Creator: Christiano, Lawrence J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 101 Abstract:
This paper describes and implements a procedure for estimating the timing interval in any linear econometric model. The procedure is applied to Taylor’s model of staggered contracts using annual averaged price and output data. The fit of the version of Taylor’s model with serially uncorrelated disturbances improves as the timing interval of the model is reduced.
Creator: Christiano, Lawrence J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 106 Abstract:
Deaton (1986) has noted that if income is a first-order autoregressive process in first differences, then a simple version of Friedman’s permanent income hypothesis (SPIH) implies that measured U.S. consumption is insufficiently sensitive to innovations in income. This paper argues that this implication of the SPIH is a consequence of the fact that it ignores the role of the substitution effect in the consumption decision. Using a parametric version of the standard model of economic growth, the paper shows that very small movements in interest rates are sufficient to induce an empirically plausible amount of consumption smoothing. Since an overall evaluation of the model’s explanation for the observed smoothness of consumption requires examining its implications for other aspects of the data, the paper also explores some of these.
Creator: Christiano, Lawrence J. and Ljungqvist, Lars Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 108 Abstract:
A bivariate Granger-causality test on money and output finds statistically significant causality when data are measured in log levels, but not when they are measured in first differences of the logs. Which of these results is right? The answer to that question matters because a finding of no Granger-causality from money to output would substantially embarrass existing business cycle models in which money plays an important role [Eichenbaum and Singleton (1986)]. Monte Carlo simulation experiments indicate that, most probably, the first difference results reflect lack of power, whereas the level results reflect Granger-causality that is actually in the data.
Creator: Christiano, Lawrence J., Eichenbaum, Martin S., and Marshall, David A. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 129 Abstract:
Measured aggregate U.S. consumption does not behave like a martingale. This paper develops and tests two variants of the permanent income model that are consistent with this fact. In both variants, we assume agents make decisions on a continuous time basis. According to the first variant, the martingale hypothesis holds in continuous time and serial persistence in measured consumption reflects only the effects of time aggregation. We investigate this variant using both structural and atheoretical econometric models. The evidence against these models is far from overwhelming. This suggests that the martingale hypothesis may yet be a useful way to conceptualize the relationship between aggregate quarterly U.S. consumption and income. According to the second variant of the permanent income model, serial persistence in measured consumption reflects the effects of exogenous technology shocks and time aggression. In this model, continuous time consumption does not behave like a martingale. We find little evidence against this variance of the permanent income model. It is difficult, on the basis of aggregate quarterly U.S. data, to convincingly distinguish between the different continuous time models considered in the paper.
关键词: Consumption, Time aggregation, and Permanent income
Creator: Chari, V. V., Christiano, Lawrence J., and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 147 Abstract:
This paper studies the quantitative properties of fiscal and monetary policy in business cycle models. In terms of fiscal policy, optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average. In terms of monetary policy, the Friedman rule is optimal—nominal interest rates are zero—and optimal monetary policy is activist in the sense that it responds to shocks to the economy.
Creator: Christiano, Lawrence J. and Eichenbaum, Martin S. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 150 Abstract:
Several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment. Existing quantitative general equilibrium models, which allow for capital accumulation, are inconsistent with this view. There does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates, output, and employment to a money supply shock. However, a key shortcoming of these models is that they cannot rationalize persistent liquidity effects. This paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence. We argue that once a simplified version of the model in Christiano and Eichenbaum (1991) is modified to allow for extremely small costs of adjusting sectoral flow of funds, positive money shocks generate long-lasting, quantitatively significant liquidity effects, as well as persistent increases in aggregate economic activity.
Creator: Chari, V. V., Christiano, Lawrence J., and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 158 Abstract:
We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on preferences similar to those in the public finance literature on optimal uniform commodity taxation. We show that there is no connection between our results and the result in the standard public finance literature that intermediate goods should not be taxed.
关键词: Optimal monetary policy, Ramsey policy, and Inflation tax 学科: E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy, E52 - Monetary Policy, and E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Creator: Chari, V. V., Christiano, Lawrence J., and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 160 Abstract:
This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium the ex ante tax rate on capital income is approximately zero. There is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation. Within this class the optimal ex post capital tax rates can range from being close to i.i.d. to being close to a random walk. The tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks and thus there is no presumption that optimal labor tax rates follow a random walk. The welfare gains from smoothing labor tax rates and making ex ante capital income tax rates zero are small and most of the welfare gains come from an initial period of high taxation on capital income.
Creator: Christiano, Lawrence J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 163 Abstract:
This paper shows how to derive the family of models in which Cagan’s model of hyperinflation is a rational expectations model. The slope parameter in Cagan’s portfolio balance equation is identified in some of these models and in others it is not—a fact which clarifies results obtained in several recent papers.
Creator: Christiano, Lawrence J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 165 Abstract:
Theory typically does not give us reason to believe that economic models ought to be formulated at the same level of time aggregation at which data happen to be available. Nevertheless, this is frequently done when formulating econometric models, with potentially important specification-error implications. This suggests examining the alternatives, one of which is to model in continuous time. The primary difficulty in inferring the parameters of a continuous time model given sampled observations is the “aliasing identification problem.” This paper shows how the restrictions implied by rational expectations sometimes do, and sometimes do not, resolve the problem. This is accomplished very simply in the context of a hypothesis about the term structure of interest rates. The paper confirms and extends results obtained for another example by Hansen and Sargent.