Creator: Eggertsson, Gauti B., Mehrotra, Neil R., and Robbins, Jacob A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 742 Abstract:
This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB). Output-inflation dynamics and policy prescriptions are fundamentally different from those in the standard New Keynesian framework. Using a 56-period quantitative life cycle model, a standard calibration to US data delivers a natural rate ranging from -1.5% to -2%, implying an elevated risk of ZLB episodes for the foreseeable future. We decompose the contribution of demographic and technological factors to the decline in interest rates since 1970 and quantify changes required to restore higher rates.
Stichwort: Secular stagnation, Zero lower bound, and Monetary policy Fach: E32 - Business Fluctuations; Cycles, E31 - Price Level; Inflation; Deflation, and E52 - Monetary Policy
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 234 Abstract:
Current approaches to monetary theory and policy owe much to the "quantity theory of money." However, recent theoretical developments suggest that the manner in which money is introduced is more important, even for price level movements, than the quantity of money. Colonial American experience provides a laboratory for discriminating between these views. It is shown here that the nature of backing, rather than the quantity of money, determined its value. Large secular inflations were ended by changing the nature of backing despite the continuance of large note issues (and despite the absence of a metallic standard). Extremely large note issues and note withdrawals are shown not to have produced inflation (currency depreciation) or deflation (currency appreciation).
Stichwort: Fiat money, Quantity theory, Currency, and Colonial America Fach: N11 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: Pre-1913, E52 - Monetary Policy, and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Lagos, Ricardo Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 373 Abstract:
I develop an asset-pricing model in which financial assets are valued for their liquidity—the extent to which they are useful in facilitating exchange—as well as for being claims to streams of consumption goods. The implications for average asset returns, the equity-premium puzzle and the risk-free rate puzzle, are explored in a version of the model that nests the work of Mehra and Prescott (1985).
Stichwort: Liquidity, Exchange, Risk-Free Rate, Equity Premium, and Asset Pricing Fach: E52 - Monetary Policy, D42 - Market Structure, Pricing, and Design: Monopoly, and G12 - Asset Pricing; Trading Volume; Bond Interest Rates
Creator: Liu, Zheng, Waggoner, Daniel F., and Zha, Tao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 653 Abstract:
The possibility of regime shifts in monetary policy can have important effects on rational agents’ expectation formation and equilibrium dynamics. In a DSGE model where the monetary policy rule switches between a dovish regime that accommodates inflation and a hawkish regime that stabilizes inflation, the expectation effect is asymmetric across regimes. Such an asymmetric effect makes it difficult, but still possible, to generate substantial reductions in the volatilities of inflation and output as the monetary policy switches from the dovish regime to the hawkish regime.
Stichwort: Structural breaks, Monetary policy regime, Expectations formation, Lucas critique, and Macroeconomic volatility Fach: E32 - Business Fluctuations; Cycles, E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, and E52 - Monetary Policy
Creator: Bianchi, Javier and Bigio, Saki Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 503 Abstract:
We develop a new tractable model of banks' liquidity management and the credit channel of monetary policy. Banks finance loans by issuing demand deposits. Because loans are illiquid, deposit transfers across banks must be settled with reserves. Deposit withdrawals are random, and banks manage liquidity risk by holding a precautionary buffer of reserves. We show how different shocks affect the banking system by altering the trade-off between profiting from lending and incurring greater liquidity risk. Through various tools, monetary policy affects the real economy by altering that trade-off. In a quantitative application, we study the driving forces behind the decline in lending and liquidity hoarding by banks during the 2008 financial crisis. Our analysis underscores the importance of disruptions in interbank markets followed by a persistent decline in credit demand.
Stichwort: Liquidity, Banks, Capital requirements, and Monetary policy Fach: E52 - Monetary Policy, E44 - Financial Markets and the Macroeconomy, E51 - Money Supply; Credit; Money Multipliers, and G10 - General Financial Markets: General (includes Measurement and Data)
Creator: Heathcote, Jonathan, Storesletten, Kjetil, and Violante, Giovanni L. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 432 Abstract:
This paper develops a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing, and to decompose inequality into life-cycle shocks versus initial heterogeneity in preferences and productivity. Closed-form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption, hours, and wages. We prove identification and estimate the model with data from the CEX and the PSID over the period 1967–2006. We find that (i) 40% of permanent wage shocks pass through to consumption; (ii) the share of wage risk insured privately increased until the early 1980s and remained stable thereafter; (iii) life-cycle productivity shocks account for half of the cross-sectional variance of wages and earnings, but for much less of dispersion in consumption or hours worked.
Fach: E52 - Monetary Policy, E21 - Macroeconomics: Consumption; Saving; Wealth, E31 - Price Level; Inflation; Deflation, and E23 - Macroeconomics: Production
Creator: Kehoe, Patrick J., Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 566 Abstract:
Modern business cycle theory focuses on the study of dynamic stochastic general equilibrium models that generate aggregate fluctuations similar to those experienced by actual economies. We discuss how this theory has evolved from its roots in the early real business cycle models of the late 1970s through the turmoil of the Great Recession four decades later. We document the strikingly different pattern of comovements of macro aggregates during the Great Recession compared to other postwar recessions, especially the 1982 recession. We then show how two versions of the latest generation of real business cycle models can account, respectively, for the aggregate and the cross-regional fluctuations observed in the Great Recession in the United States.
Stichwort: New Keynesian models, Financial frictions, and External validation Fach: E52 - Monetary Policy, E32 - Business Fluctuations; Cycles, E13 - General Aggregative Models: Neoclassical, and E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Creator: Miller, Preston J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 220 Beschreibung:
Working paper 220 was presented at The Economic Consequences of Government Deficits: an Economic Policy Conference, cosponsored by the Center for the Study of American Business and the Institute of Banking and Financial Markets at Washington University, St. Louis, Missouri, October 29-30, 1982.
Stichwort: Tax policy, Federal debt, Deficit, Inflation, and Budget policy Fach: H62 - National Deficit; Surplus, E52 - Monetary Policy, H63 - National Debt; Debt Management; Sovereign Debt, and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems