No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Money and the Natural Rate of Interest: Structural Estimates for the United States and the Euro Area
... Our empirical analysis indicates that the reaction of the economy to shocks in preferences, technology and monetary policy are in line with the findings of previous literature (see, for example, Ireland, 2004 andAndrés et al., 2009). In addition, the reaction of real balances for cryptocurrency is countercyclical to output in response to these shocks. ...
... This author found that, if changes in the real stock of money have a direct impact on the dynamics of output and inflation, then that impact must come simultaneously through both the IS and the Phillips curve. In the same spirit, Andrés et al. (2009) have analysed the role of money in a general equilibrium framework focusing on the US and the EU. Their findings uncovered the forward-looking character of money demand. ...
... The monetary authority adjusts the short-term nominal interest rate in response to deviations of output and inflation from their steady-state levels as well as government currency growth as shown in equation (17). Andrés et al. (2009) have argued that an interest-rate rule that depends on the change in real balances for government currency may be motivated as part of an optimal reaction function when money growth variability appears in the central bank's loss function. As an alternative explanation, the response to money growth can be justified by money's usefulness in forecasting inflation. ...
This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model to evaluate the economic repercussions of cryptocurrency. We assume that cryptocurrency offers an alternative currency option to government currency for households and we have an endogenous supply and demand for cryptocurrency. We estimate our model with Bayesian techniques using monthly data for the period 2013:M6-2019:M3. Our results indicate a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. In addition, real balances of cryptocurrency exhibit a countercyclical reaction to these shocks. Moreover, we find that government currency demand shocks have larger effects on the economy than shocks to cryptocurrency demand. Our results also show that cryptocurrency productivity shocks have negative effects on output and on the exchange rate between government currency and cryptocurrency, with a more pronounced negative reaction to output if the central bank increases its weight to government currency growth. Overall, our results provide novel insights on the underlying mechanisms of cryptocurrency and spillover effects to the economy.
... Kremer et al. (2003) seem to support this non-separability assumption for Germany, and imply that real money balances contribute to the determination of output and inflation dynamics. A recent contribution introduces the role of money with adjustment costs for holding real balances, and shows that real money balances contribute to explain expected future variations of the natural interest rate in the U.S. and the Eurozone (Andrés et al., 2009). Nelson (2002) finds that money is a significant determinant of aggregate demand, both in the U.S. and in the U.K. ...
... The calibration of α, β, θ, η, and ε comes from Wouters (2003, 2007), Casares (2007) and Galí (2008). The smoothed Taylor rule (λ i , λ π , λ x and λ m ) is calibrated following Gerlach-Kristen (2003), Andrés et al. (2009) and Barthélemy et al. (2011), analogue priors as those used by Smets and Wouters (2003) for the monetary policy parameters. In order to observe the behavior of the central bank, we assign a higher standard error (0.50) and a Normal prior law for the Taylor rule's coefficients except for the smoothing parameter, which is restricted to be positive and below one (Beta distribution). ...
... Furthermore, the log marginal density (LMD) of the data measured through a Laplace approximation indicates that the Taylor rule including this real money gap performs better than the others, followed by the no-money ( e M t,0 ) case. These results suggest that if money has to be introduced in the ECB monetary policy reaction function, it should rather be a real money gap variable than a money growth variable (contrary to what Andrés et al. (2009) and Barthélemy et al. (2011) found, whereas Fourçans (2004 didn't find such a role for money growth). ...
We present and test a model of the Eurozone, with a special emphasis on the role of risk aversion and money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. Money is also introduced in the Taylor rule. By using Bayesian estimation techniques, we shed light on the determinants of output, inflation, money, interest rate, flexible-price output, and flexible-price real money balance dynamics. The role of money is investigated further. Its impact on output depends on the degree of risk aversion. Money plays a minor role in the estimated model. Yet, a higher level of risk aversion would imply that money had significant quantitative effects on business cycle fluctuations.
... 5) to solve the equilibrium of our model. See, for instance, Ireland (2004), Andrés et al. (2009), andFourçans (2012) for models in which money balances enter the aggregate demand equation without entering the production function. ...
... Table 1 describes M k,t 's functional forms. In the literature, money is generally introduced through a money growth variable (Ireland, 2003;Andrés et al., 2006Andrés et al., , 2009Canova and Menz, 2011;Barthélemy et al., 2011). However, Benchimol and Fourçans (2012) also introduce a money-gap variable and show that, at least in the Eurozone, it is empirically more significant than other money variable measures. ...
... This role decreases over longer horizons (to around 8%) and is in line with Moghaddam (2010). However, we must temper this result by the fact that we do not have a money supply shock in our framework, which is similar to the frameworks found in the literature (Benhabib et al., 2001;Ireland, 2004;Andrés et al., 2009;Benchimol and Fourçans, 2012;Benchimol, 2014). ...
This article checks whether money is an omitted variable in the production process by proposing a microfounded New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. In this framework, real money balances enter the production function, and money demanded by households is differentiated from that demanded by firms. By using a Bayesian analysis, our model weakens the hypothesis that money is a factor of production. However, the demand of money by firms appears to have a significant impact on the economy, even if this demand has a low weight in the production process.
... The estimated rule has a similar coefficient on inflation as in the Taylor rule (Taylor, 1993) and a statistically significant reaction to M3 money growth. The magnitude of the response to nominal money growth is similar to that found in Andres, Lopez-Salido, and Nelson (2009) who estimate the ECB's policy rule as part of a DSGE model. The coefficient estimates are rather robust to varying the instrument sets and including a reaction to real GDP growth. ...
... The assumption that aggregate consumption enters the shopping time specification as opposed to household consumption prevents the real-balances effect (i.e. real balances appearing in the log-linearized IS and Phillips Curve) which is not well supported by either U.S. or European Data (See for example Ireland (2004); Andres et al. (2009).) ...
... Following Ireland (2009), I set η = 2 for the U.S. Meanwhile, for the euro area, I use the estimate from Andres et al. (2009) of η = 3.2. Both of these studies also find support for the unit income elasticity of money demand specified in this equilibrium model. ...
In a sticky-price model where firms finance their production inputs, there is both a lower and an upper bound on the central bank's inflation response necessary to rule out the possibility of self-fulfilling inflation expectations. This paper shows that real wage rigidities decrease this upper bound, but coefficients in the range of those on the Taylor rule place the economy well within the determinacy region. However, when there is time-variation in the share of firms who finance their inputs (i.e. Markov-Switching) then inflation targeting interest rate rules frequently result in indeterminacy, even if the central bank also targets output. Adding a nominal growth target to the policy rule can often alleviate this indeterminacy and therefore anchor inflation expectations.
