Journal of Monetary Economics
Опубликовано на портале: 06-04-2004Eugene F. Fama, Michael R. Gibbons Journal of Monetary Economics. 1982. Vol. 9. No. 3. P. 297-323.
We find evidence for the hypothesis of Mundell (1963) and Tobin (1965) that the expected real return component of interest rates is negatively related to the expected inflation component. In the Mundell-Tobin model, the variation in expected real returns is caused by the variation in expected inflation. Our evidence suggests, however, that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process. Equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment. This positive relation between expected real returns and real activity, which comes out of the real sector, combines with a negative relation between expected inflation and real activity, which is traced to the monetary sector, thus inducing the negative relation between expected inflation and expected real returns predicted by Mundell and Tobin but explained in terms of a model much different from theirs.
Опубликовано на портале: 23-12-2007Frank Smets Journal of Monetary Economics. 2003. Vol. 50. No. 6. P. 1293-1309.
Using a small estimated forward looking model of the euro area economy, this paper analyses the determinants of the optimal monetary policy horizon for maintaining price stability. First, the optimal policy horizon for a price level objective is generally longer than that for an inflation objective. Second, the policy horizon becomes longer, the greater the weight on other objectives like minimising output gap and interest rate variability. Third, the optimal policy horizon is shorter, the higher the degree of “forward-lookingness” in the economy and the greater the slope of the Phillips curve. Finally, even if society cares only about inflation stabilisation, it often pays to give the central bank a price level objective, provided the horizon is optimally chosen to be somewhat longer.
Опубликовано на портале: 31-10-2007Laurence M. Ball, Gregory N. Mankiw, Ricardo Reis Journal of Monetary Economics. 2005. Vol. 52. No. 4. P. 703–725.
We offer a contribution to the analysis of optimal monetary policy. We begin with a critical assessment of the existing literature, arguing that most work is based on implausible models of inflation–output dynamics. We then suggest that this problem may be solved with some recent behavioral models, which assume that price setters are slow to incorporate macroeconomic information into the prices they set. A specific such model is developed and used to derive optimal policy. In response to shocks to productivity and aggregate demand, optimal policy is price level targeting. Base drift in the price level, which is implicit in the inflation targeting regimes currently used in many central banks, is not desirable in this model. When shocks to desired markups are added, optimal policy is flexible targeting of the price level. That is, the central bank should allow the price level to deviate from its target for a while in response to these supply shocks, but it should eventually return the price level to its target path. Optimal policy can also be described as an elastic price standard: the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate.
Опубликовано на портале: 17-12-2007Malin Andersson, Hans Dillén, Peter Sellin Journal of Monetary Economics. 2006. Vol. 53. No. 8. P. 1815-1855.
This paper examines how various monetary policy signals such as repo rate changes, inflation reports, speeches, and minutes from monetary policy meetings affect the term structure of interest rates. We find that unexpected movements in the short end of the yield curve are mainly driven by unexpected changes in the repo rate. However, published inflation reports and speeches also have some impact on short rates. Speeches are found to be a more important determinant for the longer end of the term structure. Our conclusion is that central bank communication is an essential part of the conduct of monetary policy.
Опубликовано на портале: 19-11-2007William T. Gavin, Finn E. Kydland, Michael R. Pakko Journal of Monetary Economics. 2007. Vol. 54. No. 6. P. 1587-1611.
This paper analyzes the interaction of inflation with the tax code and its contribution to aggregate fluctuations. We find significant effects operating through the tax on realized nominal capital gains. A tax on nominal bond income magnifies these effects. Our innovation is to combine monetary policy shocks with non-indexed taxes in a model where the central bank implements policy using an interest rate rule. Monetary policy had important effects on the behavior of the business cycle before 1980 because policymakers did not exert effective control over inflation. Monetary policy reform around 1980 led to better control, and with more stable inflation, the effect of the interaction between monetary policy and the nominal capital gains tax has become negligible.
