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 Decision between Public Investment and Public Consumption: A Policy Analysis

2020 ◽  
Vol V (I) ◽  
pp. 131-152
Author(s):  
Muhammad Raashid ◽  
Abdul Saboor ◽  
Aneela Afzal
Keyword(s):  
Public Investment ◽  
Policy Decision ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Structural Unemployment ◽  
Government Investment ◽  
Long Run ◽  
Public Consumption ◽  
Dynamic Stochastic ◽  
Best Fit

This study aims to draw a policy decision between public investment and public consumption by designing a Dynamic Stochastic General Equilibrium (DSGE) model for the economy of Pakistan which is experiencing persistent shocks that have stressed the growth pattern. The DSGE model has a microeconomic foundation and justifies locus critics by envisioning an artificial economy. The model is evaluated and set to best fit for data through an exercise of moment matching. Government consumption shocks and Government Investment shocks are used to trace out the behaviour of the economy. The analysis confirms that Pakistan economy could go for capital formation through public investment but it results in compromised public consumption and structural unemployment. It is further concluded that the export base and long-run public investment programs are needed to achieve sustainable development in the economy.

scholarly journals Oil and the world economy: some possible futures

2014 ◽  
Vol 372 (2006) ◽  
pp. 20120327 ◽  
Author(s):  
Michael Kumhof ◽  
Dirk Muir
Keyword(s):  
World Economy ◽  
Oil Prices ◽  
Dynamic Stochastic General Equilibrium ◽  
Output Growth ◽  
Production Functions ◽  
Supply Shocks ◽  
Conventional Production ◽  
The World ◽  
Production Technologies ◽  
Dynamic Stochastic

This paper, using a six-region dynamic stochastic general equilibrium model of the world economy, assesses the output and current account implications of permanent oil supply shocks hitting the world economy. For modest-sized shocks and conventional production technologies, the effects are modest. But for larger shocks, for elasticities of substitution that decline as oil usage is reduced to a minimum, and for production functions in which oil acts as a critical enabler of technologies, output growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.

MACROECONOMIC VOLATILITY UNDER HIGH ACCUMULATION OF GOVERNMENT DEBT: LESSONS FROM JAPAN

2012 ◽  
Vol 15 (supp02) ◽  
pp. 1250057 ◽  
Author(s):  
PAUL D. McNELIS ◽  
NAOYUKI YOSHINO
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Risk Premium ◽  
Government Debt ◽  
Dynamic Stochastic General Equilibrium ◽  
High Accumulation ◽  
Macroeconomic Volatility ◽  
Exchange Rate Dynamics ◽  
Dynamic Stochastic

This paper applies Bayesian estimation to an open-economy Dynamic Stochastic General Equilibrium (DSGE) model of Japan, to assess the effects of expanding government debt on interest rates, real exchange rate dynamics, and real sector performance. We find that the emergence of even a small risk premium on government debt will trigger considerable instability in the real and nominal variables. We show that a switch to an exchange-rate rule for monetary policy would considerably moderate the instability induced by a rising risk premium.

scholarly journals Optimal Forward Guidance

2019 ◽  
Vol 11 (4) ◽  
pp. 310-345 ◽  
Author(s):  
Florin O. Bilbiie
Keyword(s):  
Interest Rates ◽  
Dynamic Stochastic General Equilibrium ◽  
Bad News ◽  
New Keynesian ◽  
Simple Rule ◽  
New Keynesian Model ◽  
Liquidity Trap ◽  
Forward Guidance ◽  
Keynesian Model ◽  
Dynamic Stochastic

Optimal forward guidance is the simple policy of keeping interest rates low for some optimally determined number of periods after the liquidity trap ends and moving to normal-times optimal policy thereafter. I solve for the optimal duration in closed form in a new Keynesian model and show that it is close to fully optimal Ramsey policy. The simple rule “announce a duration of half of the trap’s duration times the disruption” is a good approximation, including in a medium-scale dynamic stochastic general equilibrium (DSGE) model. By anchoring expectations of Delphic agents (who mistake commitment for bad news), the simple rule is also often welfare-preferable to Odyssean commitment. (JEL D84, E12, E43, E52, E56)

Labor Market and Household Debt in Asia Pacific Countries: Dynamic Heterogeneous Panel Data Analysis

2019 ◽  
Vol 10 (02) ◽  
pp. 1950011 ◽  
Author(s):  
Suhal Kusairi ◽  
Suriyani Muhamad ◽  
M Musdholifah ◽  
Shu-Chen Chang
Keyword(s):  
Labor Market ◽  
Panel Data ◽  
Labor Force ◽  
Unemployment Rate ◽  
Panel Data Analysis ◽  
Housing Price ◽  
Asia Pacific ◽  
Household Debt ◽  
Dependency Ratio ◽  
Long Run

An overwhelming increase in household debt in the last decade has stirred researchers to explore the determinants of this phenomena, especially the role of the labor market. This paper comes to identify these determinants using the macro panel data from Asia Pacific countries for 1994–2016 and dynamic heterogeneous panel data analysis. The empirical results found that household consumption, housing price index, and labor force have a long-run positive relationship with household debt. In contrast, the unemployment rate and dependency ratio have a long-run negative relationship with household debt. This implies that when consumption, housing price, and labor force increase, then the household debt will increase, and when the unemployment rate and dependency ratio increase, the household debt will decrease. Also, in the short-run, public debt does affect private consumption, and it is not different among countries. The labor market, as represented by the unemployment rate, dependency ratio, and labor force, has a strong effect on the household debt in the long-run. Based on these findings, the government should pay more attention to the household debt related to property and commodity markets because they expose the short-run volatility and create problems for the long-term.

