INSIDE MONEY IN GENERAL EQUILIBRIUM: DOES IT MATTER FOR MONETARY POLICY?

2011 ◽  
Vol 17 (3) ◽  
pp. 563-590 ◽  
Author(s):  
Livio Stracca
Keyword(s):  
Monetary Policy ◽  
Active Role ◽  
Significant Loss ◽  
New Keynesian ◽  
Monetary Policy Shocks ◽  
Real Effects ◽  
Keynesian Model ◽  
Inside Money ◽  
Policy Shocks ◽  
Money Shocks

This paper analyzes the role and importance of “inside” money, made out of commercial banks' liabilities, for a New Keynesian model of the type commonly used for monetary policy analysis. The active role of inside money stems from its unique role in allowing payment for at least some consumption goods; shocks to the production of inside money may therefore have real effects. A calibrated version of the model is shown to generate small, but nonnegligible effects of inside money shocks on output and inflation. Moreover, the presence of inside money in the model leads to a slight attenuation of the effect of technology and monetary policy shocks. Finally, it is found that it is optimal for monetary policy to react to inside money shocks, but reacting to inflation alone does not result in a significant loss of household welfare.

Services Deepening and the Transmission of Monetary Policy

2018 ◽  
Vol 17 (4) ◽  
pp. 1261-1293 ◽  
Author(s):  
Alessandro Galesi ◽  
Omar Rachedi
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
Monetary Policy Shocks ◽  
Marginal Costs ◽  
Cost Channel ◽  
Keynesian Model ◽  
Output Matrix ◽  
Inflation Rates ◽  
Policy Shocks ◽  
Transmission Of Monetary Policy

Abstract The structural transformation from manufacturing to services comes with a process of services deepening: the services share of intermediate inputs rises over time. Moreover, inflation reacts less to monetary policy shocks in countries that are more intensive in services intermediates. We rationalize these facts using a two-sector New Keynesian model where trends in sectoral productivities generate endogenous variations in the Input–Output matrix. Services deepening reduces the contemporaneous response of inflation to monetary policy shocks through a marginal cost channel. Since services prices are stickier than manufacturing prices, the rise of services intermediates raises the sluggishness of sectoral marginal costs and inflation rates.

scholarly journals INTEREST RATE EFFECTS OF DEMOGRAPHIC CHANGES IN A NEW KEYNESIAN LIFE-CYCLE FRAMEWORK

2014 ◽  
Vol 20 (1) ◽  
pp. 120-164 ◽  
Author(s):  
Engin Kara ◽  
Leopold von Thadden
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
New Keynesian ◽  
Policy Framework ◽  
Small Scale ◽  
Monetary Policy Shocks ◽  
Keynesian Model ◽  
Rate Effects ◽  
Policy Shocks ◽  
Short Run

This paper develops a small-scale DSGE model that embeds a demographic structure within a monetary policy framework. We extend the nonmonetary overlapping-generations model of Gertler and present a small synthesis model that combines the setup of Gertler with a New Keynesian structure, implying that the short-run dynamics related to monetary policy can be compared with that of the standard New Keynesian model. In sum, the model offers a New Keynesian platform that can be used to characterize the response of macroeconomic variables to demographic shocks, similarly to the responses to technology or monetary policy shocks. We offer such characterizations for flexible and sticky price equilibria. Empirically, we calibrate the model to demographic developments projected for the euro area. The main finding is that the projected slowdown in population growth and the increase in longevity contribute slowly over time to a decline in the equilibrium interest rate.

scholarly journals Are the Effects of Monetary Policy Shocks Big or Small?

