Creator: Chari, V. V., Christiano, Lawrence J., and Eichenbaum, Martin S. Series: Finance, fluctuations, and development Abstract:
Different monetary aggregates covary very differently with short term nominal interest rates. Broad monetary aggregates like Ml and the monetary base covary positively with current and future values of short term interest rates. In contrast, the nonborrowed reserves of banks covary negatively with current and future interest rates. Observations like this 'sign switch' lie at the core of recent debates about the effects of monetary policy actions on short term interest rates. This paper develops a general equilibrium monetary business cycle model which is consistent with these facts. Our basic explanation of the 'sign switch' is that movements in nonborrowed reserves are dominated by exogenous shocks to monetary policy, while movements in the base and Ml are dominated by endogenous responses to non-policy shocks.
Keyword: Monetary policy, Interest, Money, Shocks, Inside money, and Interest rates Subject (JEL): E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates and E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Joint committee on business and financial analysis Abstract:
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
Keyword: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Subject (JEL): O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Chari, V. V. and Hopenhayn, Hugo Andres Series: Models of economic growth and development Abstract:
We present a model of vintage human capital. The economy exhibits exogenous deterministic technological change. Technology requires skills that are specific to the vintage. A stationary competitive equilibrium is defined and shown to exist and be unique, as well as Pareto optimal. The stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages. The distribution is shown to be single peaked, and under general conditions there is a lag between the time when a technology appears and the peak of its usage, what is known as diffusion. An increase in the rate of exogenous technological charge shirts the distribution of human capital to more recent vintages and increases the relative wage of the unskilled workers in each vintage.
Subject (JEL): O41 - One, Two, and Multisector Growth Models, J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, and O31 - Innovation and Invention: Processes and Incentives