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Interest Rate Rules In A New Keynesian Framework With Investment
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Author :Elena Pavlova Publisher :Schriften zur Wirtschaftstheorie und Wirtschaftspolitik ISBN 13 :9783631611289 Total Pages :0 pages Book Rating :4.6/5 (112 download)
Book Synopsis Interest-Rate Rules in a New Keynesian Framework with Investment by : Elena Pavlova
Download or read book Interest-Rate Rules in a New Keynesian Framework with Investment written by Elena Pavlova and published by Schriften zur Wirtschaftstheorie und Wirtschaftspolitik. This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The last decades have witnessed major progress in both monetary policy theory and practice, with broad academic consensus on the desirability of monetary policy rules and ongoing research on their exact specification. Typically, the analysis is carried out in a New Keynesian framework with nominal rigidities and constant capital stock. The latter represents a constraint that this study seeks to overcome by introducing a model with investment and capital adjustment costs. The work assesses different interest-rate rule specifications with respect to the target variables included, based on two criteria: determinacy of rational-expectations equilibrium and convergence to steady state after a shock. The study concludes that rules with both an inflation and an output gap target ensure a unique rational-expectations equilibrium and a less distressful adjustment of the economy after the occurrence of shocks.
Book Synopsis Monetary Policy, Inflation, and the Business Cycle by : Jordi Galí
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
Book Synopsis Putting the New Keynesian Model to a Test by : Roland Straub
Download or read book Putting the New Keynesian Model to a Test written by Roland Straub and published by International Monetary Fund. This book was released on 2006-05 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, New Keynesian dynamic stochastic general equilibrium (NK DSGE) models have become increasingly popular in the academic literature and in policy analysis. However, the success of these models in reproducing the dynamic behavior of an economy following structural shocks is still disputed. This paper attempts to shed light on this issue. We use a VAR with sign restrictions that are robust to model and parameter uncertainty to estimate the effects of monetary policy, preference, government spending, investment, price markup, technology, and labor supply shocks on macroeconomic variables in the United States and the euro area. In contrast to the NK DSGE models, the empirical results indicate that technology shocks have a positive effect on hours worked, and investment and preference shocks have a positive impact on consumption and investment, respectively. While the former is in line with the predictions of Real Business Cycle models, the latter indicates the relevance of accelerator effects, as described by earlier Keynesian models. We also show that NK DSGE models might overemphasize the contribution of cost-push shocks to business cycle fluctuations while, at the same time, underestimating the importance of other shocks such as changes to technology and investment adjustment costs.
Book Synopsis Interest Rates, Policy Uncertainty, and Investment by : Joshua R. Hendrickson
Download or read book Interest Rates, Policy Uncertainty, and Investment written by Joshua R. Hendrickson and published by . This book was released on 2018 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I estimate a cointegrated VAR with three long run equilibrium conditions that are consistent with the New Keynesian model. The equilibrium conditions estimated in the VAR do not provide evidence of a negative relationship between the federal funds rate and investment, or output more generally. Economic policy uncertainty, however, does have a negative and statistically significant effect on investment in the estimated model. I argue that the results support an option theory view of investment rather than the standard New Keynesian model. Also, various specifications of the model demonstrate that the findings are robust to an alternative short term nominal interest rate, the use of real interest rates rather than nominal interest rates, different classifications of investment, different measures of economic uncertainty, and a different specification of the monetary policy process. In addition, I argue that the results have implications for the weak recovery in the aftermath of the Great Recession. In particular, the results suggest that the increase in economic policy uncertainty observed after 2007 can potentially explain the weak recovery whereas the results cast doubt on the significance of the zero lower bound on nominal interest rates.