Опубликовано на портале: 22-12-2007Gino Cateau Journal of Monetary Economics. 2007. Vol. 54. No. 7. P. 2083-2101.
Empirical Taylor rules are much less aggressive than those derived from optimization-based models. This paper analyzes whether accounting for uncertainty across competing models and (or) real-time data considerations can explain this discrepancy. It considers a central bank that chooses a Taylor rule in a framework that allows for an aversion to the second-order risk associated with facing multiple models and measurement-error configurations. The paper finds that if the central bank cares strongly enough about stabilizing the output gap, this aversion leads to significant declines in the coefficients of the Taylor rule even if the central bank's loss function assigns little weight to reducing interest rate variability. Furthermore, a small degree of aversion can generate an optimal rule that matches the empirical Taylor rule
Опубликовано на портале: 23-12-2007Patrick J. Kehoe, Varadarajan V. Chari Journal of Monetary Economics. 2007. Vol. 54. No. 8. P. 2399-2408.
The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to following its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints may be desirable. This type of free-rider problem is new and arises only because of a time inconsistency problem.
Опубликовано на портале: 31-10-2007Henry Siu Journal of Monetary Economics. 2004. Vol. 51. No. 3. P. 575–607.
In this paper I consider the role of state-contingent inflation as a fiscal shock absorber in an economy with nominal rigidities. I study the Ramsey equilibrium in a monetary model with distortionary taxation, nominal non-state-contingent debt, and sticky prices. With sticky prices, the Ramsey planner must balance the shock absorbing benefits of state-contingent inflation against the associated resource misallocation costs. For government spending processes resembling post-war experience, introducing sticky prices generates striking departures in optimal policy from the case with flexible prices. For even small degrees of price rigidity, optimal policy displays very little volatility in inflation. Tax rates display greater volatility compared to the model with flexible prices. With sticky prices, tax rates and real government debt exhibit behavior similar to a random walk. For government spending processes resembling periods of intermittent war and peace, optimal policy displays extreme inflation volatility even when the degree of price rigidity is large. As the variability in government spending increases, smoothing tax distortions across states of nature becomes increasingly important, and the shock absorber role of inflation is accentuated.
Опубликовано на портале: 03-12-2007Sanjay K. Chugh Journal of Monetary Economics. 2007. Vol. 54. No. 6. P. 1809-1836.
Ramsey models of fiscal and monetary policy featuring time-separable preferences and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit persistence predicts highly persistent inflation. The result depends on increases in either the ability to smooth consumption or the preference for doing so. The effect operates through the Fisher relationship: a smoother profile of consumption implies a more persistent real interest rate, which in turn implies persistent optimal inflation. Our work complements a recent strand of the Ramsey literature based on models with nominal rigidities. In these latter models, inflation volatility is lower than in the baseline model but continues to exhibit little persistence. We quantify the effects of habit and capital on inflation persistence and also relate our findings to recent work on optimal fiscal policy with incomplete markets.
Опубликовано на портале: 31-10-2007Christopher J. Erceg, Dale W. Henderson, Andrew T. Levin Journal of Monetary Economics. 2000. Vol. 46. No. 2. P. 281-313.
We formulate an optimizing-agent model in which both labor and product markets exhibit monopolistic competition and staggered nominal contracts. The unconditional expectation of average household utility can be expressed in terms of the unconditional variances of the output gap, price inflation, and wage inflation. Monetary policy cannot achieve the Pareto-optimal equilibrium that would occur under completely flexible wages and prices; that is, the model exhibits a tradeoff in stabilizing the output gap, price inflation, and wage inflation. We characterize the optimal policy rule for reasonable calibrations of the model. We also find that strict price inflation targeting generates relatively large welfare losses, whereas several other simple policy rules perform nearly as well as the optimal rule.
Опубликовано на портале: 22-10-2007Federico Ravenna, Carl E. Walsh Journal of Monetary Economics. 2006. Vol. 53. No. 2. P. 199-216.
