scholarly journals CREDIT FRICTIONS, COLLATERAL, AND THE CYCLICAL BEHAVIOR OF THE FINANCE PREMIUM

2013 ◽  
Vol 18 (5) ◽  
pp. 985-997 ◽  
Author(s):  
Pierre-Richard Agénor ◽  
George J. Bratsiotis ◽  
Damjan Pfajfar
Keyword(s):  
Dynamic Stochastic General Equilibrium ◽  
Monetary Shocks ◽  
Loan Rate ◽  
Loan Spread ◽  
Dynamic Stochastic ◽  
Cyclical Behavior ◽  
Credit Frictions ◽  
Production Output ◽  
The Cost ◽  
Macro Variables

This paper examines the behavior of the finance premium after technology and monetary shocks in a dynamic stochastic general equilibrium (DSGE) model where borrowers use a fraction of their production (output) as collateral. We show that this simple framework is capable of producing a countercyclical finance premium, while matching the well-documented stylized facts of macro dynamics. A key feature is the endogenous derivation of the default probability from break-even conditions, which results in the loan rate being set as a countercyclical finance premium over the cost of borrowing from the central bank. The latter is shown to provide an accelerator effect through which shocks can amplify the loan spread and the dynamic response of macro variables.

EXPLAINING INVENTORIES: A BUSINESS CYCLE ASSESSMENT OF THE STOCKOUT AVOIDANCE AND (S,s) MOTIVES

2007 ◽  
Vol 11 (5) ◽  
pp. 638-664 ◽  
Author(s):  
AUBHIK KHAN ◽  
JULIA K. THOMAS
Keyword(s):  
Model Performance ◽  
Idiosyncratic Risk ◽  
Dynamic Stochastic General Equilibrium ◽  
Reduced Form ◽  
Technology Shocks ◽  
Inventory Models ◽  
Dynamic Stochastic ◽  
Cyclical Behavior ◽  
S Model ◽  
The U.S

We evaluate two leading explanations for inventories, the (S,s) and stockout avoidance motives, examining each within dynamic stochastic general equilibrium environments. We find that the (S,s) model is far more consistent with the cyclical behavior of aggregate inventories in the postwar United States when fluctuations arise from technology shocks, rather than preference shocks, whereas the converse is true for the stockout avoidance model. The (S,s) model succeeds in explaining the average magnitude of inventories in the U.S. economy and in reproducing the cyclical regularities involving inventories and other aggregate series. The stockout avoidance model does not. Even with idiosyncratic risk added to strengthen it, the stockout avoidance motive is insufficient to generate stocks near the data without destroying model performance along other important margins. Moreover, it appears incapable of sustaining inventories alongside capital. These findings suggest a fundamental flaw in reduced-form inventory models where stocks are loosely rationalized by this motive.

scholarly journals The Transmission of Monetary Shocks in a Multi-Region Economy: The Case of China

2019 ◽  
Vol 15 (4) ◽  
pp. 1
Author(s):  
Yingyi Zhao
Keyword(s):  
General Equilibrium ◽  
Empirical Data ◽  
Equilibrium Model ◽  
Estimation Method ◽  
Dynamic Stochastic General Equilibrium ◽  
Monetary Shocks ◽  
Input Output ◽  
Intermediate Inputs ◽  
Regional Dynamics ◽  
Dynamic Stochastic

This paper constructs a sticky price Dynamic Stochastic General Equilibrium model with multi-regions. Producers from different regions would range in price rigidity, production function, the regional structures of intermediate inputs. That is, firms from each area, can get intermediates and investments from all the regions in the country following the empirical Multi-region Input-Output table in China. Different from the previous symmetry model, the model in this paper allows idiosyncratic regional dynamics to the national monetary shocks. This model is calculated by the Bayesian estimation method using the regional and aggregate China empirical data.

Contrasting Visions for Macroeconomic Theory: DSGE and OEE

2018 ◽  
Vol 65 (1) ◽  
pp. 28-50 ◽  
Author(s):  
Abigail N. Devereaux ◽  
Richard E. Wagner
Keyword(s):  
Economic System ◽  
Coordination Games ◽  
Dynamic Stochastic General Equilibrium ◽  
Macroeconomic Theory ◽  
Aggregate Properties ◽  
Ecology Of Games ◽  
Dynamic Stochastic ◽  
Macro Variables ◽  
Dsge Modeling ◽  
Jel Classifications

Dynamic stochastic general equilibrium (DSGE) modeling remains the workhorse of contemporary macroeconomics despite a growing number of critiques of its ability to explain the aggregate properties of an economic system. For the most part, those critiques accept the DSGE presumption that traditional macro data are primitive, causal data. This leads to a stipulative style of analysis where macro variables are explained in terms of one another. In contrast, we set forth an open-ended evolutionary (OEE) framework for an OEE macroeconomics. Within this framework, systems data are not primitive, but are derived from prior microlevel interactions without any presumption that those macrolevel derivations reflect systemic equilibrium among the microlevel primitive sources of action. We explore some contours of an OEE framework by placing coordination games within an ecological setting where there is no agent who has universal knowledge relevant to that ecology of games.JEL Classifications: B40, C73, D51, D85, E02

scholarly journals Overborrowing and Systemic Externalities in the Business Cycle

2011 ◽  
Vol 101 (7) ◽  
pp. 3400-3426 ◽  
Author(s):  
Javier Bianchi
Keyword(s):  
Quantitative Analysis ◽  
Open Economy ◽  
Financial Crises ◽  
Credit Constraints ◽  
Small Open Economy ◽  
Dynamic Stochastic General Equilibrium ◽  
Constrained Efficiency ◽  
Dynamic Stochastic ◽  
The Business Cycle ◽  
The Cost

Credit constraints linking debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to overborrow. This externality arises because private agents fail to internalize the financial amplification effects of carrying a large amount of debt when credit constraints bind. We conduct a quantitative analysis of this externality in a two-sector dynamic stochastic general equilibrium (DSGE) model of a small open economy calibrated to emerging markets. Raising the cost of borrowing during tranquil times restores constrained efficiency and significantly reduces the incidence and severity of financial crises. JEL: E13, E32, E44, F41, G01

scholarly journals Sector-specific surprise and news shocks

2017 ◽  
Author(s):  
◽  
Ingul Baek
Keyword(s):  
Dynamic Stochastic General Equilibrium ◽  
Price Rigidity ◽  
News Shocks ◽  
Key Factor ◽  
Short Run ◽  
Dynamic Stochastic ◽  
Economic Boom ◽  
Macro Variables ◽  
Investment Goods ◽  
Two Sectors

I estimate the decomposition of total factor productivity (TFP) shocks by two sectors: (a) investment and (b) consumption. I also identify sectoral shocks by the timing of shocks realization, surprise shocks (unanticipated) and news shocks (anticipated), to investigate negative correlations among TFP in investment sector and macro variables. I find that surprise shocks to investment sector drive recession in short run. In contrast, positive comovements in response to TFP news shocks to investment sector immediately trigger economic boom. A two-sector DSGE (Dynamic Stochastic General Equilibrium) model confirms that price rigidity of investment goods is a key factor to generate the responses to the sector-specific TFP surprise shocks and news shocks as the empirical response: high rigidity for the surprise shocks and low rigidity for the new shocks. This result suggests that the model should adjust with the degree of the price rigidity depending on the surprise shocks or the news shocks.

scholarly journals Houses as Collateral and Household Debt Deleveraging in Korea

2021 ◽  
Vol 15 (1) ◽  
pp. 3-27
Author(s):  
Joonhyuk Song ◽  
Doojin Ryu
Keyword(s):  
Interest Rates ◽  
Housing Price ◽  
Dynamic Stochastic General Equilibrium ◽  
Household Debt ◽  
Monetary Shocks ◽  
Production Sector ◽  
Supply Shocks ◽  
Long Run ◽  
Operating Target ◽  
Dynamic Stochastic

Abstract As Korea’s household debt has increased rapidly since the mid-2000s, concerns that its economy’s hard-wired leveraging may negatively impact economic activity have grown. Calls are being made for policy actions to return the economy to its long-run trend. Housing preferences and monetary shocks can both trigger deleveraging, as most household debt is profoundly connected to the housing market, and debt growth increases sensitivity to interest rates. Constructing a dynamic stochastic general equilibrium model with heterogeneous households and the housing production sector, we simulate and analyze the macroeconomic effects of deleveraging. Because a lower loan-to-value (LTV) ceiling limits the size of household debt, the deleveraging effect caused by borrowers’ re-optimization is alleviated as the LTV ceiling decreases. When the housing price is included as an additional operating target in an otherwise standard monetary policy (MP) rule, economy-wide welfare increases when the MP is proactive to demand shocks and inactive to supply shocks. These findings suggest that deleveraging risk can be attenuated by adopting a lower LTV ceiling and maneuvering MP asymmetrically depending on the source of a shock.

scholarly journals On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms

2009 ◽  
pp. 24-47 ◽  
Author(s):  
G. Fagiolo ◽  
A. Roventini
Keyword(s):  
Economic Policy ◽  
Business Cycles ◽  
Analytical Solutions ◽  
Dynamic Stochastic General Equilibrium ◽  
Computational Economics ◽  
Monetary Shocks ◽  
Agent Based ◽  
Equilibrium Approach ◽  
Scientific Status ◽  
Dynamic Stochastic

The article considers and compares two modern approaches to the scientific foundation of economic policy. The first one is a part of mainstream economics and involves developing dynamic stochastic general equilibrium models for analyzing business cycles and exogenous monetary shocks. The second one (which the authors prefer) is a creation of "agent-based models" with more realistic assumptions on the behavior and interactions of agents, absence of equilibrium and analytical solutions, but with computer simulations. The article criticizes an equilibrium approach, describes some results of application of agent-based computational economics to the analysis of economic policy and mentions some difficulties arising whenever this new theoretical paradigm is applied.

scholarly journals Real wages and monetary policy: a DSGE approach

2015 ◽  
Vol 42 (5) ◽  
pp. 734-752
Author(s):  
Bryan Perry ◽  
Kerk Phillips ◽  
David E. Spencer
Keyword(s):  
Monetary Policy ◽  
Real Wage ◽  
Dynamic Stochastic General Equilibrium ◽  
Monetary Shocks ◽  
Real Wages ◽  
Content Type ◽  
The Real ◽  
Dynamic Stochastic ◽  
Monetary Policy Shock ◽  
Parameter Values

Purpose – Studies of the cyclical behavior of real wages have identified monetary shocks and examined the response of real wages and output or employment. A finding that real wages are procyclical in response to a positive monetary policy shock is taken as evidence that prices are stickier than wages. The purpose of this paper is to show that factors other than wage and price stickiness affect the response of real wages to a monetary policy shock. Design/methodology/approach – The authors simulate two prominent dynamic stochastic general equilibrium models under a variety of parameter values and examine the cyclicality of the real wage. Findings – The authors offer robust evidence that the real wage response to monetary policy is affected in important ways by properties of the economy other than stickiness of wages and prices, such as the importance of intermediate goods in the production process and the size of key elasticities. Consequently, the authors cannot appropriately infer the relative stickiness of wages and prices from examining only the response of real wages to a monetary policy shock. Originality/value – The authors show in this study that examining the response of real wages is not enough to sort out the relative stickiness of prices and wages.

Bayesian Estimation of DSGE Models

2015 ◽  
Author(s):  
Edward P. Herbst ◽  
Frank Schorfheide
Keyword(s):  
Monte Carlo ◽  
Sequential Monte Carlo ◽  
Likelihood Function ◽  
Academic Research ◽  
Dynamic Stochastic General Equilibrium ◽  
Computational Techniques ◽  
Dsge Models ◽  
Monte Carlo Techniques ◽  
Dynamic Stochastic ◽  
Theoretical Foundations

Dynamic stochastic general equilibrium (DSGE) models have become one of the workhorses of modern macroeconomics and are extensively used for academic research as well as forecasting and policy analysis at central banks. This book introduces readers to state-of-the-art computational techniques used in the Bayesian analysis of DSGE models. The book covers Markov chain Monte Carlo techniques for linearized DSGE models, novel sequential Monte Carlo methods that can be used for parameter inference, and the estimation of nonlinear DSGE models based on particle filter approximations of the likelihood function. The theoretical foundations of the algorithms are discussed in depth, and detailed empirical applications and numerical illustrations are provided. The book also gives invaluable advice on how to tailor these algorithms to specific applications and assess the accuracy and reliability of the computations. The book is essential reading for graduate students, academic researchers, and practitioners at policy institutions.

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