Book Synopsis FX Intervention in the New Keynesian Model by : Zineddine Alla
Download or read book FX Intervention in the New Keynesian Model written by Zineddine Alla and published by International Monetary Fund. This book was released on 2017-09-29 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an open economy New Keynesian Model with foreign exchange intervention in the presence of a financial accelerator mechanism. We obtain closed-form solutions for the optimal interest rate policy and FX intervention under discretionary policy, in the face of shocks to risk appetite in international capital markets. The solution shows that FX intervention can help reduce the volatility of the economy and mitigate the welfare losses associated with such shocks. We also show that, when the financial accelerator is strong, the risk of multiple equilibria (self-fulfilling currency and inflation movements) is high. We determine the conditions under which indeterminacy can occur and highlight how the use of FX intervention reinforces the central bank’s credibility and limits the risk of multiple equilibria.
Book Synopsis Law and Macroeconomics by : Yair Listokin
Download or read book Law and Macroeconomics written by Yair Listokin and published by Harvard University Press. This book was released on 2019-03-11 with total page 281 pages. Available in PDF, EPUB and Kindle. Book excerpt: After 2008, private-sector spending took a decade to recover. Yair Listokin thinks we can respond more quickly to the next meltdown by reviving and refashioning a policy approach, used in the New Deal, to harness law’s ability to function as a macroeconomic tool, stimulating or relieving demand as required under certain crisis conditions.
Book Synopsis Sectoral Labor Mobility and Optimal Monetary Policy by : Alessandro Cantelmo
Download or read book Sectoral Labor Mobility and Optimal Monetary Policy written by Alessandro Cantelmo and published by International Monetary Fund. This book was released on 2017-03-06 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.
Book Synopsis A Dynamic New Keynesian Life-cycle Model by : Ippei Fujiwara
Download or read book A Dynamic New Keynesian Life-cycle Model written by Ippei Fujiwara and published by . This book was released on 2007 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In this paper, we first construct a dynamic new Keynesian model that incorporates life-cycle behavior a la Gertler (1999), in order to study whether structural shocks to the economy have asymmetric effects on heterogeneous agents, namely workers and retirees. We also examine whether considerations of life-cycle and demographic structure alter the dynamic properties of the monetary business cycle model, specifically the degree of amplification in impulse responses. According to our simulation results, shocks indeed have asymmetric impacts on different households and the demographic structure does alter the size of responses against shocks by changing the degree of the trade-off between substitution and income effects."--Authors' abstract.
Book Synopsis New Keynesian Economics / Post Keynesian Alternatives by : Roy Rotheim
Download or read book New Keynesian Economics / Post Keynesian Alternatives written by Roy Rotheim and published by Routledge. This book was released on 2013-03-07 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt: The New Keynesian Economics has been the most significant development in economics in recent years. Does it actually build upon Keynes' work? In this volume, leading post Keynesian economists challenge New Keynesianism both on the grounds that it is not Keynesian, and does not provide an adequate account of our current economic problems.
Book Synopsis Lumpy Investment and Monetary Policy by : Alberto Coco
Download or read book Lumpy Investment and Monetary Policy written by Alberto Coco and published by . This book was released on 2014 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the theoretical and policy implications of assuming firm-specific lumpy investment behaviour by firms and compares such implications to those occurring when adopting different investment specifications in a new-Keynesian framework. We develop numerical simulations of the lumpy investment model by Sveen and Weinke (2007) and of other five specifications embedding either firm-specific capital or rental market of capital. The assessment is based on impulse responses and moments of economic variables following a productivity and a monetary shock.We preliminarily show that the degree of price stickiness and investment rigidity due to the lumpiness assumption complement each other in allowing for significant effects of monetary policy. Then, the comparison shows that models with firm-specific capital generate more volatility along the business cycle following a monetary shock while dampen the responses to a productivity shock. In such a way, they predict bigger real effects of monetary policy and better replicate empirical data. Within the firm-specific case, a degree of investment lumpiness compatible with the empirical evidence at the micro level makes economic variables more responsive to monetary and productivity shocks compared with the case in which firm-specific capital is associated to convex adjustment cost. Lastly, we show that in such setting a central bank's policy reaction function targeted to interest rate smoothing adds volatility to aggregate variables, compared with a standard Taylor rule.
