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Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy
Review of Economic Studies (1993) 60, 95-119 0034-6527/93/00050095$02.00 ? 1993 The Review of Economic Studies Limited Heterogeneity and Output Fluctuations in a Dynamic Menu-Cost Economy RICARDO J. CABALLERO M.I.T and N.B.E.R and EDUARDO M. R. A. ENGEL Harvard University and Universidad de Chile First version received May 1990; final version accepted January 1992 (Eds.) When firms face menu costs, the relation between their output and money is highly non-linear. At the aggregate level, however, this needs not be so. In this paper we study the dynamic behaviour of a menu-cost economy where firms are heterogeneous in the shocks they perceive, and the demands and adjustment costs they face. In this context we (i) generalize the Caplin and Spulber (1987) steady-state monetary-neutrality result; (ii) show that uniqueness of equilibria depends not only on the degree of strategic complementarities but also on the degree of dispersion of firms' positions in their price-cycle; (iii) characterize the path of output outside the steady state and show that as strategic complementarities become more important, expansions become longer and smoother than contractions; and (iv) show that the potential impact of monetary shocks is an increasing function of the distance of the economy from its steady state, but that an uninformed policy maker will have no effect on output on average. 1. INTRODUCTION An important part of the debate on the response of prices to monetary shocks has centred on the dynamic discrepancy between economies with and without price rigidities, on the magnitude and persistence of these discrepancies, and on whether the monetary authority should attempt to exploit rigidities or not. -
Inventories, Markups, and Real Rigidities in Menu Cost Models∗
Inventories, Markups, and Real Rigidities in Menu Cost Models∗ Oleksiy Kryvtsov Virgiliu Midrigany Bank of Canada New York University January 2009 Abstract Real rigidities that limit the responsiveness of real marginal cost to output are a key ingredient of sticky price models necessary to account for the dynamics of output and inflation. We argue here, in the spirit of Bils and Kahn (2000), that the behavior of marginal cost over the cycle is directly related to that of inventories, data on which is readily available. We study a menu cost economy in which firms hold inventories in order to avoid stockouts and to economize on fixed ordering costs. We find that, for low rates of depreciation similar to those in the data, inventories are highly sensitive to changes in the cost of holding and acquiring them over the cycle. This implies that the model requires an elasticity of real marginal cost to output approximately equal to the inverse of the elasticity of intertemporal substitution in order to account for the countercyclical inventory-to-sales ratio in the data. Stronger real rigidities lower the cost of acquiring and holding inventories during booms and counterfactually predict a procyclical inventory-to-sales ratio. JEL classifications: E31, F12. Keywords: Inventory, menu costs, real rigidities. ∗The views expressed here are those of the authors and do not reflect those of the Bank of Canada. We thank George Alessandria, Mike Dotsey, Mark Getler, Boyan Jovanovic, James Kahn and Huntley Schaller for useful discussions, as well as seminar participants at the NBER-SITE Price Dynamics Conference at Stanford, Duke Macroeconomics Jamboree, Universit´edu Qu´ebec `aMontr´eal,Universit´ede Montr´eal,Universit´eLaval, University of Western Ontario, Chicago GSB, Federal Reserve Board, the Federal Reserve Banks of Atlanta, Philadelphia, Richmond and St. -
©International Monetary Fund. Not for Redistribution 40
39 These insights are relevant to today’s crisis. If the health crisis is mismanaged, it could linger for years and lead to a more persistent crisis. If our economic policies are not aggressive enough, they could make the economic effects of the crisis even larger. Continued macroeconomic stimulus, where policy space exists, is needed using an array of policy instruments. While these are standard recipes for any crisis, our research highlights that, in the presence of hysteresis and in the case of a large and persistent event like the one we are witnessing, the costs of policy mistakes are very large. Now is not the time to doubt or err on the side of caution when it comes to expansionary economic policies. ©International Monetary Fund. Not for Redistribution 40 References Aghion, Philippe, Philippe Askenazy, Nicolas Berman, Gilbert Cette, and Laurent Eymard, 2012, “Credit Constraints and the Cyclicality of R&D Investment: Evidence from France.” Journal of the European Economic Association 10(5):1001–1024. Aghion, Philippe, and Peter Howitt, 1992, “A Model of Growth Through Creative Destruction.” Econometrica 60(2):323–351. Aghion, Philippe, and Gilles Saint-Paul, 1991, “On the Virtue of Bad times: An Analysis of the Interaction between Economic Fluctuations and Productivity Growth.” CEPR Discussion Papers 578. Centre for Economic Policy Research, London. Anzoategui, Diego, Diego Comin, Mark Gertler, and Joseba Martinez, 2019, “Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence.” American Economic Journal: Macroeconomics 11(3):67–110. Arrow, Kenneth J., 1962, “The Economic Implications of Learning by Doing.” The Review of Economic Studies 29(3):155–173. -
