scholarly journals Monetary policy and energy price shocks

2017 ◽  
Vol 17 (2) ◽  
Author(s):  
Bao Tan Huynh
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
Energy Price ◽  
Price Shocks ◽  
Endogenous Production ◽  
Supply Shocks ◽  
Price Rigidities ◽  
Convex Costs ◽  
Shed Light

AbstractA New Keynesian framework with endogenous energy production is proposed to investigate the role of monetary policy in addressing disturbances in energy markets. The novelty of the model lies in the endogenous production of energy with convex costs, explicit modeling of goods with different degrees of energy-dependency and sectoral price rigidities. Our analyses prescribe the desirable monetary responses to four types of energy price shocks, highlighting the distinct characteristics of each shock and affirming the need for diverse policy considerations. We also found several points of divergence in relation to previous studies on addressing energy supply shocks. In addition, we shed light on the role of sectoral price rigidities in the shocks’ propagation.

scholarly journals On the Limits of Macroprudential Policy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Output Volatility ◽  
Macroprudential Policy ◽  
Collateral Constraints ◽  
Keynesian Model ◽  
Additional Stabilization ◽  
The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

Liquidity, Risk Premia, and the Financial Transmission of Monetary Policy

2018 ◽  
Vol 10 (1) ◽  
pp. 309-328 ◽  
Author(s):  
Itamar Drechsler ◽  
Alexi Savov ◽  
Philipp Schnabl
Keyword(s):  
Monetary Policy ◽  
Risk Sharing ◽  
Financial System ◽  
Risk Premia ◽  
New Keynesian ◽  
Liquidity Premium ◽  
Impact Risk ◽  
The Cost ◽  
Transmission Of Monetary Policy

In recent years, there has been a resurgence of research on the transmission of monetary policy through the financial system, fueled in part by empirical findings showing that monetary policy affects asset prices and the financial system in ways not explained by the New Keynesian paradigm. In particular, monetary policy appears to impact risk premia in stock and bond prices and to effectively control the liquidity premium in the economy (the cost of holding liquid assets). We review these findings and recent theories proposed to explain them, and we outline a conceptual framework that unifies them. The framework revolves around the central role of liquidity in risk sharing and explains how monetary policy governs its production and use within the financial sector.

PERFORMANCE OF CHINA’S CORE INFLATION MEASURES FOR MONETARY POLICY

2021 ◽  
pp. 1-28
Author(s):  
YUSHAN HU ◽  
PENGLONG ZHANG
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Output Growth ◽  
New Keynesian ◽  
Var Models ◽  
Aggregated Data ◽  
Core Inflation ◽  
Supply Shocks ◽  
Supply Shock ◽  
Key Characteristics

In this paper, China’s core inflation is defined as any price changes that are caused by the money supply. This definition is especially relevant to examining monetary policy because the money supply is controllable by China’s central bank. This paper develops a New Keynesian DSGE model with a quantity-based monetary rule that fits real aggregated data from China to analyze core inflation’s key characteristics. Eight different approaches are used to estimate core inflation in China. By constructing VAR models of output growth, money supply growth and core inflation, we estimate the response of core inflation measures to the money supply shock. By matching the response to money supply shocks in both the model and the data, we compare the performance of different core inflation measures for monetary policy in China.

scholarly journals Should Inequality Factor into Central Banks' Decisions?

