-esque story: Uncertainty (or fear)
More informationCredit Decomposition and Business Cycles
Credit Decomposition and Business Cycles Berrak Bahadir University of Georgia Inci Gumus Sabanci University September 3, 211 Abstract Recent empirical evidence suggests that household and business credit
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 informationCollateralized capital and news-driven cycles. Abstract
Collateralized capital and news-driven cycles Keiichiro Kobayashi Research Institute of Economy, Trade, and Industry Kengo Nutahara Graduate School of Economics, University of Tokyo, and the JSPS Research
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 informationConcerted Efforts? Monetary Policy and Macro-Prudential Tools
Concerted Efforts? Monetary Policy and Macro-Prudential Tools Andrea Ferrero Richard Harrison Benjamin Nelson University of Oxford Bank of England Centre for Macroeconomics 2 nd Annual European Central
More informationWorking Paper S e r i e s
Working Paper S e r i e s W P 0-5 M a y 2 0 0 Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach Olivier Jeanne and Anton Korinek Abstract This paper analyzes prudential controls on capital
More informationHigh Leverage and a Great Recession
High Leverage and a Great Recession Phuong V. Ngo Cleveland State University July 214 Abstract This paper examines the role of high leverage, deleveraging, and the zero lower bound on nominal interest
More informationInternational recessions
International recessions Fabrizio Perri University of Minnesota Vincenzo Quadrini University of Southern California July 16, 2010 Abstract The 2008-2009 US crisis is characterized by un unprecedent degree
More informationUtility Maximizing Entrepreneurs and the Financial Accelerator
Utility Maximizing Entrepreneurs and the Financial Accelerator Mikhail Dmitriev and Jonathan Hoddenbagh August, 213 Job Market Paper In the financial accelerator literature developed by Bernanke, Gertler
More informationA Model of Financial Intermediation
A Model of Financial Intermediation Jesús Fernández-Villaverde University of Pennsylvania December 25, 2012 Jesús Fernández-Villaverde (PENN) A Model of Financial Intermediation December 25, 2012 1 / 43
More informationExercises on the New-Keynesian Model
Advanced Macroeconomics II Professor Lorenza Rossi/Jordi Gali T.A. Daniël van Schoot, daniel.vanschoot@upf.edu Exercises on the New-Keynesian Model Schedule: 28th of May (seminar 4): Exercises 1, 2 and
More informationReserve Accumulation, Macroeconomic Stabilization and Sovereign Risk
Reserve Accumulation, Macroeconomic Stabilization and Sovereign Risk Javier Bianchi 1 César Sosa-Padilla 2 2018 SED Annual Meeting 1 Minneapolis Fed & NBER 2 University of Notre Dame Motivation EMEs with
More informationSatya P. Das NIPFP) Open Economy Keynesian Macro: CGG (2001, 2002), Obstfeld-Rogoff Redux Model 1 / 18
Open Economy Keynesian Macro: CGG (2001, 2002), Obstfeld-Rogoff Redux Model Satya P. Das @ NIPFP Open Economy Keynesian Macro: CGG (2001, 2002), Obstfeld-Rogoff Redux Model 1 / 18 1 CGG (2001) 2 CGG (2002)
More informationHigh Leverage and a Great Recession
High Leverage and a Great Recession Phuong V. Ngo Cleveland State University August 214 Abstract This paper examines the role of high leverage and the zero lower bound on nominal interest rates (ZLB) in
More informationFinancial Development and the Effects of Trade Liberalizations
Financial Development and the Effects of Trade Liberalizations David Kohn Pontificia Universidad Católica de Chile Fernando Leibovici Federal Reserve Bank of St. Louis Michal Szkup University of British
More informationCapital Flows to Developing Countries: the Allocation Puzzle. Discussion by Fabio Ghironi 2007 ASSA Annual Meetings Chicago, January 5-7, 2007
Capital Flows to Developing Countries: the Allocation Puzzle Pierre-Olivier Gourinchas and Olivier Jeanne Discussion by Fabio Ghironi 2007 ASSA Annual Meetings Chicago, January 5-7, 2007 Introduction This
More informationCountry Spreads as Credit Constraints in Emerging Economy Business Cycles
Conférence organisée par la Chaire des Amériques et le Centre d Economie de la Sorbonne, Université Paris I Country Spreads as Credit Constraints in Emerging Economy Business Cycles Sarquis J. B. Sarquis
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 informationEfficient Bailouts? Javier Bianchi. Wisconsin & NYU
Efficient Bailouts? Javier Bianchi Wisconsin & NYU Motivation Large interventions in credit markets during financial crises Fierce debate about desirability of bailouts Supporters: salvation from a deeper
More informationA Macroeconomic Framework for Quantifying Systemic Risk. June 2012
A Macroeconomic Framework for Quantifying Systemic Risk Zhiguo He Arvind Krishnamurthy University of Chicago & NBER Northwestern University & NBER June 212 Systemic Risk Systemic risk: risk (probability)
More informationMargin Regulation and Volatility
Margin Regulation and Volatility Johannes Brumm 1 Michael Grill 2 Felix Kubler 3 Karl Schmedders 3 1 University of Zurich 2 European Central Bank 3 University of Zurich and Swiss Finance Institute Macroeconomic
More informationThe Effects of Dollarization on Macroeconomic Stability
The Effects of Dollarization on Macroeconomic Stability Christopher J. Erceg and Andrew T. Levin Division of International Finance Board of Governors of the Federal Reserve System Washington, DC 2551 USA
More informationOil Shocks and the Zero Bound on Nominal Interest Rates
Oil Shocks and the Zero Bound on Nominal Interest Rates Martin Bodenstein, Luca Guerrieri, Christopher Gust Federal Reserve Board "Advances in International Macroeconomics - Lessons from the Crisis," Brussels,
More informationCollateral and Amplification
Collateral and Amplification Macroeconomics IV Ricardo J. Caballero MIT Spring 2011 R.J. Caballero (MIT) Collateral and Amplification Spring 2011 1 / 23 References 1 2 Bernanke B. and M.Gertler, Agency
More informationFinancial Integration and Growth in a Risky World
Financial Integration and Growth in a Risky World Nicolas Coeurdacier (SciencesPo & CEPR) Helene Rey (LBS & NBER & CEPR) Pablo Winant (PSE) Barcelona June 2013 Coeurdacier, Rey, Winant Financial Integration...