A Macroeconomic Model with Financial Panics Gertler, Mark, Nobuhiro Kiyotaki, and Andrea Prestipino
K.7 A Macroeconomic Model with Financial Panics Gertler, Mark, Nobuhiro Kiyotaki, and Andrea Prestipino Please cite paper as: Gertler, Mark, Nobuhior Kiyotaki, and Andrea Prestipino (2017). A Macroeconomic Model with Financial Panics. International Finance Discussion Papers 1219. https://doi.org/10.17016/IFDP.2017.1219 International Finance Discussion Papers Board of Governors of the Federal Reserve System Number 1219 December 2017 Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 1219 December 2017 A Macroeconomic Model with Financial Panics Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. References to International Finance Discussion Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Recent IFDPs are available on the Web at www.federalreserve.gov/pubs/ifdp/. This paper can be downloaded without charge from the Social Science Research Network electronic library at www.ssrn.com. A Macroeconomic Model with Financial Panics Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino NYU, Princeton and Federal Reserve Board December, 2017 Abstract This paper incorporates banks and banking panics within a conven- tional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the circumstances that makes an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis a¤ects real activity and the e¤ects of policies in containing crises. -
Market Power and Regulation
THE PRIZE IN ECONOMIC SCIENCES 2014 POPULAR SCIENCE BACKGROUND Market power and regulation Jean Tirole is one of the most infuential economists of our time. He has made important theoretical research contributions in a number of areas, but most of all he has clarifed how to understand and regulate industries with a few powerful frms. Tirole is awarded this year’s prize for his analysis of market power and regulation. Regulation is difficult Which activities should be conducted as public services and which should be left to private frms is a question that is always relevant. Many governments have opened up public monopolies to private stakeholders. This has applied to industries such as railways, highways, water, post and telecom- munications – but also to the provision of schooling and healthcare. The experiences resulting from these privatizations have been mixed and it has often been more difcult than anticipated to get private frms to behave in the desired way. There are two main difculties. First, many markets are dominated by a few frms that all infuence prices, volumes and quality. Traditional economic theory does not deal with this case, known as an oligopoly, instead it presupposes a single monopoly or what is known as perfect competition. The second difculty is that the regulatory authority lacks information about the frms’ costs and the quality of the goods and services they deliver. This lack of knowledge often provides regulated frms with a natural advantage. Before Tirole In the 1980s, before Tirole published his frst work, research into regulation was relatively sparse, mostly dealing with how the government can intervene and control pricing in the two extremes of monopoly and perfect competition. -
The Future of Finance
THE TOULOUSE SCHOOL OF ECONOMICS MAGAZINE Living economics #16 SPRING THE FUTURE 2018 OF FINANCE Daniel Ershov on Johannes Hörner Ariel Pakes on Patrick Pouyanné the Google Play on how Waze uses why industrial on the energy Store its users organization matters challenge Editor�' message #16 Content� Looking New� & event� to the future 4 Appointments & prizes 5 Save the date Last year marked TSE’s 10th anniversary, a milestone in the long history of economics in Toulouse. 2017 also saw our endowment strengthened through the renewal of our Laboratoire d’Excellence status and an exciting new certification for our “CHESS” graduate school project - Challenges in Economics and Christian Gollier Quantitative Social Sciences. We are grateful for and proud of these strong signals of support which will help our institution tremendously. Researc� TSE wasn’t built in a day. It took more than 30 years for Jean- 6 Reducing search costs Jacques Laffont and the leading academic peers he convinced THE FUTURE Daniel Ershov to join him to accomplish his dream of building a world-class economics department in Toulouse with bright, intense academic OF FINANCE 8 Why would Waze life. We are lucky to be now living that dream, but our ambition send you off-track? for this new year does not waver. We want to aim higher Johannes Hörner and attract the very best talents to the south of France. Our Jean Tirole minds are focused on the future; our new building, now almost 16 Jean Tirole complete, will be another great asset in making our community one of the best Th inker� places in Europe to do research. -
Outline of Macroeconomics Sequence (2021-2022)