Book Synopsis The New Monetary Policy by : Philip Arestis
Download or read book The New Monetary Policy written by Philip Arestis and published by Edward Elgar Publishing. This book was released on 2006-01-01 with total page 261 pages. Available in PDF, EPUB and Kindle. Book excerpt: . . . this book provides a useful overview of the challenges facing the IT policy framework, both by pointing to the limitations of the underlying theory and, more importantly, by outlining the importance of a transparent policy framework for anchoring expectations. . . the book should be of interest to all central bankers and students of monetary policy. Colin Rogers, Economic Record Recent developments in macroeconomic and monetary thinking have given a new impetus to the management of the economy. The use of monetary policy by way of manipulating the rate of interest to affect inflation is now well accepted by both academic economists and central bank practitioners. Beginning with an assessment of new thinking in macroeconomics and monetary theory, this book suggests that many countries have adopted the New Consensus Monetary Policy since the early 1990s in an attempt to reduce inflation to low levels. It goes on to illustrate that the explicit control of the money supply, which was fashionable in the 1970s and 1980s in the UK, US, Europe and elsewhere, was abandoned in favour of monetary rules that focus on interest rate manipulation by the central bank. The objective of these rules is to achieve specific, or a range of, inflation targets. Bringing together a distinguished cast of international contributors, this book presents a collection of papers, which discuss the following issues amongst others: the stability of the macroeconomic equilibrium monetary policy divergences in the Euro area stock market prices the US post- new economy bubble the information economy inflation targeting. This useful analysis of New Consensus Monetary Policy will be of great interest to financial economists and international monetary economists, as well as students and scholars of macroeconomics and finance.
Book Synopsis Robust Monetary Policy in the New-Keynesian Framework by : Kai Leitemo
Download or read book Robust Monetary Policy in the New-Keynesian Framework written by Kai Leitemo and published by . This book was released on 2007 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects of model uncertainty in a simple New-Keynesian model using robust control techniques. Due to the simple model structure, we are able to find closed-form solutions for the robust control problem, analysing both instrument rules and targeting rules under different timing assumptions. In all cases but one, an increased preference for robustness makes monetary policy respond more aggressively to cost shocks but leaves the response to demand shocks unchanged. As a consequence, inflation is less volatile and output is more volatile than under a non-robust policy. Under one particular timing assumption, however, increasing the preference for robustness has no effect on the optimal targeting rule (nor on the economy).
Book Synopsis The Fiscal Theory of the Price Level by : John H. Cochrane
Download or read book The Fiscal Theory of the Price Level written by John H. Cochrane and published by Princeton University Press. This book was released on 2023-01-17 with total page 585 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive account of how government deficits and debt drive inflation Where do inflation and deflation ultimately come from? The fiscal theory of the price level offers a simple answer: Prices adjust so that the real value of government debt equals the present value of taxes less spending. Inflation breaks out when people don’t expect the government to fully repay its debts. The fiscal theory is well suited to today’s economy: Financial innovation undermines money demand, and central banks don’t control the money supply or aggressively change interest rates, invalidating classic theories, while large debts and deficits threaten inflation and constrain monetary policy. This book presents a comprehensive account of this important theory from one of its leading developers and advocates. John Cochrane aims to make fiscal theory useful as a conceptual framework and modeling tool, and for analyzing history and policy. He merges fiscal theory with standard models in which central banks set interest rates, giving a novel account of monetary policy. He generalizes the theory to explain data and make realistic predictions. For example, inflation decreases in recessions despite deficits because discount rates fall, raising the value of debt; specifying that governments promise to partially repay debt avoids classic puzzles and allows the theory to apply at all times, not just during periods of high inflation. Cochrane offers an extensive rethinking of monetary doctrines and institutions through the eyes of fiscal theory, and analyzes the era of zero interest rates and post-pandemic inflation. Filled with research by Cochrane and others, The Fiscal Theory of the Price Level offers important new insights about fiscal and monetary policy.