More informationFinancial Integration, Financial Deepness and Global Imbalances
Financial Integration, Financial Deepness and Global Imbalances Enrique G. Mendoza University of Maryland, IMF & NBER Vincenzo Quadrini University of Southern California, CEPR & NBER José-Víctor Ríos-Rull
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 informationMonetary Economics Final Exam
316-466 Monetary Economics Final Exam 1. Flexible-price monetary economics (90 marks). Consider a stochastic flexibleprice money in the utility function model. Time is discrete and denoted t =0, 1,...
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 informationThe Costs of Losing Monetary Independence: The Case of Mexico
The Costs of Losing Monetary Independence: The Case of Mexico Thomas F. Cooley New York University Vincenzo Quadrini Duke University and CEPR May 2, 2000 Abstract This paper develops a two-country monetary
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 informationBank Capital Buffers in a Dynamic Model 1
Bank Capital Buffers in a Dynamic Model 1 Jochen Mankart 1 Alex Michaelides 2 Spyros Pagratis 3 1 Deutsche Bundesbank 2 Imperial College London 3 Athens University of Economics and Business CRESSE 216,
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 informationDiscussion of Confidence Cycles and Liquidity Hoarding by Volha Audzei (2016)
Discussion of Confidence Cycles and Liquidity Hoarding by Volha Audzei (2016) Niki Papadopoulou 1 Central Bank of Cyprus CNB Research Open Day, 15 May 2017 1 The views expressed are solely my own and do
More informationON INTEREST RATE POLICY AND EQUILIBRIUM STABILITY UNDER INCREASING RETURNS: A NOTE
Macroeconomic Dynamics, (9), 55 55. Printed in the United States of America. doi:.7/s6559895 ON INTEREST RATE POLICY AND EQUILIBRIUM STABILITY UNDER INCREASING RETURNS: A NOTE KEVIN X.D. HUANG Vanderbilt
More informationECON 4325 Monetary Policy and Business Fluctuations
ECON 4325 Monetary Policy and Business Fluctuations Tommy Sveen Norges Bank January 28, 2009 TS (NB) ECON 4325 January 28, 2009 / 35 Introduction A simple model of a classical monetary economy. Perfect
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 informationCollateralized capital and News-driven cycles
RIETI Discussion Paper Series 07-E-062 Collateralized capital and News-driven cycles KOBAYASHI Keiichiro RIETI NUTAHARA Kengo the University of Tokyo / JSPS The Research Institute of Economy, Trade and
More informationDiscussion of Financial Business Cycles
Discussion of Financial Business Cycles M. Iacoviello Tommaso Monacelli - Università Bocconi,IGIER and CEPR RED- St.Louis Fed Conference, St. Louis, 6-7 December 2013 Very nice paper! Very important to
More information1 Dynamic programming
1 Dynamic programming A country has just discovered a natural resource which yields an income per period R measured in terms of traded goods. The cost of exploitation is negligible. The government wants
More informationA MODEL OF SECULAR STAGNATION
A MODEL OF SECULAR STAGNATION Gauti B. Eggertsson and Neil R. Mehrotra Brown University BIS Research Meetings March 11, 2015 1 / 38 SECULAR STAGNATION HYPOTHESIS I wonder if a set of older ideas... under
More informationPhases of Global Liquidity, Fundamentals News, and the Design of Macroprudential Policy
Phases of Global Liquidity, Fundamentals News, and the Design of Macroprudential Policy Javier Bianchi Minneapolis Fed, University of Wisconsin & NBER Chenxin Liu University of Wisconsin Enrique G. Mendoza
More informationCapital Flows and Asset Prices. Kosuke Aoki, Gianluca Benigno and Nobuhiro Kiyotaki
Capital Flows and Asset Prices Kosuke Aoki, Gianluca Benigno and Nobuhiro Kiyotaki 1 Introduction After liberalizing international transaction of nancial assets, many countries experience large swings
More information