2020 ◽  
Vol 20 (196) ◽  
Author(s):  
Niels-Jakob Hansen ◽  
Alessandro Lin ◽  
Rui Mano
Keyword(s):  
Monetary Policy ◽  
Potential Role ◽  
Central Banks ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Taylor Rules ◽  
Keynesian Model

Inequality is increasingly a concern. Fiscal and structural policies are well-understood mitigators. However, less is known about the potential role of monetary policy. This paper investigates how inequality matters for monetary policy within a tractable Two-Agent New Keynesian model that captures important dimensions of inequality. We find some support for making inequality an explicit target for monetary policy, particularly if central banks follow standard Taylor rules.

scholarly journals The Aftermath of the Tariff War on China

2020 ◽  
Vol 16 (2) ◽  
pp. 22
Author(s):  
Nicholas Bitar
Keyword(s):  
Monetary Policy ◽  
Positive Impact ◽  
New Keynesian ◽  
Us Economy ◽  
The Us ◽  
Short Run ◽  
The Interest Rate ◽  
Positive Effect ◽  
Shed Light ◽  
Trump Administration

Will the US sustain its economy after the tariff war with China, or will the economy regress? This paper offers a conceptual framework, based on the tenets of New-Keynesian theory, to answer this question. I anticipate that the tariff will have a positive effect on the GDP of the US economy in the short run while prices will rise. When adding the most recent reforms of interest cut by the Fed to 1.75% in September (2019) the model concludes a better outcome. Followed by an expansionary monetary policy by reducing the interest rate, the aftermath of the tariff war on China seems to have a positive impact on the US income and productivity. Obviously, some critics to the Trump Administration indeed shed light on the curtailed global and US social welfare that is caused by the inflationary effect of the tariff war, in addition to the deteriorating conditions for some trading sectors in the US which would certainly lead to unemployment. But the benefits to the US economy that are translated by the New-Keynesian theoretical framework show a positive impact on US production, employment, and GDP.

scholarly journals Nepal

2019 ◽  
Vol 19 (60) ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Inflation Pressure ◽  
Price Shocks ◽  
Core Inflation ◽  
Inflation Rates ◽  
Exchange Rate Movements ◽  
Pass Through ◽  
Food Inflation ◽  
Domestic Inflation

This Selected Issues paper examines the degree to which inflation co-moves between India and a panel of countries in Asia. The paper shows that the considerable co-movement in headline inflation rates between India and Nepal is driven almost exclusively by food-inflation co-movement. By contrast, the role of inflation spillovers from India in driving nonfood inflation in Nepal appears limited. The implication is that Nepal should rely on domestic monetary policy rather than stable inflation in India to achieve stable domestic inflation. The main takeaway is that food inflation co-movement between India and other countries is higher when co-movement in rainfall deviation from seasonal norms is highest. Since core inflation co-movement is weak, idiosyncratic domestic factors such as economic slack, exchange rate movements, and differing degrees of pass-through from food- and energy-price shocks play an important role. This finding is critically important for monetary policy, especially since domestic policy is primarily effective only in controlling core inflation. Thus, domestic monetary policy must be calibrated according to domestic inflation pressure—Nepal cannot necessarily rely on stable inflation in India to achieve stable domestic inflation.

scholarly journals MACROECONOMIC EFFECTS OF ENERGY PRICE SHOCKS ON THE BUSINESS CYCLE

2015 ◽  
Vol 20 (3) ◽  
pp. 623-642 ◽  
Author(s):  
Bao Tan Huynh
Keyword(s):  
Business Cycle ◽  
Energy Production ◽  
Energy Price ◽  
Price Shocks ◽  
Price Elasticities ◽  
Empirical Estimates ◽  
Underlying Causes ◽  
The Business Cycle ◽  
Convex Costs ◽  
Macro Variables

This paper proposes a framework of endogenous energy production with convex costs to investigate the general equilibrium effects of energy price shocks on the business cycle. This framework explicitly models the consumption of durables and nondurables and implements a high complementarity between energy and the usage of durables and capital. The model predicts energy price elasticities of various consumption variables that fall within reasonable agreement with empirical estimates. Convex costs in energy production produce energy price and energy supply dynamics that tallies well with empirical behavior. Our analysis confirms in a theoretical setting recent observations that not all energy price shocks are the same. They can be distinct in terms of energy price dynamics and impact on the business cycle, as well as energy price elasticities of various macro variables that can be useful indicators for their underlying causes.

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