... Since the seminal paper of Smets and Wouters (2003), and even as far back as the development of the New Keynesian paradigm in the mid-1990s, traditional New Keynesian dynamic stochastic general equilibrium (DSGE) models have not given an explicit role to money, neither in the Eurozone, nor in the US. When money is explicitly taken into consideration, its impact is generally found to be negligible (Ireland, 2003;Andrés et al., 2006Andrés et al., , 2009Barthélemy et al., 2011). Yet, Benchimol and Fourçans (2012) find that when risk aversion is sufficiently high, money has an impact on output dynamics. ...
... The analysis shows that, during crises, the impact of money on output and flexible-price output variances is stronger than usually found in the literature (Ireland, 2004;Andrés et al., 2006Andrés et al., , 2009. The response of output to a money shock also increases, especially during peaks of the ERM crisis and the GFC. ...
... Contrary to other studies, such as Ireland (2004), Andrés et al. (2006), and Andrés et al. (2009), our analysis indicates that money did have a significant role to play in the GFC. This may confirm the predictive abilities of Model 2 during crisis periods. ...
This paper analyzes the role of money and monetary policy as well as the forecasting performance of New Keynesian dynamic stochastic general equilibrium models with and without separability between consumption and money. The study is conducted over three crisis periods in the Eurozone, namely, the ERM crisis, the dot-com crisis, and the global financial crisis (GFC). The results of successive Bayesian estimations demonstrate that during these crises, the nonseparable model generally provides better out-of-sample output forecasts than the baseline model. We also demonstrate that money shocks have some impact on output variations during crises, especially in the case of the GFC. Furthermore, the response of output to a money shock is more persistent during the GFC than during the other crises. The impact of monetary policy also changes during crises. Insofar as the GFC is concerned, this impact increases at the beginning of the crisis, but decreases sharply thereafter.
... 5) to solve the equilibrium of our model. See, for instance, Ireland (2004), Andrés et al. (2009), andFourçans (2012) for models in which money balances enter the aggregate demand equation without entering the production function. ...
... Table 1 describes M k,t 's functional forms. In the literature, money is generally introduced through a money growth variable (Ireland, 2003;Andrés et al., 2006Andrés et al., , 2009Canova and Menz, 2011;Barthélemy et al., 2011). However, Benchimol and Fourçans (2012) also introduce a money-gap variable and show that, at least in the Eurozone, it is empirically more significant than other money variable measures. ...
... This role decreases over longer horizons (to around 8%) and is in line with Moghaddam (2010). However, we must temper this result by the fact that we do not have a money supply shock in our framework, which is similar to the frameworks found in the literature (Benhabib et al., 2001;Ireland, 2004;Andrés et al., 2009;Benchimol and Fourçans, 2012;Benchimol, 2014). ...
This article checks whether money is an omitted variable in the production process by proposing a microfounded New Keynesian Dynamic Stochastic General Equilibrium model. In this framework, real money balances enter the production function, and money demanded by households is differentiated from that demanded by firms. Using a Bayesian analysis, our model weakens the hypothesis that money is a factor of production. However, the demand of money by firms appears to have a significant impact on the economy, even if this demand has a low weight in the production process.
... Kremer et al. (2003) seem to support this non-separability assumption for Germany, and imply that real money balances contribute to the determination of output and inflation dynamics. A recent contribution introduces the role of money with adjustment costs for holding real balances, and shows that real money balances contribute to explain expected future variations of the natural interest rate in the U.S. and the Eurozone (Andrés et al., 2009). Nelson (2002) finds that money is a significant determinant of aggregate demand, both in the U.S. and in the U.K. ...
... The calibration of α, β, θ, η, and ε comes from Wouters (2003, 2007), Casares (2007) and Galí (2008). The smoothed Taylor rule (λ i , λ π , λ x and λ m ) is calibrated following Gerlach-Kristen (2003), Andrés et al. (2009) and Barthélemy et al. (2011), analogue priors as those used by Smets and Wouters (2003) for the monetary policy parameters. In order to observe the behavior of the central bank, we assign a higher standard error (0.50) and a Normal prior law for the Taylor rule's coefficients except for the smoothing parameter, which is restricted to be positive and below one (Beta distribution). ...
... Furthermore, the log marginal density (LMD) of the data measured through a Laplace approximation indicates that the Taylor rule including this real money gap performs better than the others, followed by the no-money ( e M t,0 ) case. These results suggest that if money has to be introduced in the ECB monetary policy reaction function, it should rather be a real money gap variable than a money growth variable (contrary to what Andrés et al. (2009) and Barthélemy et al. (2011) found, whereas Fourçans (2004 didn't find such a role for money growth). ...
We present and test a model of the Eurozone, with a special emphasis on the role of risk aversion and money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. Money is also introduced in the Taylor rule. By using Bayesian estimation techniques, we shed light on the determinants of output, inflation, money, interest rate, flexible-price output and flexible-price real money balance dynamics. The role of money is investigated further. Its impact on output depends on the degree of risk aversion. Money plays a minor role in the estimated model. Yet, a higher level of risk aversion would imply that money had significant quantitative effects on business cycle fluctuations.
... The use of synthetic European data is widespread among researchers (see e.g. Peersman and Smets (1999), Gerlach and Schnabel (2000), Smets and Wouters (2003), Andrés, López-Salido, and Vallés (2006), Surico (2007), Andrés, López-Salido, and Nelson (2009), Barigozzi, Conti, and Luciani (2010)). ...
... Small scale models like the one presented here are currently employed in discussions involving academics and policymakers (Ellison (2010)). Andrés, López-Salido, and Vallés (2006) and Andrés, López-Salido, and Nelson (2009) successfully replicate the evolution of European macroeconomic aggregates with this or similar frameworks. ...
... The reaction of output is higher than what typically found in the literature. 11 We also …nd an high degree of interest rate smoothing, a result in line with recent evidence on the 'Euro area Taylor rule' (Andrés, López-Salido, and Vallés (2006), Andrés, López-Salido, and Nelson (2009)). Policy shocks turn out to be serially correlated. ...
An estimated monetary policy VAR with 1993:IV-2008:III Euro data returns an insigni…cant response of ination to a monetary policy shock identi…ed with the widely-employed Cholesky restrictions. We replicate this evidence with a Monte Carlo exercise in which the true ination reaction, according to an esti-mated DSGE model which we use as Data-Generating Process, is negative. Con-sequently, an insigni…cant reaction of ination to a small-scale Cholesky-VAR monetary policy shock does not necessarily point to policymakers' inability to stabilize ination.