2012 ◽  
Vol 4 (2) ◽  
pp. 1-32 ◽  
Author(s):  
Olivier Coibion
Keyword(s):  
Monetary Policy ◽  
Monetary Policy Shocks ◽  
Taylor Rules ◽  
The Real ◽  
Real Effects ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Historical Contribution

This paper studies the small estimated effects of monetary policy shocks from standard VARs versus the large effects from the Romer and Romer (2004) approach. The differences are driven by three factors: the different contractionary impetus, the period of reserves targeting, and lag length selection. Accounting for these factors, the real effects of policy shocks are consistent across approaches and most likely medium. Alternative monetary policy shock measures from estimated Taylor rules also yield medium-sized real effects and indicate that the historical contribution of monetary policy shocks to real fluctuations has been significant, particularly during the 1970s and early 1980s. (JEL E32, E43, E52)

scholarly journals HAS GLOBALIZATION TRANSFORMED U.S. MACROECONOMIC DYNAMICS?

2012 ◽  
Vol 16 (2) ◽  
pp. 204-229 ◽  
Author(s):  
Fabio Milani
Keyword(s):  
Open Economy ◽  
Phillips Curve ◽  
New Keynesian ◽  
Time Varying ◽  
Closed Economy ◽  
Monetary Policy Shocks ◽  
Macroeconomic Dynamics ◽  
Keynesian Model ◽  
Policy Shocks ◽  
Openness To Trade

This paper estimates a structural New Keynesian model to test whether globalization has changed the behavior of U.S. macroeconomic variables. Several key coefficients in the model–such as the slopes of the Phillips and IS curves, the sensitivities of domestic inflation and output to “global” output, and so forth–are allowed in the estimation to depend on the extent of globalization (modeled as the changing degree of openness to trade of the economy), and, therefore, they become time-varying. The empirical results indicate that globalization can explain only a small part of the reduction in the slope of the Phillips curve. The sensitivity of U.S. inflation to global measures of output may have increased over the sample, but it remains very small. The changes in the IS curve caused by globalization are similarly modest. Globalization does not seem to have led to an attenuation in the effects of monetary policy shocks. The nested closed-economy specification still appears to provide a substantially better fit of U.S. data than various open-economy specifications with time-varying degrees of openness. Some time variation in the model coefficients over the postwar sample exists, particularly in the volatilities of the shocks, but it is unlikely to be related to globalization.

scholarly journals Non-linearities, state-dependent prices and the transmission mechanism of monetary policy

2021 ◽  
Author(s):  
Guido Ascari ◽  
Timo Haber
Keyword(s):  
Monetary Policy ◽  
Price Level ◽  
Transmission Mechanism ◽  
Monetary Policy Shocks ◽  
Real Effects ◽  
State Dependent ◽  
Trend Inflation ◽  
Policy Shocks ◽  
Linear Effects ◽  
State Dependent Pricing

Abstract A sticky price theory of the transmission mechanism of monetary policy shocks based on state-dependent pricing yields two testable implications, that do not hold in time-dependent models. First, large monetary policy shocks should yield proportionally larger initial responses of the price level. Second, in a high trend inflation regime, the response of the price level to monetary policy shocks should be larger and real effects smaller. Our analysis provides evidence supporting these non-linear effects in the response of the price level in aggregate US data, indicating state-dependent pricing as an important feature of the transmission mechanism of monetary policy.

REAL EFFECTS OF MONETARY POLICY IN LARGE EMERGING ECONOMIES

2011 ◽  
Vol 16 (S2) ◽  
pp. 190-212 ◽  
Author(s):  
Sushanta K. Mallick ◽  
Ricardo M. Sousa
Keyword(s):  
Monetary Policy ◽  
Emerging Market ◽  
Monetary Policy Shocks ◽  
Equity Prices ◽  
Real Effects ◽  
Interest Rate Shocks ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Negative Effect ◽  
Alternative Identification

This paper provides evidence on monetary policy transmission for five key emerging market economies: Brazil, Russia, India, China, and South Africa. Monetary policy (interest rate) shocks are identified using modern Bayesian methods along with the more recent sign restrictions approach. We find that contractionary monetary policy has a strong and negative effect on output. We also show that such contractionary monetary policy shocks do tend to stabilize inflation in these countries in the short term, while producing a strongly persistent negative effect on real equity prices. Overall, the impulse responses are robust to the alternative identification procedures.

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