In the standard new Keynesian framework, an optimizing policy maker does not face a trade-off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices. An ad hoc, exogenous cost-push shock is typically added to the inflation equation to generate a meaningful policy problem. In this paper, we show that a cost-push shock arises endogenously when a cost channel for monetary policy is introduced into the new Keynesian model. A cost channel is present when firms’ marginal cost depends directly on the nominal rate of interest. Besides providing empirical evidence for a cost channel, we explore its implications for optimal monetary policy. We show that its presence alters the optimal policy problem in important ways. For example, both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy.
Опубликовано на портале: 19-11-2007Stephanie Schmitt-Grohe, Martin Uribe Journal of Monetary Economics. 2007. Vol. 54. No. 6. P. 1702-1725.
Welfare-maximizing monetary- and fiscal-policy rules are studied in a model with sticky prices, money, and distortionary taxation. The Ramsey-optimal policy is used as a point of comparison. The main findings are: the size of the inflation coefficient in the interest-rate rule plays a minor role for welfare. It matters only insofar as it affects the determinacy of equilibrium. Optimal monetary policy features a muted response to output. Interest-rate rules that feature a positive response to output can lead to significant welfare losses. The welfare gains from interest-rate smoothing are negligible. Optimal fiscal policy is passive. The optimal monetary and fiscal rule combination attains virtually the same level of welfare as the Ramsey-optimal policy.
Опубликовано на портале: 16-11-2007Gianluca Benigno Journal of Monetary Economics. 2004. Vol. 51. No. 3. P. 473-502.
The objective of this paper is to analyze the effects of alternative monetary rules on real exchange rate persistence. Using a two-country stochastic dynamic general equilibrium with nominal price stickiness and local currency pricing, we will show how the persistence of purchasing power parity deviations can be related to a monetary theory of these deviations. When monetary policy lean against the wind, there is no relationship of proportionality between the time during which prices remain sticky and the persistence of the response of the real exchange rate: in this case high nominal price rigidity is not sufficient, per se, in generating any persistence following a monetary shock. Moreover, we emphasize the role of interest rates smoothing policies and relative price stickiness within countries in understanding the relationship between the real exchange rate and monetary shocks. With reasonable parameters values, a wide range of monetary policy rules can generate real exchange rate autocorrelations around the ones observed in the data.
Опубликовано на портале: 21-10-2007Lars Peter Hansen, Thomas J. Sargent Journal of Monetary Economics. 2003. Vol. 50. No. 3. P. 581-604.
This paper shows how to formulate and compute robust Ramsey (aka Stackelberg) plans for linear models with forward-looking private agents. The leader and the followers share a common approximating model and both have preferences for robust decision rules because both doubt the model. Since their preferences differ, the leader's and followers' decision rules are fragile to different misspecifications of the approximating model. We define a Stackelberg equilibrium with robust decision makers in which the leader and follower have different worst-case models despite sharing a common approximating model To compute a Stackelberg equilibrium we formulate a Bellman equation that is associated with an artificial single-agent robust control problem. The artificial Bellman equation contains a description of implementability constraints that include Euler equations that describe the worst-case analysis of the followers. As an example, the paper analyzes a model of a monopoly facing a competitive fringe
Опубликовано на портале: 26-09-2007Andrew T. Levin, John C. Williams Journal of Monetary Economics. 2003. Vol. 50. P. 945-975.
The literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model. In this paper, we show that such rules may perform very poorly in the more general case in which non-nested models represent competing perspectives about controversial issues such as expectations formation and inflation persistence. Using Bayesian and minimax strategies, we then consider whether any simple rule can provide robust performance across such divergent representations of the economy We find that a robust outcome is attainable only in cases where the objective function places substantial weight on stabilizing both output and inflation; in contrast, we are unable to find a robust policy rule when the sole policy objective is to stabilize inflation. We analyze these results using a new diagnostic approach, namely, by quantifying the fault tolerance of each model economy with respect to deviations from optimal policy