Creator: Erceg, Christopher J. and Levin, Andrew T. (Andrew Theo) Series: Joint commitee on business and financial analysis Abstract:
The durable goods sector is much more interest sensitive than the non-durables sector, and these sectoral differences have important implications for monetary policy. In this paper, we perform VAR analysis of quarterly US data and find that a monetary policy innovation has a peak impact on durable expenditures that is roughly five times as large as its impact on non-durable expenditures. We then proceed to formulate and calibrate a two-sector dynamic general equilibrium model that roughly matches the impulse response functions of the data. We derive the social welfare function and show that the optimal monetary policy rule responds to sector-specific inflation rates and output gaps. We show that some commonlyprescribed policy rules perform poorly in terms of social welfare, especially rules that put a higher weight on inflation stabilization than on output gap stabilization. By contrast, it is interesting that certain rules that react only to aggregate variables, including aggregate output gap targeting and rules that respond to a weighted average of price and wage inflation, may yield a welfare level close to the optimum given a typical distribution of shocks.
Keyword: Monetary policy, Consumer, Business cycles, Durable goods, and Social welfare Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Barbosa, Antonio S. Pinto., Jovanovic, Boyan, 1951-, and Spiegel, Mark. Series: Conference on economics and politics Abstract:
This paper analyzes how political stability depends on economic factors. Fluctuations in groups' economic capacities and in their abilities to engage in rent-seeking or predatory behavior create periodic incentives for those groups to renege on their social obligations. A constitution remains in force so long as no party wishes to defect to the noncooperative situation, and it is reinstituted as soon as each party finds it to its advantage to revert to cooperation. Partnerships of equals are easier to sustain than are arrangements in which one party is more powerful in some economic or noneconomic trait. In this sense, inequality is bad for social welfare. Surprisingly, perhaps, it is the rich, and not the poor segments of society who in our model pose the greater threat to the stability of the social order. Using cross-country data, we test and confirm the prediction that most constitutional disruptions should be accompanied by increases in income inequality.
Keyword: Welfare, Social problems, Interest groups, and Economic models Subject (JEL): E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy and D72 - Analysis of collective decision-making - Models of political processes : Rent-seeking, elections, legislatures, and voting behavior
Creator: Faust, Jon. Series: Conference on economics and politics Abstract:
The Federal Reserve Act erected a unique structure of government decisionmaking, independent with elaborate rules balancing internal power. Historical evidence suggests that this outcome was a response to public conflict over inflation's redistributive powers. This paper documents and formalizes this argument: in the face of conflict over redistributive inflation, policy by majority can lead to policy that is worse, even fo the majority, than obvious alternatives. The bargaining solution of an independent board with properly balanced interests leads to a better outcome. Technically, this paper extends earlier work in making policy preferences endogenous and in extending the notion of equilibirum policy to such a world. Substantively, this work provides a simple grounding of policy preferences-largely missing heretofore-linking game theoretic models of policy to historical evidence about the formation of an independent monetary authority.
Subject (JEL): E58 - Monetary policy, central banking, and the supply of money and credit - Central banks and their policies, N12 - Macroeconomics and monetary economics ; Growth and fluctuations - United States ; Canada : 1913-, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Coleman, Wilbur John. Series: Nonlinear rational expectations modeling group Abstract:
A cash-in-advance constraint on consumption is incorporated into a standard model of consumption and capital accumulation. Monetary policy consists of lump-sum cash transfers. Methods are developed for establishing the existence and uniqueness of an equilibrium. and for explicitly constructing this equilibrium. The model economy's dependence on monetary policy is explored.
Also published in the International Finance Discussion Paper series, number 323.
Keyword: Equilibrium, Planned Growth economy, and Monetary Growth economy Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, O41 - One, Two, and Multisector Growth Models, O42 - Economic growth and aggregate productivity - Monetary growth models, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy