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Author : Klaus Adam
Publisher :
ISBN 13 :
Total Pages : 62 pages
Book Rating : 4.:/5 (777 download)
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:
Author : Klaus Adam
Publisher :
ISBN 13 :
Total Pages : 63 pages
Book Rating : 4.:/5 (114 download)
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.
Author : Kai Leitemo
Publisher :
ISBN 13 :
Total Pages : 26 pages
Book Rating : 4.:/5 (129 download)
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).
Author : Zineddine Alla
Publisher : International Monetary Fund
ISBN 13 : 1513573039
Total Pages : 34 pages
Book Rating : 4.5/5 (135 download)
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.
Author : Jordi Galí
Publisher : Princeton University Press
ISBN 13 : 0691164789
Total Pages : 296 pages
Book Rating : 4.6/5 (911 download)
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 296 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
Author : Rafael Gerke
Publisher :
ISBN 13 :
Total Pages : 48 pages
Book Rating : 4.:/5 (13 download)
Download or read book Robust Monetary Policy in a New Keynesian Model with Imperfect Interest Rate Pass-Through written by Rafael Gerke and published by . This book was released on 2016 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use robust control to study how a central bank in an economy with imperfect interest rate pass-through conducts monetary policy if it fears that its model could be misspecified. The effects of the central bank's concern for robustness can be summarised as follows. First, depending on the shock, robust optimal monetary policy under commitment responds either more cautiously or more aggressively. Second, such robustness comes at a cost: the central bank dampens volatility in the inflation rate preemptively, but accepts higher volatility in the output gap and the loan rate. Third, if the central bank faces uncertainty only in the IS equation or the loan rate equation, the robust policy shifts its concern for stabilisation away from inflation.
Author : Rafael Gerke
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (13 download)
Download or read book More Or Less Aggressive? Robust Monetary Policy in a New Keynesian Model with Financial Distress written by Rafael Gerke and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the optimal monetary policy response to a shock to collateral when policymakers act under discretion and face model uncertainty. The analysis is based on a New Keynesian model where banks supply loans to transaction constrained consumers. Our results confirm the literature on model uncertainty with respect to a cost-push shock. Insuring against model misspecification leads to a more aggressive policy response. The same is true for a shock to collateral. A preference for robustness leads to a more aggressive policy. Increasing the weight attached to interest rate smoothing raises the degree of aggressiveness. Our results indicate that a preference for robustness crucially depends on the way different types of disturbances affect the economy: in the case of a shock to collateral the policymaker does not need to be as much worried about model misspecification as in the case of a conventional cost-push shock.
Author : Yue Tan
Publisher :
ISBN 13 : 9780355466010
Total Pages : 157 pages
Book Rating : 4.4/5 (66 download)
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.
Author : Mikael Bask
Publisher :
ISBN 13 : 9789524623971
Total Pages : pages
Book Rating : 4.6/5 (239 download)
Download or read book Optimal Monetary Policy in a Hybrid New Keynesian Model with a Cost Channel written by Mikael Bask and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jenn-Hong Tang
Publisher :
ISBN 13 :
Total Pages : 39 pages
Book Rating : 4.:/5 (129 download)
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.
Author : Julien Bengui
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (611 download)
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.
Author :
Publisher :
ISBN 13 : 9789279827525
Total Pages : pages
Book Rating : 4.8/5 (275 download)
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.
Author : Jonathan Benchimol
Publisher : International Monetary Fund
ISBN 13 : 1498324584
Total Pages : 52 pages
Book Rating : 4.4/5 (983 download)
Download or read book Optimal Monetary Policy Under Bounded Rationality written by Jonathan Benchimol and published by International Monetary Fund. This book was released on 2019-08-02 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.
Author : Xavier Gabaix
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.:/5 (966 download)
Download or read book A Behavioral New Keynesian Model written by Xavier Gabaix and published by . This book was released on 2016 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a framework for analyzing how bounded rationality affects monetary and fiscal policy. The model is a tractable and parsimonious enrichment of the widely-used New Keynesian model – with one main new parameter, which quantifies how poorly agents understand future policy and its impact. That myopia parameter, in turn, affects the power of monetary and fiscal policy in a microfounded general equilibrium. A number of consequences emerge. (i) Fiscal stimulus or \helicopter drops of money" are powerful and, indeed, pull the economy out of the zero lower bound. More generally, the model allows for the joint analysis of optimal monetary and fiscal policy. (ii) The Taylor principle is strongly modified: even with passive monetary policy, equilibrium is determinate, whereas the traditional rational model yields multiple equilibria, which reduce its predictive power, and generates indeterminate economies at the zero lower bound (ZLB). (iii) The ZLB is much less costly than in the traditional model. (iv) The model helps solve the “forward guidance puzzle”: the fact that in the rational model, shocks to very distant rates have a very powerful impact on today's consumption and inflation: because agents are partially myopic, this effect is muted. (v) Optimal policy changes qualitatively: the optimal commitment policy with rational agents demands “nominal GDP targeting”; this is not the case with behavioral firms, as the benefits of commitment are less strong with myopic forms. (vi) The model is “neo-Fisherian” in the long run, but Keynesian in the short run: a permanent rise in the interest rate decreases inflation in the short run but increases it in the long run. The non-standard behavioral features of the model seem warranted by the empirical evidence.
Author : Gauti B. Eggertsson
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (129 download)
Download or read book Optimal Monetary and Fiscal Policy Under Discretion in the New Keynesian Model written by Gauti B. Eggertsson and published by . This book was released on 2006 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper details the microfoundations of the model presented in Staff Report no. 234, Great Expectations and the End of the Depression. It defines the Markov perfect equilibrium formally in the nonlinear model, discusses in some detail the approximation method used and the order of accuracy of this approximation, and gives proofs of two propositions not proved in Staff Report no. 234. In addition, this paper states a proposition that shows the equivalence between the linear quadratic approximation in Staff Report no. 234 and a first order approximation to the exact nonlinear conditions of the government in the Markov perfect equilibrium defined here.
Author : Kai Leitemo
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Download or read book Robust Monetary Policy in a Small Open Economy written by Kai Leitemo and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies how a central bank's preference for robustness against model misspecification affects the design of monetary policy in a New-Keynesian model of a small open economy. Due to the simple model structure, we are able to solve analytically for the optimal robust policy rule, and we separately analyze the effects of robustness against misspecification concerning the determination of inflation, output and the exchange rate. We show that an increased central bank preference for robustness makes monetary policy respond more aggressively or more cautiously to shocks, depending on the type of shock and the source of misspecification.
Author : Campbell Leith
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (437 download)
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:
