Dynamic Stackelberg duopoly with sticky prices and a myopic follower

In this paper, we study a model of a market with asymmetric information and sticky prices—the dynamic Stackelberg model with a myopic follower and infinite time horizon of Fujiwara ("Economics Bulletin" 12(12), 1–9 (2006)). We perform a comprehensive analysis of the equilibria instead of concentrating on the steady state only. We study both the equilibria for open loop and feedback information structure, which turn out to coincide, and we compare the results with the results for Cournot-Nash equilibria.

Financial frictions and durable goods in DSGE models with sticky prices

The focus of this dissertation is to study the role of financial frictions in DSGE models with durable goods and sticky prices, and how key economic variables respond in such an environment to monetary policy shocks. The first chapter studies the empirical evidence regarding the response of durable and non-durable goods to monetary policy shocks. Using quarterly data from Canada and the United States, and a vector autoregressive (VAR) model, we trace out empirically the effects of monetary policy innovations on key macroeconomic variables. We find that in response to an increase in the interest rate, durable consumption, non-durable consumption, output, and household debt decrease, and the nominal interest rate rises. In the second chapter, we show that in the presence of agency costs and equity based borrowing, the two sector sticky price model with collateral frictions resolve the co-movement problem in a way which is consistent with the empirical evidence, even when durable prices are nearly exible. In the third chapter, we examine the effect of financial frictions on the consumption of durables and non-durables in a two-sector DSGE model with sticky prices and heterogeneous agents. The financial frictions are a combination of loan-to-value (LTV) and payment-to-income (PTI) constraints faced by borrowers. In this setting a monetary contraction reduces the maximum amount that consumer that consumers can borrow in order to purchase durable goods. As a result, the model predicts that the consumption of durables falls, along with non-durables even when durable prices are fully flexible. Thus, the model matches better the predictions of the model with the data, relative to the existing literature. The fourth chapter of the dissertation studies the effectiveness of macro-prudential policy measures in curbing house price inflation amid rising outward foreign direct investment from abroad. To assess the usefulness of these macro-prudential policy tools, we use database of housing prices, GDP, bank crises, policy rates, Chinese outward investment and macro-prudential policy measures covering advanced countries at quarterly frequency from 2003 to 2016. The results suggest that Macro prudential policy measures help in reducing house prices and OFDI has a significant and positive correlation with house prices movements.

Financial frictions and durable goods in DSGE models with sticky prices

The focus of this dissertation is to study the role of financial frictions in DSGE models with durable goods and sticky prices, and how key economic variables respond in such an environment to monetary policy shocks. The first chapter studies the empirical evidence regarding the response of durable and non-durable goods to monetary policy shocks. Using quarterly data from Canada and the United States, and a vector autoregressive (VAR) model, we trace out empirically the effects of monetary policy innovations on key macroeconomic variables. We find that in response to an increase in the interest rate, durable consumption, non-durable consumption, output, and household debt decrease, and the nominal interest rate rises. In the second chapter, we show that in the presence of agency costs and equity based borrowing, the two sector sticky price model with collateral frictions resolve the co-movement problem in a way which is consistent with the empirical evidence, even when durable prices are nearly exible. In the third chapter, we examine the effect of financial frictions on the consumption of durables and non-durables in a two-sector DSGE model with sticky prices and heterogeneous agents. The financial frictions are a combination of loan-to-value (LTV) and payment-to-income (PTI) constraints faced by borrowers. In this setting a monetary contraction reduces the maximum amount that consumer that consumers can borrow in order to purchase durable goods. As a result, the model predicts that the consumption of durables falls, along with non-durables even when durable prices are fully flexible. Thus, the model matches better the predictions of the model with the data, relative to the existing literature. The fourth chapter of the dissertation studies the effectiveness of macro-prudential policy measures in curbing house price inflation amid rising outward foreign direct investment from abroad. To assess the usefulness of these macro-prudential policy tools, we use database of housing prices, GDP, bank crises, policy rates, Chinese outward investment and macro-prudential policy measures covering advanced countries at quarterly frequency from 2003 to 2016. The results suggest that Macro prudential policy measures help in reducing house prices and OFDI has a significant and positive correlation with house prices movements.

Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs

Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs

A Dynamic Oligopoly with Price Stickiness and Risk-Averse Agents

In this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. The continuous-time limit of our formulation nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Econometrica 55:1151–1164, 1987) and extends it by accommodating uncertainty and risk-aversion. We show that in the continuous-time limit of our infinite horizon formulation the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk-aversion collapses to Fershtman and Kamien’s analogue.

Optimal fiscal and monetary policy under different fiscal instruments

PurposeThe paper includes characterizing Ramsey policy in a cash-in-advance monetary model, under flexible and sticky prices, and with different fiscal instruments.Design/methodology/approachThe paper analytically and numerically characterizes the dynamic properties of Ramsey allocations. The author computes dynamics by solving second-order approximations to the Ramsey planner’s policy functions around a non-stochastic Ramsey steady state.FindingsThe Friedman rule is not mainly optimal in a cash-in-advance model with distorting taxes. The Ramsey-optimal policy with both taxes on income and consumption calls for a high inflation rate that is extremely volatile, despite the fact that changing prices is costly.Practical implicationsThe optimality of zero nominal interest rate under flexible prices in monetary models is not mainly the case and quite depends on the preferences. The optimality of a zero inflation rate under sticky prices also very much depends on the assumed set of fiscal instruments.Originality/valueThe non-optimality of the Friedman rule under flexible prices is quite new. Moreover, studying the optimal fiscal and monetary policy in a New Keynesian model with a rich set of fiscal instruments is also quite original.