Download or read book Optimal Monetary Policy in an Estimated New Keynesian Model with Heterogeneous Sectors written by Yue Tan and published by . This book was released on 2017 with total page 157 pages. Available in PDF, EPUB and Kindle. Book excerpt: I develop a multisector New Keynesian dynamic stochastic general equilibrium model incorporating heterogeneities in the sector size, price stickiness, price indexation, and the price markup. I estimate a 12-sector version with post-1984 U.S. data using Bayesian techniques. The estimates suggest that over the sample period the Federal Reserve (the Fed) did not respond to changes in the prices of gasoline and other energy goods or changes in the price of health care, yet responded relatively more aggressively to changes in the prices of housing and utilities. I obtain multiple welfare-maximizing monetary policy schemes via simulation. The optimal schemes suggest that the Fed should focus on the prices of housing and utilities as well as the prices of food and beverages when responding to inflation. However, the welfare gains are small, suggesting that the current inflation target adopted by the Fed is almost indistinguishable from the optimal one in terms of welfare. On the other hand, more aggressive targeting of the output gap can offer much larger welfare improvement.
Download or read book Optimal Monetary Policy Under Heterogeneous Beliefs written by David Finck and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a New Keynesian model that features rational and non-rational households. Assuming that both the fraction of rational households and the expectations formation process are uncertain from the perspective of the central bank, we derive robust optimal discretionary monetary policy in a simple min-max framework where the central bank plays a zero-sum game versus a fictitious, malevolent evil agent. We show that the central bank is able to improve welfare if it accounts for uncertainty while the model is being distorted. Even if the central bank accounts for the worst possible outcomes while the model is being undistorted, the central bank can still reduce the welfare loss by implementing a more aggressive targeting rule that favorably affects the inflation-output stabilization trade-off.
Download or read book Optimal Monetary Policy in a Calibrated Open economy New Keynesian Model written by Julien Bengui and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A rapid growing consensus has recently emerged on the appropriate way to model and analyze monetary policy issues. The adopted framework, usually referred to as New-Keynesian, relies on optimizing and forward-looking behavior, while assuming frictions such as nominal rigidities. This thesis presents a simple empirical open- economy structural model with optimal policy, in line with this New-Keynesian perspective. Few key parameters, including those on policy preferences, are estimated with maximum likelihood on data from New-Zealand. The results suggest a higher degree of forward-looking behavior in price setting than in consumption and provide some evidence for the Reserve Bank of New Zealand being a flexible (rather than a strict) inflation targeter. The estimated parametrization is then used to study the gains from commitment implied by the model. These gains are found to be important, and differences in outcomes appear to be mainly characterized by weaker and more gradual policy responses to shocks under commitment relative to discretion.
Download or read book Robustly Optimal Monetary Policy in a Microfounded New Keynesian Model written by Klaus Adam and published by . This book was released on 2012 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 On the Optimal Adherence to Money Targets in a New Keynesian Framework written by Ms.Filiz Unsal and published by International Monetary Fund. This book was released on 2010-06-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many low-income countries continue to describe their monetary policy framework in terms of targets on monetary aggregates. This contrasts with most modern discussions of monetary policy, and with most practice. We extend the new-Keynesian model to provide a role for “M” in the conduct of monetary policy, and examine the conditions under which some adherence to money targets is optimal. In the spirit of Poole (1970), this role is based on the incompleteness of information available to the central bank, a pervasive issues in these countries. Ex-ante announcements/forecasts for money growth are consistent with a Taylor rule for the relevant short-term interest rate. Ex-post, the policy maker must choose his relative adherence to interest rate and money growth targets. Drawing on the method in Svensson and Woodford (2004), we show that the optimal adherence to ex-ante targets is equivalent to a signal extraction problem where the central bank uses the money market information to update its estimate of the state of the economy. We estimate the model, using Bayesian methods, for Tanzania, Uganda (both de jure money targeters), and Ghana (a de jure inflation targeter), and compare the de facto adherence to targets with the optimal use of money market information in each country.
Download or read book Robustly Optimal Monetary Policy in a New Keynesian Model with Housing written by Klaus Adam and published by . This book was released on 2020 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analytically characterize optimal monetary policy for an augmented New Keynesian model with a housing sector. With rational private sector expectations about housing prices and inflation, optimal monetary policy can be characterized by a standard 'target criterion' that refers to inflation and the output gap, without making reference to housing prices. When the policymaker is concerned with potential departures of private sector expectations from rational ones and seeks a policy that is robust against such possible departures, then the optimal target criterion must also depend on housing prices. For empirically realistic cases, the central bank should then 'lean against' housing prices, i.e., following unexpected housing price increases (decreases), policy should adopt a stance that is projected to undershoot (overshoot) its normal targets for inflation and the output gap. Robustly optimal policy does not require that the central bank distinguishes between 'fundamental' and 'non-fundamental' movements in housing prices.
Download or read book Unconventional Policy Instruments in the New Keynesian Model written by Zineddine Alla and published by International Monetary Fund. This book was released on 2016-03-10 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the ‘divine coincidence’ breaks down. The paper discusses the role of a second instrument and its coordination with conventional interest rate policy, and presents theoretical results on equilibrium determinacy, the inflation bias, the stabilization bias, and the optimal central banker’s preferences when both instruments are available. We show that the use of an unconventional instrument can help reduce the zone of equilibrium indeterminacy and the volatility of the economy. However, in some circumstances, committing not to use the second instrument may be welfare improving (a result akin to Rogoff (1985a) example of counterproductive coordination). We further show that the optimal central banker should be both aggressive against inflation, and interventionist in using the unconventional policy instrument. As long as price setting depends on expectations about the future, there are gains from establishing credibility by using any instrument that affects these expectations.
Download or read book Optimal Monetary Policy with Heterogeneous Agents written by Eduardo Dávila and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper characterizes optimal monetary policy in a canonical heterogeneous-agent New Keynesian (HANK) model with wage rigidity. Under discretion, a utilitarian planner faces the incentive to redistribute towards indebted, high marginal utility households, which is a new source of inflationary bias. With commitment, i) zero inflation is the optimal long-run policy, ii) time-consistent policy requires both inflation and distributional penalties, and iii) the planner trades off aggregate stabilization against distributional considerations, so Divine Coincidence fails. We compute optimal stabilization policy in response to productivity, demand, and cost-push shocks using sequence-space methods, which we extend to Ramsey problems and welfare analysis.
Download or read book Designing a Simple Loss Function for Central Banks written by Davide Debortoli and published by International Monetary Fund. This book was released on 2017-07-21 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.
Download or read book Innocent Bystanders Monetary Policy and Inequality in the U S written by Mr.Olivier Coibion and published by International Monetary Fund. This book was released on 2012-08-01 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
Download or read book Optimal monetary policy in a new Keynesian model with habits in consumption written by Campbell Leith 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 Optimal Monetary Policy in a New Keynesian Model with Job Search written by Jenn-Hong Tang and published by . This book was released on 2006 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the implications for optimal monetary policy of introducing job search into the new Keynesian framework. Using the linear-quadratic approach described by Benigno and Woodford (2003, 2005), we derive a utility-based loss function that indicates that the goals of policymakers should include the stabilization of inflation, output, employment, and labor-market tightness. We subsequently characterize the policy that is optimal from a timeless perspective. Complete inflation stabilization is optimal if the distortion arising from monopolistic competition in the goods market is eliminated, and if job search is efficient in the sense that the Hosios (1990) condition holds for all periods. In cases where the Hosios condition fails, either in or out of the steady state, complete inflation stabilization is no longer optimal, and the optimal responses of inflation to technology and fiscal shocks may depend on labor-market fundamentals.
Download or read book Learning and Expectations in Macroeconomics written by George W. Evans and published by Princeton University Press. This book was released on 2012-01-06 with total page 440 pages. Available in PDF, EPUB and Kindle. Book excerpt: A crucial challenge for economists is figuring out how people interpret the world and form expectations that will likely influence their economic activity. Inflation, asset prices, exchange rates, investment, and consumption are just some of the economic variables that are largely explained by expectations. Here George Evans and Seppo Honkapohja bring new explanatory power to a variety of expectation formation models by focusing on the learning factor. Whereas the rational expectations paradigm offers the prevailing method to determining expectations, it assumes very theoretical knowledge on the part of economic actors. Evans and Honkapohja contribute to a growing body of research positing that households and firms learn by making forecasts using observed data, updating their forecast rules over time in response to errors. This book is the first systematic development of the new statistical learning approach. Depending on the particular economic structure, the economy may converge to a standard rational-expectations or a "rational bubble" solution, or exhibit persistent learning dynamics. The learning approach also provides tools to assess the importance of new models with expectational indeterminacy, in which expectations are an independent cause of macroeconomic fluctuations. Moreover, learning dynamics provide a theory for the evolution of expectations and selection between alternative equilibria, with implications for business cycles, asset price volatility, and policy. This book provides an authoritative treatment of this emerging field, developing the analytical techniques in detail and using them to synthesize and extend existing research.
Download or read book Robust Optimal Policies in a Behavioural New Keynesian Model written by and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces model uncertainty into a behavioral New Keynesian DSGE framework and derives robust optimal monetary policies. We build a heterogeneous agents DSGE model, where a fraction of agents behave according to some forms of bounded rationality (boundedly rational agents), while the reminder operate on the basis of expectations that are corrected on average (rational agents). We consider two potential mechanisms of expectations formation to generate beliefs. The central bank observes the aggregate economic dynamics, but it ignores the fraction of boundedly rational agents and/or the mechanism they use to form their expectations. Non-Bayesian robust control techniques are then adopted to minimize a welfare loss derived from the second-order approximation of agents' utilities. We account of model uncertainty considering both commitment and discretion regime.
Download or read book Implementing Optimal Monetary Policy in New Keynesian Models with Inertia written by and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Should Inequality Factor Into Central Banks Decisions written by Niels-Jakob Harbo Hansen and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
