The Theory of Debt-Deflation: A Possibility of Incompatibility of Goals of Monetary Policy

2016 ◽  
pp. 41-48
Author(s):  
Samy Metrah
Keyword(s):  
Monetary Policy ◽  
Debt Deflation

scholarly journals MONETARY POLICY AND DEBT DEFLATION: SOME COMPUTATIONAL EXPERIMENTS

2016 ◽  
Vol 21 (1) ◽  
pp. 214-242 ◽  
Author(s):  
C. Chiarella ◽  
C. Di Guilmi
Keyword(s):  
Monetary Policy ◽  
Monte Carlo ◽  
Monte Carlo Simulations ◽  
Feedback Effects ◽  
Monetary Policies ◽  
Agent Based ◽  
Financial Position ◽  
Behavioral Rules ◽  
Credit Creation ◽  
Debt Deflation

The paper presents an agent-based model to study the possible effects of different fiscal and monetary policies in the context of debt deflation. We introduce a modified Taylor rule that includes the financial position of firms as a target. Monte Carlo simulations provide a representation of the complex feedback effects generated by the interaction among the different transmission channels of monetary policy. The model also reproduces the evidence of low inflation during stock market booms and shows how it can lead to overinvestment and destabilize the system. The paper also investigates the possible reasons behind this stylized fact by testing different behavioral rules for the central bank. We find that, in a context of sticky prices and volatile expectations, endogenous credit creation can be identified as the main source of the divergent dynamics of prices in the real and financial sectors.

scholarly journals Debt Deflation Effects of Monetary Policy

2014 ◽  
Author(s):  
Li Lin ◽  
Dimitrios P. Tsomocos ◽  
Alexandros Vardoulakis
Keyword(s):  
Monetary Policy ◽  
Debt Deflation

scholarly journals Debt-deflation versus the liquidity trap: the dilemma of nonconventional monetary policy

2015 ◽  
Vol 62 (1-2) ◽  
pp. 383-408 ◽  
Author(s):  
Gaël Giraud ◽  
Antonin Pottier
Keyword(s):  
Monetary Policy ◽  
Liquidity Trap ◽  
Debt Deflation

Α Model of Debt Deflation and the Phillips Curve: Implications for Business Cycles and the Balance Sheet Channel of Monetary Policy / Schulden-Deflation und die Phillips-Kurve: Implikationen für Konjunkturzyklen und den Bilanzkanal der Geldpolitik

2000 ◽  
Vol 220 (4) ◽  
Author(s):  
Lutz Arnold
Keyword(s):  
Monetary Policy ◽  
Business Cycles ◽  
Phillips Curve ◽  
Balance Sheet ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Natural Rate ◽  
Net Worth ◽  
Balance Sheet Channel ◽  
Debt Deflation

SummaryNew Keynesian economics stresses the positive link between firms’ net worth, on the one hand, and the equilibrium level of credit granted and aggregate employment, on the other hand. The present paper argues that once money is introduced and adaptive inflation expectations are assumed, an accelerationist Phillips curve emerges: because of debt deflation, an increase in the rate of inflation reduces firms' real debt burden; because of the negative link between real debt and employment, unemployment falls. The natural rate of unemployment is the rate that occurs when inflation is constant. Frisch has proposed modeling business cycles by means of stochastic linear second-order difference equations which display damped oscillations in the absence of stochastic impulses. The New Keynesian model with adaptive expectations expounded here gives rise to business cycles in Frisch’s sense. This can be shown by applying Laidler’s result, derived in a different set-up, that the interaction between an accelerationist Phillips curve and the quantity theory of money yields Frisch-type cycles. Moreover, the model presented sheds some light on the working of the balance sheet channel of monetary policy.

scholarly journals Debt Deflation Effects of Monetary Policy

2014 ◽  
Vol 2014 (37) ◽  
pp. 1-38 ◽  
Author(s):  
Li Lin ◽  
◽  
Dimitrios P. Tsomocos ◽  
Alexandros P. Vardoulakis
Keyword(s):  
Monetary Policy ◽  
Debt Deflation

Thailand's Macroeconomic Policy after July 1997

2003 ◽  
Vol 2 (1) ◽  
pp. 158-168
Author(s):  
Bhanupong Nidhiprabha
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Budget Deficit ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Central Bank Intervention ◽  
Policy Alternatives ◽  
Money Creation ◽  
Debt Deflation

The Bank of Thailand could have eased its monetary policy to prevent a slowdown in 2001. An expansionary monetary policy or budget deficit financed by money creation can spur growth in Thailand during recession, provided the Thai central bank does not intervene in the foreign-exchange market. The baht-dollar exchange rate cannot be disengaged from the yen-dollar rate by central bank intervention in the long term. Monetary policy seems to be more effective than other policy alternatives during the current debt deflation episode in Thailand.

scholarly journals Debt deflation effects of monetary policy

2015 ◽  
Vol 21 ◽  
pp. 81-94 ◽  
Author(s):  
Li Lin ◽  
Dimitrios P. Tsomocos ◽  
Alexandros P. Vardoulakis
Keyword(s):  
Monetary Policy ◽  
Debt Deflation

Imperfect Knowledge and Monetary Policy

2006 ◽  
Author(s):  
Vítor Gaspar ◽  
Otmar Issing ◽  
Oreste Tristani ◽  
David Vestin
Keyword(s):  
Monetary Policy ◽  
Imperfect Knowledge
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