Download or read book Nominal Rigidities and Finance written by Michael Weber and published by . This book was released on 2014 with total page 190 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are prices sticky? This simple question has been at the cornerstone of heated discussions in macroeconomics for several decades. Price rigidities can potentially be an amplifying force for business cycle fluctuations and are the leading explanation for the effectiveness of monetary policy to stimulate the real side of the economy. Large-scale micro pricing datasets unambiguously show that prices at the micro level indeed adjust infrequently. This finding has moved the discussion about the existence of price stickiness to the question of whether or not they matter for the real economy. In my dissertation, I first address this question using information in the stock market valuation of firms. I then use information on the price stickiness of individual firms to better understand firms' exposure to systematic risk and the cross section of stock returns. In the first chapter of my dissertation which is co-authored with Yuriy Gorodnichenko, I investigate whether sticky prices are costly and burden firms. A central tenet of New Keynesian models is that firms face costs of price adjustments or other rigidities that hinder them from adjusting output prices once hit by nominal or real shocks. Models in the tradition of the New Monetarist search literature instead suggest that sticky prices are an equilibrium outcome. These models generate sticky prices at the micro level even though firms could adjust prices at each instant in time without any costs. Both classes of models have vastly different implications for policy and business cycles. The key insight of this chapter is that sticky price firms should have a larger responsiveness of profits, returns, and volatilities to nominal or real shocks compared to flexible price firms in New Keynesian models, while New Monetarist search models predict an equal reaction across firms with different price stickiness. I show that after monetary policy announcements, the conditional volatility of stock market returns rises more for firms with stickier prices than for firms with more flexible prices. This differential reaction is economically large as well as strikingly robust to a broad array of checks. These results suggest that menu costs -- broadly defined to include physical costs of price adjustment, informational frictions, etc. -- are an important factor for nominal price rigidity. I also show that my empirical results are qualitatively and, under plausible calibrations, quantitatively consistent with New Keynesian macroeconomic models in which firms have heterogeneous price stickiness. Since the framework is valid for a wide variety of theoretical models and frictions preventing firms from price adjustment, I provide "model-free" evidence that sticky prices are indeed costly for firms. My findings provide support for workhorse models with sticky prices at policy institutions and imply that nominal rigidities are a central force for the real effects of monetary policy. The second chapter examines the asset-pricing implications of nominal rigidities. I find that firms that adjust their product prices infrequently earn a cross-sectional return premium of more than 4% per year. Merging confidential product price data at the firm level with stock returns, I document that the premium for sticky-price firms is a robust feature of the data and is not driven by other firm and industry characteristics. The consumption-wealth ratio is a strong predictor of the return differential in the time series, and differential exposure to systematic risk fully explains the premium in the cross section. The sticky-price portfolio has a conditional market beta of 1.3, which is 0.4 higher than the beta of the flexible-price portfolio. The frequency of price adjustment is therefore a strong determinant of the cross section of stock returns. To rationalize these facts, I develop a multi-sector production-based asset-pricing model with sectors differing in their frequency of price adjustment. My results show that nominal rigidities are not only central in macroeconomics for business cycle fluctuations and the real effects of nominal shocks but are also a strong determinant of the cross section of stock returns. To the extent that firms equalize the costs and benefits of price adjustment the higher cost of capital for firms with stickier prices can provide a holistic measure for the cost of price adjustment. My dissertation shows that price rigidities explain both business-cycle dynamics in aggregate quantities and cross-sectional variation in stock returns, and further bridge macroeconomics and finance.

Download or read book Uncertainty Financial Frictions and Nominal Rigidities A Quantitative Investigation written by Ambrogio Cesa-Bianchi and published by International Monetary Fund. This book was released on 2017-09-29 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are uncertainty shocks a major source of business cycle fluctuations? This paper studies the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro uncertainty) and to the dispersion of entrepreneurs' idiosyncratic productivity (micro uncertainty) in a financial accelerator DSGE model with sticky prices. It explores the different mechanisms through which uncertainty shocks are propagated and amplified. The time series properties of macro and micro uncertainty are estimated using U.S. aggregate and firm-level data, respectively. While surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, these account for a small (non-trivial) share of output volatility.

Download or read book Financial Constraints and Nominal Price Rigidities written by Almut Balleer and published by . This book was released on 2017 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates how financial market imperfections and the frequency of price adjustment interact. Based on new firm-level evidence for Germany, we document that financially constrained firms adjust prices more often than their unconstrained counterparts, both upwards and downwards. We show that these empirical patterns are consistent with a partial equilibrium menu-cost model with a working capital constraint. We then use the model to show how the presence of financial frictions changes profits and the price distribution of firms compared to a model without financial frictions. Our results suggest that tighter financial constraints are associated with higher nominal rigidities, higher prices and lower output. Moreover, in response to aggregate shocks, aggregate price rigidity moves substantially, the response of inflation is dampened, while output reacts more in the presence of financial frictions. This means that financial frictions make the aggregate supply curve flatter for all calibrations considered in our model. We show that this differs fundamentally from models in which the extensive margin of price adjustment is absent (Rotemberg, 1982) or constant (Calvo, 1983). Hence, the interaction of financial frictions and the frequency of price adjustment potentially induces important consequences for the effectiveness of monetary policy.

Download or read book Essays on Nominal Rigidities Financial Constraints and Transfers written by Doris Sum Yee Poon and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Nominal Rigidities and the Optimal Rate of Inflation written by Torben M. Andersen and published by . This book was released on 1998 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Nominal Wage Rigidities and the Propagation of Monetary Disturbances written by Christopher J. Erceg and published by . This book was released on 1997 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Advances in Economics and Econometrics written by Econometric Society. World Congress and published by Cambridge University Press. This book was released on 2013-05-27 with total page 511 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first volume of edited papers from the Tenth World Congress of the Econometric Society 2010.

Download or read book A Step by Step Overview of Gertler s and Karadi s Model of Unconventional Monetary Policy written by Colin Tissen and published by GRIN Verlag. This book was released on 2017-10-04 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Research Paper (undergraduate) from the year 2017 in the subject Economics - Finance, grade: 8.5, Maastricht University, course: Macroeconomics I, language: English, abstract: Our goal in this paper is to replicate the model of Gertler and Karadi (2011) and to give an elaborate overview of the way in which this model works. Instead of showing the final results, we provide a step-by-step overview of all the necessary calculations and derivations that lead to the ultimate model. Our last objective is to explain the relevance and the impact that the paper of Gertler and Karadi had. First, we describe the model with separate sections for the different agents that play a role in the model: households, financial intermediaries, intermediate goods firms, capital producing firms, retail firms, and the government (including the central bank). Secondly, we perform a Taylor approximation and import out model into Matlab. Thirdly, the model is analysed and the results are given. Fourthly, the impact of the Gertler and Karadi paper is discussed.

Download or read book Monetary Policy Inflation and the Business Cycle written by Jordi Galí and published by Princeton University Press. This book was released on 2015-06-09 with total page 295 pages. Available in PDF, EPUB and Kindle. Book excerpt: The classic introduction to the New Keynesian economic model This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability–oriented strategies adopted by most central banks in the industrialized world. Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy's design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment’s significance for monetary policy. The most up-to-date introduction to the New Keynesian framework available A single benchmark model used throughout New materials and exercises included An ideal resource for graduate students, researchers, and market analysts

Download or read book Money Financial Intermediation and Governance written by Dino Falaschetti and published by Edward Elgar Publishing. This book was released on 2008-01-01 with total page 199 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dino Falaschetti and Michael Orlando unify the treatment of the many deeply related topics in money and banking in this wide-ranging book. By continually building on the assumption that economic actors are maximizers, they explain how monetary and financial services, as well as related governance mechanisms, influence economic performance. In this manner, Money, Financial Intermediation and Governance not only lets readers make sense of today s monetary authorities and financial markets, it lets them see through superficial complexities to the fundamental influences that will shape those organizations for years to come. Mastering this analytical process is important for scholars and professionals, as well as individuals who are interested in their own financial security. Successful readers will enjoy an enduring ability to productively anticipate, respond to, and even shape macroeconomic and related political developments. This book s greatest contribution may thus be to help readers enjoy the lasting advantages of becoming careful thinkers. This book is an ideal text for undergraduate, graduate and MBA students in courses on banking and financial markets as well as in macroeconomics. It is also a useful resource for researchers and professionals in the financial, legal and policy sectors.

Download or read book Aggregate Fluctuations Monetary Policy and Nominal Wage Rigidities in a New classical Setting written by Canada. Dept. of Finance. Fiscal Policy and Economic Analysis Br and published by . This book was released on 1995 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Monetary Policy in a Stochastic Equilibrium Model with Real and Nominal Rigidities written by Jinill Kim and published by . This book was released on 1998 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Noisy Financial Signals and Persistent Effects of Nominal Shocks in Open Economies written by Torben M. Andersen and published by . This book was released on 2000 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Are There Downward Nominal Rigidities in Product Markets written by Simon Hall and published by . This book was released on 1998 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Nominal Rigidities and the Term Structures of Equity and Bond Returns written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financial Constraints and Market Failures written by Marcello Messori and published by Edward Elgar Publishing. This book was released on 1999-01-01 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: An Italian study group made up of seven economists report their findings on how the new Keynesian economics has reacted to challenges from new classical economics by strengthening the analytical power of its models. First they discuss the theoretical unde

Download or read book Real and Nominal Equilibrium Yield Curves written by Alex Hsu and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: