File Name: nominal price rigidity money supply endogeneity and business cycles .zip
- Monetary Business Cycle Models (Sticky Prices and Wages)
- Business cycle
- Nominal price rigidity, money supply endogeneity, and business cycles
- Endogenous Money or Sticky Prices?
Monetary Business Cycle Models (Sticky Prices and Wages)
This paper develops and estimates a dynamic stochastic general equilibrium model of a small open economy which approximately accounts for the empirical evidence concerning the monetary transmission mechanism, as summarized by impulse response functions derived from an estimated structural vector autoregressive model, while dominating that structural vector autoregressive model in terms of predictive accuracy.
The model features short run nominal price and wage rigidities generated by monopolistic competition and staggered reoptimization in output and labour markets. The resultant inertia in inflation and persistence in output is enhanced with other features such as habit persistence in consumption, adjustment costs in investment, and variable capital utilization. Incomplete exchange rate pass through is generated by monopolistic competition and staggered reoptimization in the import market.
Cyclical components are modeled by linearizing equilibrium conditions around a stationary deterministic steady state equilibrium, while trend components are modeled as random walks while ensuring the existence of a well defined balanced growth path.
Parameters and trend components are jointly estimated with a novel Bayesian full information maximum likelihood procedure. Adolfson, M. Akaike, H. Altig, D. Christiano, M. Eichenbaum and J. An, S. Benigno, G. Betts, C. Devereux , Exchange rate dynamics in a model with pricing-to-market, Journal of International Economics, 50, Calvo, G.
Campa, J. Goldberg , Exchange rate pass-through into import prices: A macro or micro phenomenon, Unpublished Manuscript. Christiano, L.
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Cushman, D. Zha , Identifying monetary policy in a small open economy under flexible exchange rates, Journal of Monetary Economics, 39, Diebold, F. Mariano , Comparing predictive accuracy, Journal of Business and Economic Statistics, 13, Eichenbaum, M. Evans , Some empirical evidence on the effects of shocks to monetary policy on exchange rates, Quarterly Journal of Economics, , Engle, R.
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Gordon, D. Leeper , The dynamic impacts of monetary policy: An exercise in tentative identification, Journal of Political Economy, , Hamilton, J. Hannan, E. Quinn , The determination of the order of an autoregression, Journal of the Royal Statistical Society, Harvey, A.
Jaeger , Detrending, stylized facts and the business cycle, Journal of Applied Econometrics, 8, Hodrick, R. Prescott , Post-war U. Ireland, P. Kalman, R. Kim, S. Klein, P. Kollman, R. Leeper, E. Sims and T. Zha , What does monetary policy do? Maddala, G. McCallum, B. Nelson , Monetary policy for an open economy: An alternative framework with optimizing agents and sticky prices, Oxford Review of Economic Policy, 16, Monacelli, T.
Nelson, C. Kang , Spurious periodicity in inappropriately detrended time series, Econometrica, 49, Newey, W. West , A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix, Econometrica, 55, Obstfeld, M.
Rogoff , Exchange rate dynamics redux, Journal of Political Economy, , Rotemberg, J. Woodford , Dynamic general equilibrium models with imperfectly competitive product markets, Frontiers of Business Cycle Research, Princeton University Press. Ruge-Murcia, F. Schwarz, G. Sims, C. Zha , Does monetary policy generate recessions?
Smets, F. Wouters , An estimated dynamic stochastic general equilibrium model of the Euro area, Journal of the European Economic Association, 1, Vitek, F. Woodford, M. Yun, T. Login Create Account Admin. All papers reproduced by permission.
Reproduction and distribution subject to the approval of the copyright owners. View Item. Monetary policy analysis; Inflation targeting; Small open economy; Dynamic stochastic general equilibrium model; Monetary transmission mechanism; Forecast performance evaluation.
Course Type : Graduate 1st Year. Course Description : This course introduces theoretical and methodological underpinnings of modern macroeconomics. Programming Languages Used : Matlab, Dynare. Note 1 : A chapter by Fernandez-Villaverde, Rubio-Ramirez, and Schorfheide covers many topics we will go through in this course. Click here. Note 2 : Computer codes will be provided in class.
ECONOMICS. ELSEVIER Journal of Monetary Economics 37 () Nominal price rigidity, money supply endogeneity, and business cycles. Tack Yun.
