Journal of Monetary Economics
Опубликовано на портале: 17-12-2007Matthew B. Canzoneri, Robert E. Cumby, Behzad T. Diba Journal of Monetary Economics. 2007. Vol. 54. No. 7. P. 1863-1881.
Standard macroeconomic models equate the money market rate targeted by the central bank with the interest rate implied by a consumption Euler equation. We use U.S. data to calculate the interest rates implied by Euler equations derived from a number of specifications of household preferences. Correlations between these Euler equation rates and the Federal Funds rate are generally negative. Regression results and impulse response functions imply that the spreads between the Euler equation rates and the Federal Funds rate are systematically linked to the stance of monetary policy. Our findings pose a fundamental challenge for models that equate the two.
Expenditure Switching versus Real Exchange Rate Stabilization: Competing Objectives for Exchange Rate Policy [статья]
Опубликовано на портале: 17-12-2007Michael B. Devereux, Charles M. Engel Journal of Monetary Economics. 2007. Vol. 54. No. 8. P. 2346-2374.
This paper develops a view of exchange rate policy as a trade-off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations, and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment. We show that optimal nominal exchange rate volatility will reflect these competing objectives. The key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness, the elasticity of substitution between home and foreign goods, and the amount of home bias in production. Quantitatively, we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations. Moreover, we find that the relationship between price stickiness and optimal exchange rate volatility may be non-monotonic.
Опубликовано на портале: 17-12-2007Bartosz Maćkowiak Journal of Monetary Economics. 2007. Vol. 54. No. 8. P. 2512-2520.
Estimated structural VARs show that external shocks are an important source of macroeconomic fluctuations in emerging markets. Furthermore, U.S. monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly. The price level and real output in a typical emerging market respond to U.S. monetary policy shocks by more than the price level and real output in the U.S. itself. These findings are consistent with the idea that “when the U.S. sneezes, emerging markets catch a cold.” At the same time, U.S. monetary policy shocks are not important for emerging markets relative to other kinds of external shocks.
Опубликовано на портале: 15-11-2007Adam B. Ashcraft, Murillo Campello Journal of Monetary Economics. 2007. Vol. 54. No. 6. P. 1515-1528.
The functioning of internal capital markets in financial conglomerates facilitates a novel identification strategy of the balance sheet channel of monetary policy. We look at small subsidiary banks that are affiliated with the same holding company but operate in different geographical areas. These banks face the same marginal cost of funds due to internal capital markets, but face different borrowers as they concentrate their lending with small local businesses. Exploring cross-sectional variation in local economic conditions across these subsidiaries, we investigate whether borrower creditworthiness influences the response of bank lending to monetary policy. Our results are consistent with a demand-driven transmission mechanism that works through firm balance sheets and is independent from the bank lending channel.
Identifying the Influences of Nominal and Real Rigidities in Aggregate Price-Setting Behavior [статья]
Опубликовано на портале: 17-12-2007Günter Coenen, Andrew T. Levin, Kai Christoffel Journal of Monetary Economics. 2007. Vol. 54. No. 8. P. 2439-2466.
We formulate a generalized price-setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs. real rigidities. We estimate this framework using macroeconomic data for Germany (1975–1998) and for the U.S. (1983–2003). In each case, we find that the data are well-characterized by nominal contracts with an average duration of about two to three quarters. We also find that new contracts exhibit very low sensitivity to marginal cost, corresponding to a relatively high degree of real rigidity. Finally, our results indicate that backward-looking price-setting behavior (such as indexation to lagged inflation) is not needed in explaining the aggregate data, at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective.
Опубликовано на портале: 31-10-2007Pengfei Wang, Yi Wen Journal of Monetary Economics. 2007. Vol. 54. No. 7. P. 2004-2031 .
We document that “persistent and lagged” inflation (with respect to output) is a world-wide phenomenon in that these short-run inflation dynamics are highly synchronized across countries. In particular, the average cross-country correlation of inflation is significantly and systematically stronger than that of output, while the cross-country correlation of money growth is essentially zero. We investigate whether standard monetary models driven by monetary shocks are consistent with the empirical facts. We find that neither the new Keynesian sticky-price model nor the sticky-information model can fully explain the data. An independent contribution of the paper is to provide a simple solution technique for solving general equilibrium models with sticky information.
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: 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: 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.
Taxation and the Taylor Principle [статья]
Опубликовано на портале: 16-12-2007Rochelle M. Edge, Jeremy B. Rudd Journal of Monetary Economics. 2007. Vol. 54. No. 8. P. 2554-2567.
A nominal tax system is added to a sticky-price monetary business cycle model. When nominal interest income is taxed, the coefficient on inflation in a Taylor-type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational-expectations equilibrium. When effective tax rates are raised by inflation, the stability of the economy's equilibrium can be adversely affected. Finally, when depreciation is treated as a charge against taxable income, an even larger weight on inflation is required in the Taylor rule in order to obtain a determinate and stable equilibrium.
Опубликовано на портале: 19-11-2007Jennifer E. Roush Journal of Monetary Economics. 2007. Vol. 54. No. 6. P. 1631-1643.
In practice, the expectations theory of the term structure is employed extensively in monetary policy analysis despite its empirical failure. This paper performs a conditional test of the theory that is directly relevant to monetary theory and policy. It finds that the theory holds quite well conditional on identified monetary policy shocks, but fails conditional on aggregate supply shocks that prompt an immediate jump in prices. It also finds that policy responses to movements in the term structure play an important role in uncovering evidence for the theory as predicted by McCallum [1994. Monetary policy and the term structure of interest rates. NBER Working Paper Series, no. 4938].