... Although the additive separable utility function (Eq. 2) excludes real money balances from the IS curve (Jones and Stracca, 2008), money has a role through the money-in-theutility function and households' budget constraints because of the direct effect (Eq. 3) highlighted by Andrés et al. (2009). ...
... Further, price markup and money shocks behave differently to in standard linear models. Owing to direct effects (Andrés et al., 2009), the roles of both domestic and foreign real money holdings are significant in the long run as well as the short run, especially for bond variables and rate-related variables. Furthermore, the difference between the average response of SVSs and response on specific dates illustrates that SVSs are relevant during crises but less so in calm times. ...
Uncertainty about an economy’s regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy, should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.
... Although the additive separable utility function (Eq. 2) excludes real money balances from the IS curve (Jones and Stracca, 2008), money has a role through the money-in-theutility function and households' budget constraints because of the direct effect (Eq. 3) highlighted by Andrés et al. (2009). ...
... Further, price markup and money shocks behave differently to in standard linear models. Owing to direct effects (Andrés et al., 2009), the roles of both domestic and foreign real money holdings are significant in the long run as well as the short run, especially for bond variables and rate-related variables. Furthermore, the difference between the average response of SVSs and response on specific dates illustrates that SVSs are relevant during crises but less so in calm times. ...
Uncertainty about an economy's regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy, should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.
... In this context, Favara and Giordani (2009) showed that money indicators explain only output fluctuations. On the other hand, Andrés, López-Salido, and Nelson (2009) extended the work of Ireland (2004), who suggested that money aggregates have an important role in the business cycle inside the dynamic general equilibrium approach. The role of money in crisis periods inside the business cycles was presented by Bilan, Gazda, and Godziszewski (2012) and Clowes and Bilan (2015). ...
... The role of money in crisis periods inside the business cycles was presented by Bilan, Gazda, and Godziszewski (2012) and Clowes and Bilan (2015). The conclusions of Andrés et al. (2009) were turned to account by Castelnouvo (2012) in a D.S.G.E. extended with money that explained the U.S.A. output evolution better than the standard New Keynesian model. ...
For establishing the suitable monetary policy it is essential to know if there is a relevant relationship in practice between gross domestic product (G.D.P.) variations and monetary variables. The purpose of this study is to analyse the causality between output variation and money aggregate in Romania for quarterly data in the period 2000:Q1–2015:Q2. Moreover the impact on G.D.P. growth of other variables connected with money demand is assessed using Bayesian techniques. The results indicated a bidirectional relationship between G.D.P. variations and rate of real money demand in the mentioned period. The Granger causality test combined with stochastic search variable selection indicated that active interest rate and discount rata mostly explained G.D.P. variations. According to results based on Bayesian regime-switching models, contrary to expectations, the interest rate increases continued to generate higher output variations, the consumption being the engine of economic growth in Romania. In periods of economic recession, the lower interest rate stimulated the recovery of the economy.
... π c is an inflation target and mp c is a money target, essentially included to account for changes in policies targeting inflation (Svensson, 1999) and monetary aggregates (Fourçans, 2007). Other studies introduce a relevant money variable in the Eurozone Taylor rule (Andrés et al., 2006(Andrés et al., , 2009Barthélemy et al., 2011;Benchimol and Fourçans, 2012). ...
... The calibration of α, θ, and ε comes from Smets and Wouters (2007), Casares (2007), and Galí (2008). The smoothed Taylor rule (λ i , λ π , λ x , and λ m ) priors are calibrated following Smets and Wouters (2003), Andrés et al. (2009), and Barthélemy et al. (2011). To observe both the behavior of the central bank and risk aversion, we assign a higher standard error (0.2) and a Normal prior law for the relative risk aversion level and for the Taylor rule coefficients (including inflation and money targets), except for the smoothing parameter, which is restricted to be positive and less than one (Beta distribution). ...
We propose a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where a risk aversion shock enters a separable utility function. We analyze five periods from 1971 through 2011, each lasting for twenty years, to follow over time the dynamics of several parameters such as the risk aversion parameter; the Taylor rule coefficients; and the role of the risk aversion shock in output, inflation, interest rate, and real money balances in the Eurozone. Our analysis suggests that risk aversion was a more important component of output and real money balance dynamics between 2006 and 2011 than it was between 1971 and 2006, at least in the short run.
... However, Benchimol and Fourçans (2012) show that the role of money in the business cycle is dependent on the risk aversion level, at least in the Eurozone. They estimate a New Keynesian DSGE model with non-separable household preferences between consumption and money, as in the Ireland (2004) or Andrés, López-Salido, and Nelson (2009) to analyze the role of money in the dynamics of the variables under a high level of risk aversion. In this context, they establish a signi…cant link between money, output and risk by showing that real money has a signi…cant role with regard to output and ‡exible-price output dynamics in the short term only if the relative risk aversion level is su¢ ciently high (twice the standard value). ...
... The calibration of , , and " comes from Smets and Wouters (2007), Casares (2007) and Galí (2008). The smoothed Taylor rule ( i , , x and m ) priors are calibrated following Smets and Wouters (2003), Andrés, López-Salido, and Nelson (2009), and Barthélemy, Clerc, and Marx (2011). To observe both the behavior of the central bank and risk aversion, we assign a higher standard error (0:2) and a Normal prior law for the relative risk aversion level and for the Taylor rule's coe¢ cients (including the in ‡ation and money targets), except for the smoothing parameter, which is restricted to be positive and less than one (Beta distribution). ...
... Most commonly, it is assumed that money is used to reduce transaction costs, and therefore it enters notes that separability is an implausible assumption and considers as more likely a negative partial derivative of consumption with respect to money, implying that the marginal benefit of holding money, i.e. the reduction in transaction costs, increases with the volume of consumption spending. However, when McCallum tests whether the exclusion of money from the model is of quantitative importance, he finds that the magnitude of the error introduced thereby is extremely small, a finding consistent with the insignificance of money in empirical studies of the aggregate demand equation (e.g., Ireland, 2004;Andrés et al., 2009). This may reflect the fact that although money influences the marginal utility of consumption, it is usually needed for only a small fraction of transactions (Berger et al., 2008). ...
... However,Andrés et al. (2009) demonstrate that when one allows for portfolio adjustment costs for holding real money balances, this implies a forward-looking character of these money balances that conveys on money an important role for monetary policy. Their estimates confirm the forward-looking character of money demand. ...
The three-equation New-Keynesian model advocated by Woodford (2003) as a self-contained system on which to base monetary policy analysis is shown to be inconsistent in the sense that its long-run static equilibrium solution implies that the interest rate is determined from two of the system’s equations, while the price level is left undetermined. The inconsistency is remedied by replacing the Taylor rule with a standard money demand equation. The modified system is seen to possess the key properties of monetarist theory for the long run, i.e. monetary neutrality with respect to real output and the real interest rate and proportionality between money and prices. Both the modified and the original New-Keynesian models are estimated on US data and their dynamic properties are examined by impulse response analysis. Our research suggests that the economic and monetary analysis of the European Central Bank could be unified into a single framework.
... A key issue in the design of such forward-looking monetary policy then, when operationalized via simple feedback rules, is that the particular interest-rate feedback rule adopted by a central bank should ensure a determinate equilibrium. 1 That is, monetary policy should be designed to avoid generating real indeterminacy which can destabilize the economy through the emergence of sunspot equilibria and self-fulfilling expectations that result in large reductions in the welfare of the economy. 2 It has been well established in the New Keynesian (or Neo-Wickesllian) literature that under the Taylor principle, i.e. a policy that adjusts the nominal interest rate by proportionally more than the increase in inflation, a central bank can easily prevent the emergence of indeterminacy, provided it is not overly aggressive in its response to expected future inflation; or alternatively, by also including contemporaneous output into the feedback rule (see, e.g., Bernanke and Woodford, 1997;Clarida et al., 2000;Woodford, 2003). Recent studies have considered whether such policies are also consistent with equilibrium determinacy in open economies. ...
... For a study of optimal targeting rules in a two-country model of a similar kind to ours, see, e.g., Benigno and Benigno (2006). 2 By real indeterminacy we mean that there exists a continuum of equilibrium paths, starting from the same initial conditions, which converge to the steady state. Our attention rests solely with the consideration of local (real) determinacy as opposed to global determinacy. ...
This paper examines the implications for equilibrium determinacy of forward-looking monetary policy rules in a Neo-Wicksellian model that incorporates real balance effects. We show that in closed economies the presence of small, empirically plausible real balance effects significantly restricts the ability of the Taylor principle to prevent indeterminacy of the rational expectations equilibrium. This problem is further exac- erbated in open economies, particulary if the monetary policy rule reacts to consumer- price, rather than domestic-price, inflation. These findings still hold even when output and the real exchange rate are introduced into the policy rule, thereby suggesting that the widespread neglect of real balance effects in the literature is ill-advised.
... Our paper is related to a number of papers focusing on money and the Euro Area economy. Beyond the above mentioned DSGE models (Andres et al., 2006Andres et al., , 2009 Barthelemy et al., 2011; Canova and Menz, 2011), several other works investigate the forecasting power of money for output and prices. Finding an incremental predictive content of money for explaining output and prices, once accounting for their own lags, is evidence that cast doubts on the redundancy hypothesis. ...
... Economic activity can be represented by either real GDP or the output-gap: we stick to the latter in order to resemble the NEK model specification in Canova and Menz (2011) and related papers (Ireland, 2004; Andres et al., 2009). The output gap is then defined as deviation of real GDP from its potential level as computed in Fagan There are at least three reasons to pick broad money M3 as measure of liquidity for the EA. ...
This paper presents evidence of money non-redundancy in shaping Euro Area business cycle. The dynamic effects of liquidity are evaluated by means of an agnostic approach. Results show that shocks to monetary aggregates permanently raise prices, even if to a different degree depending on the time span and the asset components considered, and have a sizeable short-run effect on output. Liquidity shocks account for a non-negligible share of economic fluctuations. Finally, the linkages with financial markets are examined: the effects of liquidity do not vanish when accounting for financial variables such as the external finance premium, housing wealth, price earnings ratios, long term rate and real exchange rate.
... First, we use an equilibrium-type state-space model a la Laubach and Williams (2003) to obtain measures of the natural rate. Thus, we depart from works that have exclusively focused on short-term fluctuations in the natural rate and assume a constant longer-term value (Neiss and Nelson 2003;Woodford 2003;Andrés et al. 2009;Barsky et al. 2014). ...
We study the behaviour of real interest rate gaps—i.e. periods of real interest rates above (below) the natural interest rate—and link their length with a set of key observable determinants. Using quarterly data for 13 OECD countries over (close to) the last 60 years, we find that global risk-taking, CPI inflation, (un)conventional monetary policy, and income redistribution crucially shape the duration of both events. However, while labour-related supply-side factors appear to affect the length of positive interest rate gaps, the adoption of an inflation targeting regime and the current account balance seem to explain the duration of negative interest rate gaps. Our results suggest that the “normalisation” of the conduct of monetary policy is likely to be very gradual, and subject to spikes in uncertainty and financial markets’ volatility.
... Bernanke and Gertler (1995) make a similar observation when they explain that they "don't think of the credit channel as a distinct, free-standing alternative … but rather as a set of factors that amplify and propagate conventional interest effects" (page 28).2 See, among others,Nelson (2002Nelson ( , 2003,Ireland (2004),Berger and others (2008),Andrés and others (2009), andZanetti (2012).3 Equal to currency in circulation and commercial banks' deposits at the central bank ("reserve balances," for short). ...
... Finally, the paper relates to the vast empirical literature that studies the real interest rates in the context of relatively stable ination, that is, the natural rate of interest. Earlier literature focused on the role of money in determining the natural rate (Andrés et al., 2009). By following a longer-run perspective, Laubach and Williams (2016), in a Kalman-lter fashion, as in Laubach and Williams (2003), estimate a declining natural rate for many advanced economies. ...
Leveraged asset price bubbles, i.e., boom-bust phases in asset prices accompanied by credit overhangs, are more harmful than unleveraged ones, in terms of financial and macroeconomic stability. If bubbles are not all alike, neither are all bubbles likely? As bubbles are difficult to detect in real-time data, early researches focused on the macroeconomic conditions exacerbating the bubbles' nature. We specifically look at a condition that could become more persistent in the aftermath of Covid-19 pandemic: low risk-free interest rates.
In an OLG model, we show that the existence condition for a leveraged bubble is more easily met than that of an unleveraged bubble with low interest rates, and thus leveraged bubbly episodes are relatively more likely to emerge than unleveraged ones. Then, we show that this result holds empirically for post-World War II bubbles in advanced economies.
... Finally, the paper relates to the vast empirical literature that studies the real interest rates in the context of relatively stable ination, that is, the natural rate of interest. Earlier literature focused on the role of money in determining the natural rate (Andrés et al., 2009). By following a longer-run perspective, Laubach and Williams (2016), in a Kalman-lter fashion, as in Laubach and Williams (2003), estimate a declining natural rate for many advanced economies. ...
Leveraged asset price bubbles, i.e., boom-bust phases in asset prices accompanied by credit overhangs, are more harmful than unleveraged ones, in terms of nancial and macroeconomic stability. If bubbles are not all alike, neither are all bubbles likely? As bubbles are dicult to detect in real-time data, early researches focused on the macroeconomic conditions exacerbating the bubbles' nature. We specically look at a condition that could become more persistent in the aftermath of Covid-19 pandemic: low risk-free interest rates. In an OLG model, we show that the existence condition for a leveraged bubble is more easily met than that of an unleveraged bubble with low interest rates, and thus leveraged bubbly episodes are relatively more likely to emerge than unleveraged ones. Then, we show that this result holds empirically for post-World War II bubbles in advanced economies.
... Bernanke and Gertler (1995) make a similar observation when they explain that they "don't think of the credit channel as a distinct, free-standing alternative … but rather as a set of factors that amplify and propagate conventional interest effects" (page 28).2 See, among others,Nelson (2002Nelson ( , 2003,Ireland (2004),Berger and others (2008),Andrés and others (2009), andZanetti (2012).3 Equal to currency in circulation and commercial banks' deposits at the central bank ("reserve balances," for short). ...
This paper discusses operational issues for countries that want to reform their monetary policy frameworks. It argues that stabilizing short-term interest rates on a day-to-day basis has significant advantages, and thus that short-term interest rates, not reserve money, in most cases should be the daily operating target, including for countries relying on a money targeting policy strategy. The paper discusses how a policy formulation framework based on monetary aggregates can be combined with an operational framework that ensures more stable and predictable short-term rates to enhance policy transmission. It also discusses how to best configure an interest-rate-based operational framework when markets are underdeveloped and liqudity management capacity is weak.
... Under the conventional Taylor rule, it is usually assumed that γ R ω = 0, which means that the central bank supplies money with infinite interest elasticity. 13 This is the typical monetary policy rule in the literature, which is nested in (1). We call the model under such a rule the restricted model. ...
This paper estimates an enriched version of the mainstream medium-scale dynamic stochastic general equilibrium model, which features nonseparability between consumption and real money balances in utility and a systematic response of the policy rate to money growth. Estimation results show that money is a significant factor in the monetary policy rule. As a consequence, econometric analysis that omits money from Taylor rules may lead to biased estimates of the model parameters. In contrast to earlier studies that rely on small-scale models, the paper stresses the merits of using a sufficiently rich model. First, it delivers different results, such as the role of nonseparability between consumption and money in utility. Second, the rich dynamics embedded in the model allow us to explore the responses of a larger set of macroeconomic variables, making the model more informative on the effects of shocks and more useful for understanding the sources of business cycles. Third and most importantly, it reveals the possible pitfalls of relying on small-scale models when studying money’s role in business cycles.
... Focusing on the estimated parameters for monetary policy, we note that for the model with aggregate government spending in both sub-samples, the nominal interest responded more strongly to inflation than output changes. Our finding was in line with Andrés et al. (2009). Interestingly, we found that the interest smoothing parameter had a larger value in S2 than S1. ...
In this paper, we disentangle public spending components in order analyse their effects on the U.S. economy. Our Dynamic Stochastic General Equilibrium Model (DSGE) model includes both civilian and military expenditures. We take into account the changes in the effects of these public spending components before and after the structural break that occurred in the U.S. economy around 1980, namely financial liberalisation. Therefore, we estimate our model with Bayesian methods for two sample periods: 1954:3–1979:2 and 1983:1–2008:2. Our results suggest that total government spending has a positive effect on output, but it induces a fall in private consumption. Moreover, we find important differences between the effects of civilian and military spending. In the pre-1980 period, higher civilian spending induced a rise in private consumption, whereas military spending shocks systematically decreased it. Our findings indicate that civilian spending has a more positive impact on output than military expenditure. Our robustness analysis assesses the impact of public spending shocks under alternative monetary policy assumptions.
... Accordingly, natural interest rate can be measured by taking the simple or moving average of the real interest rate over a long period of time (Behera et al., 2015;Hamilton et al., 2015;Taylor, 1993;Reifschneider and Williams, 2000;Laubach and Williams, 2015;Hamilton et al., 2015) or by decomposing real interest rate to its trend and cyclical components via statistical filters (Muinhos and Nakane, 2006;Borio et al., 2003;Barcellos Neto and Portugal, 2009). Natural interest rate may also be estimated using economic theory (Andres et al., 2009;Berger and Weber, 2012;Andres et al., 2006;Browne and Everett, 2006;Fuentes and Gredig, 2007;Chadha and Nolan, 2001;Woodford, 2003;Galí, 2008;Amisano and Tristani, 2008;Justiniano and Primiceri, 2010;Lundvall and Westermark, 2011;Carlstrom and Fuerst, 2016). Alternatively, natural interest rate may be estimated by large-scale econometric models (Bomfim, 1997; or by other econometric techniques such as structural vector autoregressive (SVAR) models (Brzoza-Brzezina, 2002) or time-varying vector autoregressive (TVP-VAR) models (Lubik and Matthes, 2015). ...
The Turkish Statistical Institute announced a new GDP series in Turkey at end-2016, which produced a remarkable upward revision in real GDP growth during the 2009-2015 period. The divergence between the old and the new series also pointed to a higher potential output, bringing the possibility that the deviation of output from its potential, i.e. the output gap has changed in the meantime. This necessitated the re-estimation of some indicators, the measurement of which is based on GDP, potential output and the output gap. Natural interest rate is one such important indicator that is used to assess the monetary policy stance, yet it is unobservable. Hence, this paper measures the natural interest rate for the Turkish economy using the new GDP series by applying extended Kalman filter to an unobserved components model in a state-space form. In order to determine how natural interest rate is affected by the GDP revision, natural interest rate is also estimated by using the old GDP series. The estimation results of the state-space model show that the revision in GDP series is reflected on the natural interest rate. Accordingly, a difference has been observed in the natural interest rate estimate as of 2009, and this difference is even more apparent in 2015. The results also imply that the recent monetary policy conduct is consistent with the economic fundamentals. In the meantime, other estimated series are plausible and capture the significant turning points of the economy, while the time-varying parameters are also reasonable. In sum, findings confirm the significance of using natural interest rate as a benchmark in the conduct of monetary policy. Yet, the imprecision of the natural interest rate estimate due to its unobservable nature implies that despite being an important gauge for the monetary policy stance, major policy decisions should still not be based solely on the natural interest rate.
... In the presence of rising interest rates, the implication here is that inflation, and GDP, falls. Regarding the latter, the fact that demand for money to make transactions incorporates a forward looking component ( Andrés et al., 2009 ), implies that agents may hold money for transactions in future periods. In turn, this suggests that current GDP falls. ...
The zero lower bound and quantitative easing policies have rekindled interest in the link between monetary aggregates and the business cycle. This paper argues, on the basis of Bayesian time-varying coefficient VAR models that use Divisia indexes, that money is more closely linked to the business cycle, as well as forecasting economic activity more accurately, than existing literature claims. Moreover, the relationship between money and economic activity is considerably more pronounced during periods of economic distress, such as in the Great Recession.
... In addition to these simple univariate techniques, natural interest rate may also be estimated with the adoption of a monetary model with microfoundations having a money-in-the-utility specification of money demand (Andres, López-Salido, and Valles 2006;Andres, López-Salido, and Nelson 2009;Berger and Weber 2012). Alternatively, the natural interest rate may be computed by largescale econometric models such as MIT-Penn-SSRC (MPS) or the FRB/US models of the U.S. economy. ...
This paper measures the natural interest rate for the Turkish economy as an unobserved stochastic variable. In doing so, the study adopts a systems approach, based on a parsimonious New Keynesian model consisting of a Phillips curve, an IS curve, and a backward-looking Taylor-type interest rate rule linking the real interest rate to the natural interest rate. The model also includes stochastic laws of motion for the natural interest rate and potential output. As a contribution to the existing literature on natural interest rate and in view of the volatile nature of the Turkish economy, the parameters are assumed to be time varying. However, the requirement to simultaneously estimate parameters and to solve the state-space problem introduces non-linearity to the model. The issue of non-linearity can be handled by employing the extended Kalman filter (EKF), i.e., the use of standard Kalman filter equations to the first-order Taylor approximation of the non-linear model about the last estimate. Estimation results suggest that both the estimated natural interest rate and the real interest rate series move in tandem with the real interest rate. All the derived series are plausible and capture the significant turning points of the economy. As for the time-varying parameters, the estimated coefficients are reasonable. Overall, findings of this study provide guidance for future research on the natural interest rate, an important tool for monetary policy, and lay the basis for further work that may adopt the EKF algorithm. Most importantly, this study underlines the need to assess the stance of the monetary policy by using the natural interest rate.
... In addition, a money variable appears in the monetary policy rule due to the optimization program of the central bank with respect to the in ‡ation and output equations that include money (Woodford, 2003). Generally, in the literature, money is introduced through a money growth variable (Ireland, 2003;Andrés et al., 2006Andrés et al., , 2009Canova and Menz, 2011;Barthélemy et al., 2011). Benchimol and Fourçans (2012) introduce a money-gap variable and show that, at least in the Eurozone, it is empirically more signi…cant than other measures of the money variable. ...
We provide a short description of the two theoretical models (Model 1 and Model 2) used in Benchimol and Fourçans (2017). We also provide tables summarizing the mean of posterior means and standard deviations for each micro and macro parameters, for each model, and over our three crisis periods.
If this Online Appendix to "Money and Monetary Policy in the Eurozone: An Empirical Analysis During Crises" was useful for your research paper, please cite it as: Benchimol, J., and Fourçans, A., 2017. Money and Monetary Policy in the Eurozone: An Empirical Analysis During Crises. Macroeconomic Dynamics, 21(3), 677--707.
... Our approach contrasts with other research that has focused on short-term fluctuations in the natural rate of interest, assuming the longer-run value is constant (Andrés et al., 2009, Barsky et al., 2014, Neiss and Nelson, 2003, Woodford, 2003. Recent analysis using dynamic stochastic general equilibrium (DSGE) models also finds evidence of a large decline in the natural rate of interest since the onset of the global financial crisis (Cúrdia, 2015, Goldby et al., 2015. ...
U.S. estimates of the natural rate of interest – the real short-term interest rate that would prevail absent transitory disturbances – have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach–Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there into 2016. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach–Williams methodology to the United States and three other advanced economies – Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.
... During the Dot-com and Intifada crises, as well as the Subprime crisis, money played a more significant role on output and flexible-price output dynamics than during non-crisis periods, especially in the short-term. However, while these values must thus be compared with the values presented by previous authors that show that money's role on output is limited and negligible (Ireland, 2004;Andrés et al., 2006Andrés et al., , 2009, the impact of money on inflation variability is very small (see all the variance decompositions in the online appendix). ...
This study examines how money and monetary policy have influenced output and inflation during the past decade in Israel by comparing two New Keynesian DSGE models. One is a baseline separable model (Gali, 2008) and the other assumes non-separable household preferences between consumption and money (Benchimol & Fourcans, 2012). We test both models by using rolling window Bayesian estimations over the last decade (2001-2013). The results of the presented dynamic analysis show that the sensitivity of output with respect to money shocks increased during the Dot-com, Intifada, and Subprime crises. The role of monetary policy increased during these crises, especially with regard to inflation, even though the effectiveness of conventional monetary policy decreased during the Subprime crisis. In addition, the non-separable model including money provides lower forecast errors than the baseline separable model without money, while the influence of money on output fluctuations can be seen as a good predictive indicator of bank and debt risks. By impacting and monitoring households’ money holdings, policy makers could improve their forecasts and crisis management through models considering monetary aggregates.
... These methods range from very simple techniques like calculating the average actual real interest rate over a long period of time to extremely sophisticated procedures like building dynamic stochastic general equilibrium (DSGE) models with nominal rigidities (Canzoneri et al., 2012; Neiss and Nelson, 2003; Smets and Wouters, 2002; Giammarioli and Valla, 2003; Edge et al., 2008). Other methods may include ad-hoc statistical approaches or the adoption of a monetary model with micro foundations having a money-in-the-utility specification of money demand (Andres et al., 2006; Andres et al., 2009; Berger and Weber, 2012). Meanwhile, due to complexity of the DSGE models, natural interest rate may also be estimated via small-scale macroeconomic models (Laubach and Williams, 2003). ...
... Moreover, the interest elasticity of money demand is negative and large in magnitude, while the output elasticity is positive and relatively small. From a theoretical point of view, these results are justified by the existence of important asset portfolio adjustments (Andrés et al., 2008) and the need of a follow-up of the wealth dynamics (Kontolemis, 2002) in the context of the estimation of the money demand function. From an empirical perspective, they are corroborated by the findings of Favara and Giordani (2009). ...
I look at the linkages between monetary policy and asset wealth using quarterly data for the USA. I show that a positive interest rate shock leads to a fall in aggregate wealth and an important change in portfolio composition: housing wealth gradually decreases, but the effects are very persistent; and financial wealth quickly shrinks, but the impact is short-lived. I also find that the money market can be characterized as follows: (i) the money demand has a large interest elasticity and a small output elasticity; and (ii) the estimated monetary policy reaction function highlights the special focus given by the central bank to developments in monetary aggregates. These features call for an approach whereby monetary authorities put more emphasis on tracking wealth developments, in particular, given the asset portfolio rebalancing between money holdings and financial and/or housing assets.
... For the Subprime crisis and the European Exchange Rate Mechanism crisis, money plays a more signi…cant role on output (more than 10%) than during the Dot-com crisis (less than 4%). These values must be compared to Ireland (2004), Andrés, López-Salido, and Vallés (2006) and Andrés, López-Salido, and Nelson (2009), which found that money's role in the business cycle appears limited. Money plays a stronger role during the Subprime crisis (12.5%) than during the other crises. ...
Resumo O Regime de Metas de Inflação (RMI) tem a taxa de juros básica como o principal instrumento para alcançar o objetivo de controle do nível de preços. Dentre os fatores que influenciam a definição da taxa básica de juros na função de reação da autoridade monetária (i.e., Regra de Taylor) para uma economia aberta pequena estão: a surpresa inflacionária; o hiato do produto; o gap da taxa de câmbio; e o nível da taxa de juros natural. A taxa de juros natural corresponderia ao nível da taxa de juros da economia num contexto isento de pressões inflacionárias e com o produto em sem nível potencial. O objetivo da pesquisa foi estimar a função de reação do Banco Central do Brasil (BCB) após a implementação do RMI por meio de um método não-linear, de modo a analisar, ao longo dos diferentes quantis da taxa de juros básica, qual a contribuição e o comportamento da taxa de juros natural e das variáveis macroeconômicas explicativas. Os métodos utilizados foram um modelo de regressão quantílica e um modelo de vetores autorregressivos (VAR). Os resultados destacam a existência de não-linearidade para a taxa de juros definida na regra, denotando problemas de especificação econométrica para métodos de estimação linear. A taxa de juros básica acompanhou a taxa de juros natural ao longo do RMI, com evidências de que a surpresa inflacionária de fato é a principal variável explicativa que contribui com a definição da taxa de juros básica pelo BCB. Por fim, os resultados também evidenciam uma maturação do processo de condução de política monetária pelo BCB ao longo do RMI, com uma redução na volatilidade dos parâmetros estimados para a função de reação à medida que as expectativas dos agentes foram ancoradas.
Abstract The Inflation Targeting Regime (ITR) has the interest rate as the main instrument to achieve the objective of controlling inflation. Among the factors that influence the definition of the interest rate in the monetary authority's reaction function (i.e., Taylor's Rule) for a small open economy are: inflationary surprise; the output gap; the exchange rate gap and the natural interest rate level. The natural interest rate would correspond to the interest rate level of the economy in a context free from inflationary pressures and with output at its potential level. The objective of the research was to estimate the reaction function of the Central Bank of Brazil (BCB) after the implementation of the ITR through a non-linear method, in order to analyze, along the different quantiles of the interest rate, what was the contribution and behavior of the natural interest rate and the explanatory macroeconomic variables. The methods used were a quantile regression model and an autoregressive vector model (VAR). The results highlight the existence of non-linearity for the interest rate defined in the rule, denoting econometric specification problems for linear estimation methods. The basic interest rate followed the natural interest rate throughout the ITR, with evidence that the inflationary surprise is in fact the main explanatory variable that contributes to the definition of the interest rate by the BCB. Finally, the results also show a maturation of the monetary policy process by the BCB over the ITR, with a reduction in the volatility of the parameters estimated for the reaction function as the agents' expectations were anchored.
This study aims to explore the comovement and causal relationship between the stock market cycle and business cycle in China over the period from 1992Q1 to 2018Q1. While the existing literature treats the relationship as being time- and/or frequency-invariant, we attempt to detect possible time- and frequency-varying patterns by using wavelet analysis. The results show that the stock market cycle tends to lead the business cycle in expansion periods whereas the business cycle tends to lead the stock market in recession periods. Moreover, when the stock market cycle leads the business cycle, they are always positively correlated. In contrast, when the business cycle leads the stock market cycle, they tend to be negatively correlated. In addition, we find that there are substantial time- and frequency-variations in the comovement and causal relationship between the two cycles in China, suggesting the presence of the time- and frequency-variation features should not be ignored in future research. Finally, the relationship can be significantly affected by the domestic interest rates as well as the effect of some external shocks, such as the interest rate and business cycle shocks originated from other major advanced countries. These findings shed new light on the literature that merely considers one specific subject of the relationship and ignores the time and frequency-varying natures in the relationship.
We identify the impact of short-term interest rates on credit risk-taking in the short and long run by analyzing a comprehensive credit register from Spain, a country where for the last twenty years monetary policy was mostly decided abroad. Duration analyses show that lower overnight rates prior to loan origination lead banks to lend more to borrowers with a worse credit history and to grant more loans with a higher per-period probability of default. Lower overnight rates during the life of the loan reduce this probability. Bank, borrower and market characteristics determine the impact of overnight rates on credit risk-taking.
The published version of this article [“In the Short Run Blasé, In the Long Run Risqué” On the Effects of Monetary Policy on Bank Credit Risk-Taking in the Short Versus Long Run, Gabriel Jiménez, Steven Ongena, José-Luis Peydró, Jesús Saurina, Schmalenbach Business Review 18(3): 181-226 (2017) is available online at: https://doi.org/10.1007/s41464-017-0038-7
Another version is available at Universitat Pompeu Fabra’s repository: http://hdl.handle.net/10230/43728
In this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis, and different shadow rates. Next, we calculate these measures for the euro area, draw comparisons among different approaches, and look at the effects on main macroeconomic variables, with a special focus on inflation. By and large, the impact of unconventional monetary policy shocks on inflation is found to be significantly positive across studies and methods. Finally, we summarize the literature on the Natural Real Rate of Interest. This overview may help to assess how long low (real) interest rates in a ZLB stay in place, potentially leading to more accurate policy recommendations. Abstract In this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis, and different shadow rates. Next, we calculate these measures for the euro area, draw comparisons among different approaches, and look at the effects on main macroeconomic variables, with a special focus on inflation. By and large, the impact of unconventional monetary policy shocks on inflation is found to be significantly positive across studies and methods. Finally, we summarize the literature on the Natural Real Rate of Interest. This overview may help to assess how long low (real) interest rates in a ZLB stay in place, potentially leading to more accurate policy recommendations.
This paper discusses the institutional changes needed in Europe if prompt corrective action (PCA) is to be effective in supervising and resolving cross-border banking groups. The paper identifies these changes starting with enhancements in the availability of information on banking groups' financial condition to prudential supervisors. Next, the paper considers the collective decision making by prudential supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank in a cross-border banking group falls below the minimum capital standard. Finally, the paper analyzes the coordination measures that should be implemented if PCA requires the bank to be resolved.
In this paper we provide an overview of the different approaches identified to capture monetary policy in a period of Zero Lower Bound (ZLB). We focus here on the methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis and different shadow rates.
In the second section of this review we calculate these measures for the euro area and also draw comparisons among different approaches and look at the effects on main macroeconomic variables, with a special focus on inflation. The impact of unconventional monetary policy shocks on inflation is found to be significantly positive by the majority of the studies and by using different methods.
Ultimately, we provide a summary of the literature on the Natural Real Rate of Interest, which may be useful for assessing how long low (real) interest rates in a ZLB may stay in place; also suggesting some possible improvement in the estimations which would lead to more accurate policy recommendations.
Bu çalışmada; 2002:01 2011:03 dönemine ait Türkiye ekonomisinde gerçekleşen sanayi üretim endeksi (IPI), tüketici fiyat endeksi (INF), vadeli mevduat aylık faiz oranı (INT) ve para arzı (M S) değişkenlerine ait seriler arasındaki ilişki AD-AS modeline uyarlanarak analiz edilmiştir. Çalışmada kullanılan değişkenlere ait serilerin durağanlıklarını sınamak için Aughment Dickey Fuller (ADF) ve Philips Perron (PP) birim kök testleri uygulanmıştır. Ayrıca, değişkenler arasındaki ilişkiyi tespit etmek için yapısal VAR (SVAR) modeli kullanılmıştır. Analizde, GSYH yerine; sanayi üretim endeksi, para talebi yerine ise M 2 para arzı kullanılmıştır.
U.S. estimates of the natural rate of interest – the real short-term interest rate that would prevail absent transitory disturbances – have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of 2015. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach-Williams methodology to the United States and three other advanced economies – Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.
Persistently low real interest rates have prompted the question whether low interest rates are here to stay. This essay assesses the empirical evidence regarding the natural rate of interest in the United States using the Laubach-Williams model. Since the start of the Great Recession, the estimated natural rate of interest fell sharply and shows no sign of recovering. These results are robust to alternative model specifications. If the natural rate remains low, future episodes of hitting the zero lower bound are likely to be frequent and long-lasting. In addition, uncertainty about the natural rate argues for policy approaches that are more robust to mismeasurement of natural rates.
This thesis presents three theoretical and empirical models of the Eurozone, highlighting the role of risk aversion and money on different macroeconomic variables. These intertemporal dynamic stochastic general equilibrium (DSGE) models respect the New Keynesian framework. In a first basic model, we show that risk aversion affects output, contributing to its decline, especially during crisis periods. During these crises (European Monetary System, 1992; Internet, 2000, Subprime, 2007), risk aversion significantly impacts real money holdings. In a second model, in which money is considered as a factor of production, the latter has no significant role in the dynamics of other variables. The assumption of constant returns to scale is also rejected. In a third model, using a non-separable utility function between consumption and real money balances, we show that the role of the latter on output depends on the degree of agents' risk aversion, becoming significant when this level is twice higher than the standard degree. Finally, we test and compare this model with the first basic model during the three periods mentioned above. Money explains a significant part of output's variance during crises. Moreover, our analysis shows that a non-separability assumption between consumption and real balances has better predictive power than a separable model, at least during crisis periods.
It is well established that a small number of firms, known as fast-growth firms or Gazelles, create most new jobs. Despite
the importance of this topic from a policy point of view, most studies are descriptive and explore a limited number of characteristics
of fast-growth firms. The existence of some correlation between two or more of the determinants of fast growth could yield,
however, spurious results. To avoid that problem, this paper performs a multivariate analysis of the determinants of fast
growth using a panel of Spanish firms. The variables explored include sector of activity, region and newness of the firm as
well as access to external finance and firms’ human resource practices. We control for the presence of unobserved time-invariant,
firm-specific heterogeneity as well as for the possible existence of state dependence. We find that past extreme growth episodes
increase the probability of current fast growth, which is in contrast to previous findings on the topic. We also find that
human resource practices, such as employing qualified personnel or the mix of contracts offered, are important determinants
of fast growth. Lastly, newness and access to credit are found to be important to explain firm growth, but they are not significant
determinants of fast or extreme employment growth, thereby reflecting the existence of non-linearities in the growth process
of firms.
This paper investigates the determinants of financing obstacles (FOs) and their impact on firm growth. For this purpose, we rely on both balance sheet data and survey data for a sample of non-financial firms in the euro area. The latter allows us to devise a direct measure of the firms’ probability of facing FOs. First, our results indicate that FOs are linked to characteristics such as the age of the firm, its size, its sales level or the sector in which it operates. Second, we find that, though based on few variables, our measure of FOs appears to be relevant in explaining firm growth in four out of the five countries considered; likewise, growth is found to be positively linked to cash flow.
We show how monetary aggregates can be usefully incorporated in forecasts of in-flation. This requires fully disregarding the high-frequency fluctuations blurring the money/inflation relation, i.e., the projection of inflation onto monetary aggregates must be restricted to the low frequencies. Using the same tools, we show that money growth has (little) predictive power over output at business cycle frequencies.
We use the notion of a housing bubble as an equilibrium in which some investors hold houses for resale purposes only and not with the expectation of receiving a dividend, either in the form of rent or utility. We show that an economy with looser collateral constraints is less prone to bubbles, which, in turn, have smaller size, but are more fragile in the face of credit-crunch shocks. Our environment also allows for the existence of pure bubbles on unproductive assets. We find that multiple equilibria, in which the economy moves endogenously from a pure bubble to a housing bubble and vice versa, are possible. (JEL G12, R21, R31)
ResearchGate has not been able to resolve any references for this publication.