MACROECONOMIC EFFECTS OF GREATER COMPETITION IN THE SERVICE SECTOR: THE CASE OF ITALY

2010 ◽  
Vol 14 (5) ◽  
pp. 677-708 ◽  
Author(s):  
L. Forni ◽  
A. Gerali ◽  
M. Pisani
Keyword(s):  
Euro Area ◽  
Service Sector ◽  
Monopolistic Competition ◽  
Spillover Effects ◽  
Dynamic Stochastic General Equilibrium ◽  
Services Sector ◽  
Long Run ◽  
Dynamic Stochastic ◽  
Nontradable Goods ◽  
Cross Country

In this paper we assess the effects of increasing competition in the service sector in one country of the euro area. We focus on Italy, which, based on cross-country comparisons, stands out as the country with the highest markups in nonmanufacturing industries among the OECD countries. We propose a two-region (Italy and the rest of the euro area) dynamic stochastic general equilibrium model where we introduce nontradable goods as a proxy for services and we allow for monopolistic competition in labor, manufacturing, and services markets. We then use the model to simulate the macroeconomic and spillover effects of increasing the degree of competition in the Italian services sector. According to the results, reducing the markups in services to the levels prevailing in the rest of the euro area induces in the long run an increase in Italian GDP equal to 11% and an increase in welfare (measured in terms of steady state consumption equivalents) of about 3.5%. Half of the GDP increase would be realized in the first three years. The spillover effects to the rest of the euro area are limited: consumption, investment, and GDP increases are relatively small.

scholarly journals Determinants of Household Debt in Botswana: 1994-2012

2015 ◽  
Vol 1 (1) ◽  
pp. 14 ◽  
Author(s):  
Faith M. Zimunya ◽  
Mpho Raboloko
Keyword(s):  
Interest Rates ◽  
Money Supply ◽  
Gdp Per Capita ◽  
Household Debt ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Per Capita ◽  
The Relationship

<p><em>The paper identifies the factors that are influential in determining the growth of household debt in Botswana. Understanding the relationship between household debt and other economic indicators is an important step towards formulating focused and effective policies that control the effects of household debt on the whole economy. Using quarterly data from the first quarter of 1994 to the second quarter of 2012,</em><em> </em><em>the paper employs the Vector Error Correction Model (VECM) to analyse the influence of </em><em>G</em><em>ross </em><em>D</em><em>omestic </em><em>P</em><em>roduct (GDP) per capita, interest rates, inflation, household consumption and money supply on household debt. The findings indicate that GDP per capita, interest rates and money supply determine changes in household debt in the long-run. Further analysis shows that lagged household debt, interest rates and money supply influence changes in household debt in the short-run.</em></p><p><em><br /></em></p>

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.

scholarly journals Monetary policy responses to the global financial crisis: A case study of Egypt

2011 ◽  
Vol 7 (3) ◽  
pp. 65-78
Author(s):  
Monal Abdel-Baki
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Reserve Requirements ◽  
Long Run ◽  
Dynamic Stochastic ◽  
The Global Financial Crisis ◽  
The Arab Spring

Among the triggers of the Arab Spring are the declining living standards of the middle and lower income groups. Undoubtedly, the global financial crisis (GFC) is to be partially blamed for weakening the economies of these nations. But was monetary policy ineffective in combating inflation and reducing the meltdown? This paper employs a dynamic stochastic general equilibrium model to assess the effectiveness of the monetary policy in the wake of the GFC. Egypt is selected as a case study due to its overdependence on imported food, the prices of which are relentlessly soaring. The results of the study reveal that the ideal operating targets for the Central Bank of Egypt are the overnight rate and legal reserve requirements. Interest rates are more suitable for long-run impact on the ultimate goals of growth, price stability and job creation. The study culminates in designing a framework to enhance central bankers’ political independence and transparency, which is imperative for nations with high levels of corruption. The study is not only informative to the new Egyptian policymakers, but also to other developing and emerging economies that suffer from symptoms of chronic inflation and looming socio-political turmoil.

scholarly journals Mortgage debt and time-varying monetary policy transmission

2021 ◽  
pp. 1-26
Author(s):  
David Finck ◽  
Jörg Schmidt ◽  
Peter Tillmann
Keyword(s):  
Monetary Policy ◽  
Dynamic Stochastic General Equilibrium ◽  
Household Debt ◽  
Time Varying ◽  
Mortgage Debt ◽  
Vector Autoregressive ◽  
Time Varying Parameter ◽  
Policy Transmission ◽  
Dynamic Stochastic ◽  
Adjustable Rate

Abstract This paper studies the role of monetary policy for the dynamics of US mortgage debt, which accounts for the largest part of household debt. A time-varying parameter vector autoregressive (VAR) model allows us to study the variation in the sensitivity of mortgage debt to monetary policy. We find that an identically sized policy shock became less effective over time. We use a dynamic stochastic general equilibrium model to show that a fall in the share of adjustable rate mortgages (ARMs) can replicate this finding. Calibrating the model to the drop in the ARM share since the 1980s yields a decline in the sensitivity of housing debt to monetary policy which is quantitatively similar to the VAR results. A sacrifice ratio for mortgage debt reveals that a policy tightening directed toward reducing household debt became more expensive in terms of a loss in employment. Counterfactuals show that this result cannot be attributed to changes in monetary policy itself.

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