Nominal price rigidity, money supply endogeneity, and business cycles
I show that in a setting with costly information processing, strategic complementarity in pricing, by generating planning complementatrities, results in the aggregate price responding slowly to nominal shocks even though individual firm prices change by large amounts in response to idiosyncratic shocks. Klenow and Kryvtsov conclude that none of the commonly used pricing models is capable of matching all the facts from micro data and at the same time generate a large and persistent response to monetary policy. Unlike the standard state dependent pricing models which rely on physical costs of changing prices to generate unresponsiveness of prices, I instead focus on costs of planning and processing information, a channel which researchers have found empirically more important than physical costs of changing prices in determining pricing decisions of firms. The model is able to match all the features of micro pricing data and at the same time generates a sluggish response of aggregate price to monetary policy, thus predicting a short run Phillips curve. Also, the model generates firms behavior in which they set price plans rather than prices and also shows that firms may choose to index prices to long run inflation optimally as is often assumed in New-Keynesian models.
This paper develops and estimates a dynamic stochastic general equilibrium model of a small open economy which approximately accounts for the empirical evidence concerning the monetary transmission mechanism, as summarized by impulse response functions derived from an estimated structural vector autoregressive model, while dominating that structural vector autoregressive model in terms of predictive accuracy. The model features short run nominal price and wage rigidities generated by monopolistic competition and staggered reoptimization in output and labour markets. The resultant inertia in inflation and persistence in output is enhanced with other features such as habit persistence in consumption, adjustment costs in investment, and variable capital utilization. Incomplete exchange rate pass through is generated by monopolistic competition and staggered reoptimization in the import market. Cyclical components are modeled by linearizing equilibrium conditions around a stationary deterministic steady state equilibrium, while trend components are modeled as random walks while ensuring the existence of a well defined balanced growth path.
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Endogenous Money or Sticky Prices?
The business cycle , also known as the economic cycle or trade cycle , are the fluctuations of gross domestic product GDP around its long-term growth trend. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth expansions or booms and periods of relative stagnation or decline contractions or recessions. Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite the often-applied term cycles , these fluctuations in economic activity may or may not exhibit uniform or predictable periodicity. The common or popular usage boom-and-bust cycle refers to fluctuations in which the expansion is rapid and the contraction severe. The current view of mainstream economics is that business cycles are essentially the summation of purely random shocks to the economy and thus are not, in fact, cycles, despite appearing to be so.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. Unit 4 - Money, Banking, and Financial Markets This unit discusses functions of money, money's inherent value, money as debt, time value of money, money and prices, and money supply. The unit also discusses monetary value, the US financial system, the money market, the bond market, the stock market, the loanable funds theory, and creating money That is fixed by the monetary base and the money supply multiplier.
nominal price rigidity in a standard real business cycle model, allowing for an endogenous money supply rule. It is then demonstrated that sticky price models.
Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. DOI: Ireland Published Economics Monetary Economics. What explains the correlations between nominal and real variables in the postwar US data? Are these correlations indicative of significant nominal price rigidity? Or do they simply reflect the particular way that monetary policymakers react to developments in the real economy?
Acemoglu , Introduction to Modern Economic Growth ,
Monetary Economics pp Cite as. Since the earliest analysis of the monetary transmission mechanism by pre-eminent classical economists of the 18th and early 19th century, sticky prices and wages have been identified as playing a central role Humphrey, The classical economists believed that prices adjusted gradually to a change in the nominal money stock, so that monetary changes could exert substantial short-run effects on output.
This paper reports results from a survey by the Bank of England in to assess the extent of price-stickiness in UK companies. In the year before the survey, firms on average reviewed prices monthly but changed them only twice. Time-dependent pricing was far more prevalent than state-dependent pricing and there was also some evidence of asymmetries in price-responsiveness to shocks. Firms assessed the importance of particular layman's descriptions of theories of price stickiness. Few respondents rated menu costs as material to their price-setting decisions.
Press Release. Accordingly, the inflation target needs to be fixed in alignment with trend inflation to avoid unhinging inflation expectations and flattening the aggregate supply curve or imparting a deflationary bias to the economy. Results from a regime switching model applied to a hybrid New Keynesian Philips curve suggest a steady decline in trend inflation since to 4. This points to maintaining the inflation target at 4 per cent for India. Keywords: Trend inflation; Inflation target; Regime-switching model; Stochastic volatility.