Book Synopsis Interest and Prices by : Michael Woodford
Download or read book Interest and Prices written by Michael Woodford and published by Princeton University Press. This book was released on 2011-12-12 with total page 805 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the collapse of the Bretton Woods system, any pretense of a connection of the world's currencies to any real commodity has been abandoned. Yet since the 1980s, most central banks have abandoned money-growth targets as practical guidelines for monetary policy as well. How then can pure "fiat" currencies be managed so as to create confidence in the stability of national units of account? Interest and Prices seeks to provide theoretical foundations for a rule-based approach to monetary policy suitable for a world of instant communications and ever more efficient financial markets. In such a world, effective monetary policy requires that central banks construct a conscious and articulate account of what they are doing. Michael Woodford reexamines the foundations of monetary economics, and shows how interest-rate policy can be used to achieve an inflation target in the absence of either commodity backing or control of a monetary aggregate. The book further shows how the tools of modern macroeconomic theory can be used to design an optimal inflation-targeting regime--one that balances stabilization goals with the pursuit of price stability in a way that is grounded in an explicit welfare analysis, and that takes account of the "New Classical" critique of traditional policy evaluation exercises. It thus argues that rule-based policymaking need not mean adherence to a rigid framework unrelated to stabilization objectives for the sake of credibility, while at the same time showing the advantages of rule-based over purely discretionary policymaking.
Book Synopsis Post-Keynesian Economics by : Lavoie, Marc
Download or read book Post-Keynesian Economics written by Lavoie, Marc and published by Edward Elgar Publishing. This book was released on 2022-05-13 with total page 744 pages. Available in PDF, EPUB and Kindle. Book excerpt: This visionary Research Handbook presents the state of the art in research on policy design. By conceiving policy design both as a theoretical and a methodological framework, it provides scholars and practitioners with guidance on understanding policy problems and devising accurate solutions.
Book Synopsis The Term Structure of Interest Rates in an Estimated New Keynesian Policy Model by : Daniel Buncic
Download or read book The Term Structure of Interest Rates in an Estimated New Keynesian Policy Model written by Daniel Buncic and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We jointly estimate a New Keynesian Policy Model with a Gaussian affine no-arbitrage specification of the term structure of interest rates, and assess how important inflation, output and monetary policy shocks are as sources of fluctuations in interest rates and the term premium. To mitigate computational difficulties, we work with observable pricing factors only and utilize the computationally convenient normalization of Joslin et al. (2013b). This allows us to estimate the model without needing to restrict the parameters driving the market prices of risk. Using data for the U.S. from 1962:Q1 to 2014:Q2, we find that inflation and the output gap account for around 80% of the unconditional forecast error variance of bond yields at the short and medium end of the term structure, while monetary policy shocks account for around 20%. Our impulse response function analysis suggests that bond yields respond to macroeconomic shocks only gradually, peaking after about 4 quarters. This is due to sizable monetary policy inertia estimates in our model. At the peak of the response, inflation shocks increase bond yields by more than one-to-one, while output shocks do so by less than one-to-one, which is consistent with a Taylor type monetary policy rule. Our estimated time-varying term premium is strongly counter-cyclical. Moreover, we show that it can capture salient features of the term structure that constitute a puzzle in the expectations hypothesis, that is, LPY(i) and LPY(ii).
Book Synopsis New Keynesian Dynamics in a Low Interest Rate Environment by : R. Anton Braun
Download or read book New Keynesian Dynamics in a Low Interest Rate Environment written by R. Anton Braun and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research has found that the dynamics of the New Keynesian model are very different when the nominal interest rate is zero. Improvements in technology shocks and reductions in the labor tax rate lower economic activity and the size of the government purchase multiplier can be as large as four. We consider the empirical relevance of these dynamics using Japanese data. Japan is interesting because it experienced a protracted period of zero nominal interest rates. A prototypical New Keynesian model calibrated to Japan and solved using nonlinear methods exhibits orthodox dynamics with a government purchase multiplier that is less than one.--Authors' abstract.
