Monetary Policy and Inflation Dynamics in Asset Price Bubbles

Transcription

1 Bank of Japan Working Paper Series Monetary Policy and Inflation Dynamics in Asset Price Bubbles Daisuke Ikeda* No.13-E-4 February 213 Bank of Japan Nihonbashi-Hongokucho, Chuo-ku, Tokyo 13-21, Japan * Monetary Affairs Department Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank. If you have any comment or question on the working paper series, please contact each author. When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (post.prd8@boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.

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36 ˆ Table 1: Prior Densities and Posterior Estimates Coefficient Description Prior Posterior (2) Density (1) Mean Std Median 9% interval Fraction of firms investing in SS G [.14,.2 ] Credit friction, recovery rate B [ 7,.14 ] 1z SS TFP growth rate N [.36,.42 ] 1( -1-1) Preference disount rate G [.17,.32 ] Inverse Frisch elasticity G [.19, 1.51 ] h Consumption habit B [.71,.84 ] log(l ) log hours in SS N.5-2 [ -6, 2 ] S'' Investment adjustment costs G [ 1.42, 3.27 ] p Calvo prices B [.75,.83 ] w Calvo wages B [.74,.88 ] p Price indexation B [.16,.5 ] w Wage indexation B [.22,.49 ] 1(-1) SS quarterly inflation N [.46,.62 ] R Taylor rule smoothing B [.79,.86 ] Taylor rule, inflation N [ 1.77, 2.16 ] y Taylor rule, output growth N [.22,.38 ] z TFP growth shocks, AR B [.21,.48 ] MEI shocks, AR B [.86,.96 ] p Price mark-up shocks, AR B [.91,.99 ] w Wage mark-up shocks, AR B [.85,.96 ] Preference shocks, AR B [.81,.95 ] mp Monetary policy shocks, AR B [.43,.62 ] g Gov. spending shocks, AR B [.91,.97 ] Sentiment shocks, AR B [.64,.98 ] p Price mark-up MA B [.53,.81 ] w Wage mark-up MA B [.86,.98 ] (continued on the next page)

37 Table 1: Prior Densities and Posterior Estimates (Continued) Coefficient Description Prior Posterior (2) Density (1) Mean Std Median 9% interval 1 z TFP growth shocks, Std I [.74,.93 ] 1 MEI shocks, Std IG [ 2.3, 3.27 ] 1 p (3) 1 w (3) Price mark-up shocks, Std Wage mark-up shocks, Std IG [.33,.46 ] IG [.1,.14 ] 1 Preference shocks, Std IG [ 2.13, 3.59 ] 1 mp Monetary policy shocks, Std IG [ 9,.11 ] 1 g Gov. spending shocks, Std IG [ 1.73, 2.2 ] 1 Sentiment shocks, Std IG [ 3.36, 51.2 ] Marginal data density (1) N stands for Normal, B Beta, G Gamma and IG Inverted-Gamma1 distribution. (2) Median and posterior percentiles from 3 chains of 2, draws generated using a Random walk Metropolis algorithm, where the first 2 percent draws were discarded. (3) The standard deviation is transformed from its original counterpart. Table 2: Variance Decomposition TFP MEI Wage markup Price markup Preference Monetary Government Sentiment Output growth Consumption growth Investment growth Hours Real wage growth Federal funds rate Inflation rate Stock price growth Note: Decomposition of the variance corresponding to periodic components with cycles of between 6 and 32 quarters, obtained using the spectrum of the DSGE model evaulated at posterior medians. (% of consumption the representative household willing to pay) Baseline Taylor rule (estimated) Table 3: Welfare Costs Strict inflation targeting Augmented with asset prices Augmented with credit Augmented with wages (1.) (.47) (.5) (.17) (7) No nominal wage rigidities (1.) (.45) (.79) (.46) (.26) Note: Numbers in parenthesis denote welfare costs relative to those under Taylor rule (estimated).

38 Figure 1: Impulse Responses to Sentiment Shock: Working Capital Channel (i) Output (%) (ii) Consumption (%) (iii) Investment (%) 2. 3 Baseline No working capital (iv) Hours (%) (v) Inflation (% points) (vi) Real interest rates (% points) (vii) Average Q (%) (viii) Bubble (%) (ix) Stock price (%) Figure 2: Decomposition of Marginal Costs (%) Real unit labor costs Financial tightness Marginal costs -.8

39 Figure 3: Impulse Responses to Sentiment Shock: Ramsey Policy (i) Output (%) (ii) Consumption (%) (iii) Investment (%) 2. 3 Baseline Ramsey (iv) Hours (%) (v) Inflation (% points) (vi) Real interest rates (% points) (vii) Average q (%) (viii) Bubble (%) (ix) Stock price (%) Figure 4: Impulse Responses to Sentiment Shock: The Role of Nominal Wage Rigidities (i) Output (%) (ii) Consumption (%) (iii) Investment (%) 2. 3 Baseline Baseline Ramsey ( w =1) ( w =1) (iv) Hours (%) (v) Inflation (% points) (vi) Real interest rates (% points) (vii) Average q (%) (viii) Bubble (%) (ix) Stock price (%)

40 Figure 5: Impulse Responses to Sentiment Shock: Strict Inflation Targeting (i) Output (%) (ii) Consumption (%) (iii) Investment (%) 2. 3 Baseline Ramsey Targeting (iv) Hours (%) (v) Inflation (% points) (vi) Real interest rates (% points) (vii) Average q (%) (viii) Bubble (%) (ix) Stock price (%) Figure 6: Impulse Responses to Sentiment Shock: A Monetary Policy Rule with a Financial Variable (i) Output (%) (ii) Consumption (%) (iii) Investment (%) 2. 2 Ramsey Asset price Credit (iv) Hours (%) (v) Inflation (% points) (vi) Real interest rates (% points) (vii) Average q (%) (viii) Bubble (%) (ix) Stock price (%)