scholarly journals Structural Changes in Investment and the Waning Power of Monetary Policy

2021 ◽  
Author(s):  
Justin Bloesch ◽  
Jacob P. Weber
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Structural Changes ◽  
Small Open Economy ◽  
Value Added ◽  
New Keynesian ◽  
Secular Change ◽  
Labor Income ◽  
Labor Earnings ◽  
Investment Goods

We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.

scholarly journals Fiscal and monetary policy in new Keynesian DSGE models

2014 ◽  
Author(s):  
Πέτρος Βαρθαλίτης
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Open Economy ◽  
Small Open Economy ◽  
New Keynesian ◽  
Dsge Models ◽  
Dsge Model ◽  
Keynesian Model ◽  
Monetary And Fiscal Policy ◽  
Fiscal And Monetary Policy

This thesis is about monetary and fiscal policy in New Keynesian DSGE models. Chapter 2 presents the baseline New Keynesian DSGE model. Monetary policy is in the form of a simple interest rate Taylor-type policy rule, while fiscal policy is exogenous. Chapter 3 extends the model of Chapter 2 to include fiscal policy. Now, both monetary and fiscal policy are allowed to follow feedback rules. Chapter 4 sets up a New Keynesian model of a semi-small open economy with sovereign risk premia. Finally, Chapter 5 builds a New Keynesian DSGE model consisting of two heterogeneous countries participating in a monetary union.Throughout most of the thesis, policy is conducted via "simple", "implementable" and "optimized" feedback policy rules. Using such rules, the aim of policy is twofold: firslty, it aims to stabilize the economy when the latter is hit by shocks; secondly, it aims to improve the economy's resource allocation.

WHY JOIN A CURRENCY UNION? A NOTE ON THE IMPACT OF BELIEFS ON THE CHOICE OF MONETARY POLICY

2011 ◽  
Vol 16 (2) ◽  
pp. 320-334 ◽  
Author(s):  
Federico Ravenna
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Policy Maker ◽  
Small Open Economy ◽  
Optimal Choice ◽  
New Keynesian ◽  
Monetary Policies ◽  
Keynesian Model ◽  
The Impact ◽  
Better Than

We argue that a fixed exchange rate can be an optimal choice even if a policy maker could commit to the first-best monetary policy whenever the private sector's beliefs reflect incomplete information about the policy maker's dependability. This model implies that joining a currency area may be optimal for its impact not on the behavior of the policy maker, but on the beliefs of the private sector. Monetary policies are evaluated using a new Keynesian model of a small open economy solved under imperfect policy credibility. We quantify the minimum distance between announced policy and the private sector's beliefs that is necessary for a peg to perform better than an independent monetary policy when the policy maker can commit to the first-best policy.

Delegating Optimal Monetary Policy Inertia in a Small-Open Economy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Daisuke Ida ◽  
Mitsuhiro Okano
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Inflation Targeting ◽  
Small Open Economy ◽  
Central Banks ◽  
New Keynesian ◽  
Closed Economy ◽  
Optimal Monetary Policy ◽  
Nk Model ◽  
Exchange Rate Targeting

AbstractThis paper explores the delegation of several targeting regimes in a small open new Keynesian (NK) model and examines how central banks overcome stabilization bias in a small open NK model. Results indicate that both speed limit and real exchange rate targeting can carry the isomorphic properties of optimal monetary policy over to the closed economy. In addition, neither nominal income growth targeting nor CPI inflation targeting replicates a commitment policy. These findings provide new implications for optimal monetary policy in an open economy.

International capital mobility and structural transformation

2018 ◽  
Vol 19 (1) ◽  
Author(s):  
Kyungsoo Kim ◽  
Wankeun Oh ◽  
E. Young Song
Keyword(s):  
Interest Rate ◽  
Structural Transformation ◽  
Open Economy ◽  
Capital Mobility ◽  
Technological Progress ◽  
Structural Changes ◽  
Small Open Economy ◽  
Value Added ◽  
International Capital ◽  
International Capital Mobility

Abstract This study examines the role of international capital mobility in shaping the relation between economic growth and structural transformation. We build a small open economy Ramsey model with two goods, tradables and nontradables. We show that if the long-run autarky interest rate of a small open economy is higher than the world interest rate, the employment and value-added shares of the tradables sector will rise over time. In the opposite case, the shares will fall. Because the autarky interest rate increases with the rate of technological progress, our result suggests that cross-country differences in the rate of technological progress may be a significant factor in accounting for diverse patterns of structural changes among countries.

Ramsey income taxation in a small open economy with trade in capital goods

2019 ◽  
Vol 20 (1) ◽  
Author(s):  
Jenn-Hong Tang
Keyword(s):  
Open Economy ◽  
Income Tax ◽  
Optimal Taxation ◽  
Small Open Economy ◽  
Labor Income ◽  
Closed Economy ◽  
Capital Income ◽  
Long Run ◽  
Optimal Capital ◽  
Investment Goods

Abstract In this paper, the optimal taxation problem in a small open economy with international trade in capital or investment goods is investigated. The monopolistic power of a small open economy over the terms of trade causes distortions in consumption and investment. The results suggest that due to the external distortion in investment, the long-run optimal capital income tax could be positive under the baseline calibration, and it is increasing in the degree of investment openness and decreasing in the elasticity of substitution between domestic and foreign goods. The long-run optimal labor income tax exhibits the opposite relationships with the openness and elasticity parameters. During the course of business cycles, the fluctuations in the external distortions cause the optimal labor income tax to be more volatile and the optimal capital income tax to be less volatile than their closed-economy counterparts.

scholarly journals Resilience of metropolitan, urban and rural regions: a Central European perspective

GeoScape ◽  
2017 ◽  
Vol 11 (1) ◽  
pp. 25-40 ◽  
Author(s):  
Jan Ženka ◽  
Adam Pavlík ◽  
Ondřej Slach
Keyword(s):  
Economic Development ◽  
Open Economy ◽  
Economic Performance ◽  
Structural Changes ◽  
Small Open Economy ◽  
Value Added ◽  
Global Production Networks ◽  
Rural Regions ◽  
Total Employment ◽  
Urban Regions

AbstractIn this article, we examine a relationship between population/economic size and resilience of Czech regions. More specifically, we ask if there are any significant differences among metropolitan cores and hinterlands, urban regions and rural regions in (post)crisis economic development in the period 2009–2013. Three aspects of resilience were considered: volatility of unemployment, renewal (increase in economic performance compared to other regions) and reorientation (measured by the intensity of structural changes in total employment). We found relatively small differences among particular types of regions and high intra-group heterogeneity. Specialized industrial urban regions exhibited the fastest economic growth in the (post)crisis period. Metropolitan cores lagged slightly behind, but experienced relatively stable economic development. Although rural regions exhibited the highest unemployment volatility, they did not lag behind in terms of value added growth. Regional resilience in a small open economy like Czechia seems to be predominantly driven by extraregional factors such as the position in global production networks and economic performance in particular industries or large transnational corporations.

scholarly journals Fiscal Consolidation in an Open Economy

2012 ◽  
Vol 102 (3) ◽  
pp. 186-191 ◽  
Author(s):  
Christopher J Erceg ◽  
Jesper Lindé
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Open Economy ◽  
Small Open Economy ◽  
Currency Union ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Fiscal Consolidation ◽  
Monetary Regimes ◽  
The Impact

his paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation.

scholarly journals Structural changes in the Czech, Slovak and euro area economies during the Great Recession

2016 ◽  
Vol 16 (4) ◽  
pp. 297-336 ◽  
Author(s):  
Stanislav Tvrz ◽  
Osvald Vašíček
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Open Economy ◽  
Great Recession ◽  
Structural Changes ◽  
Small Open Economy ◽  
Model Parameters ◽  
Time Varying ◽  
The Great Recession ◽  
Dynamic Stochastic

Abstract The goal of this paper is to identify and compare the most important changes in the structure of the Czech economy, as a small open economy with independent monetary policy, the Slovak economy, as a small open economy that entered monetary union, and the economy of the euro area, which has a common monetary policy, during the turbulent period of the Great Recession, the subsequent anaemic recovery and recent disinflationary period. Structural changes are identified with the help of nonlinear dynamic stochastic models of general equilibrium with time-varying parameters. The model parameters are estimated using Bayesian methods and a nonlinear particle filter. The results confirm the similarity of the Czech and Slovak economies and show that in certain respects the structure of the Czech economy might be closer to that of the euro area than that of Slovakia. The time-varying estimates reveal many similarities between the parameter changes in the Czech economy and those in the euro area. In Slovakia, the situation during the Great Recession was dominated by the country’s adoption of the euro, which caused large deviations in its Calvo parameters.

scholarly journals Monetary Policy Response to a Migration Shock: An Analysis for a Small Open Economy

2021 ◽  
Author(s):  
Franz Hamann ◽  
Cesar Anzola ◽  
Oscar Avila-Montealegre ◽  
Juan Carlos Castro-Fernandez ◽  
Anderson Grajales-Olarte ◽  
...  
Keyword(s):  
Monetary Policy ◽  
Labor Markets ◽  
Open Economy ◽  
Small Open Economy ◽  
Policy Response ◽  
Labor Income ◽  
Inflation Expectations ◽  
High Productivity ◽  
Marginal Costs ◽  
The Interest Rate

We develop a small open economy model with nominal rigidities and fragmented labor markets to study the response of the monetary policy to a migration shock. Migrants are characterized by their productivity levels, their restrictions to accumulate capital, as well as by the flexibility of their labor income. Our results show that the monetary policy response depends on the characteristics of migrants and the local labor market. An inflow of low(high)-productivity workers reduces(increases) marginal costs, lowers(raises) inflation expectations and pushes the Central Bank to reduce(increase) the interest rate. The model is calibrated to the Colombian economy and used to analyze a migratory inflow of financially constraint workers from Venezuela into a sector with flexible and low wages.

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