European University Institute Department of Economics This version: July 19, 2021 Outline of Macroeconomics Sequence (2021-2022) Core courses (Year 1, compulsory) Core 1: Dynamic Fiscal and Monetary Policy (Russell Cooper, [email protected]) Core 2A: Dynamic Programming and Real Business Cycles (Jesus Bueren, [email protected]) Core 2B: New Keynesian Economics (Edouard Challe, [email protected]) Core 3A: Search Theory (Edouard Challe, [email protected]) Core 3B: Incomplete Markets (Alexander Monge-Naranjo, [email protected]) Advanced courses (Year 2+, elective) Advanced 1: Firm Dynamics [half-credit] (Basile Grassi, [email protected]) Advanced 2: Quantitative Methods and Applications: Dynamic Factor Demand [half-credit] (Russell Cooper, [email protected]) Advanced 3: Fiscal and Monetary Policy and Institutions in a Century of Crises [full-credit] (Ramon Marimon, [email protected]) Advanced 4: Asset Pricing and Bubbles [half-credit] (Edouard Challe, [email protected]) Advanced 5: Life-Cycle Heterogeneous Agents Models: Solution and Estimation [full-credit] (Jesus Bueren, [email protected]) Advanced 6: Computations and Quantitative Models in Macro [half-credit] (Alexander Monge-Naranjo, [email protected]) Advanced 7: Topics on Housing and the Macroeconomy [half-credit] (Antonia Díaz, [email protected]) Advanced 8: Macro Models with Exogenous and Endogenous Incomplete Markets [half-credit] TBC (Árpád Ábrahám, [email protected]) Advanced 9: Inequality and Education [full-credit] (Alexander Monge-Naranjo, [email protected]) Advanced 10: Topics in Banking and Finance [half-credit] (Thorsten Beck, [email protected]) Advanced 11: Optimal Fiscal Policy in (Quantitative) Macro Models [half-credit] (Axelle Ferriere, [email protected]) .../.. -
Politics and Economics in Weak and Strong States
NBER WORKING PAPER SERIES POLITICS AND ECONOMICS IN WEAK AND STRONG STATES Daron Acemoglu Working Paper 11275 http://www.nber.org/papers/w11275 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 April 2005 I thank Simon Johnson, Robert King, Philipp Harms, Gerard Padro-i-Miguel, James Robinson, Pierre-Daniel Sarte, Pierre Yared, an anonymous referee, and participants in the Brown University microeconomics seminar, Canadian Institute of Advanced Research conference, Macroeconomics and Political Economy conference in Gerzenzee, and MIT macro lunch for helpful comments and Ufuk Akcigit, Pierre Yared and especially Alexandre Debs for excellent research assistance. I thank the National Science Foundation Grant SES 0443465 for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. ©2005 by Daron Acemoglu. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Politics and Economics in Weak and Strong States Daron Acemoglu NBER Working Paper No. 11275 April 2005 JEL No. P16, H10 ABSTRACT While much research in political economy points out the benefits of "limited government," political scientists have long emphasized the problems created in many less developed nations by "weak states," which lack the power to tax and regulate the economy and to withstand the political and social challenges from non-state actors. I construct a model in which the state apparatus is controlled by a self-interested ruler, who tries to divert resources for his own consumption, but who can also invest in socially productive public goods. -
Advanced Topics: Theory of Money ∗
Advanced Topics: Theory of money ∗ Francesco Lippi University of Sassari and EIEF flippi‘at’uniss.it November 20, 2013 The class has two parts. The first part describes models where money has value in equilibrium because of explicitly specified frictions. We use these models to discuss optimal monetary policy. Second, we study the propagation of monetary shocks in an economy with sticky prices. We will use continuous-time stochastic processes and optimal-control methods to model infrequent price adjustment by firms. Emphasis will be placed on the solution methods, mostly analytical, and on quantitative applications. We will solve the firm decision problem under different frictions, discuss aggregation of the individual firm decisions within a GE model, and study the propagation of shocks in an economy populated by “inactive” firms. ∗ 1. Pure currency economies • Samuelson-Lucas OLG (Lucas (1996)) Competitive equilibrium • Lump-sum, proportional • Planner’s problem and welfare analysis • Money in the Utility function, CIA, Sidrausky and Goodfriend-MacCallun type of models, Lucas (2000). • Cost of Inflation with Heterogeneous agents. Money as a buffer stock: Lucas (1980), chapter 13.5 of Stokey and Lucas (1989), Imrohoroglu (1992), Lippi, Ragni, and Trachter (2013) 2. Money in a search and matching environment • Lagos and Wright (2005) model • Individual rationality and implementability of FR (Andolfatto (2013)) • Competing media of exchange Nosal and Rocheteau (2011) Ch. 10 3. Continuous time diffusions, controlled BM and Hamilton-Jacobi-Bellman equations • Chapters 1-4 from Dixit (1993) and Chapters 3 (1, 2 optional) Stokey (2009) • Discrete time - discrete state derivation of BM • Derivation of the Hamilton-Jacobi-Bellman equation • Controlled BM: expected time to hit barrier • Invariant distribution of a controlled diffusion: Kolmogorov equation • The smooth pasting principle 4. -
Economic Perspectives
The Journal of The Journal of Economic Perspectives Economic Perspectives The Journal of Spring 2015, Volume 29, Number 2 Economic Perspectives Symposia The Bailouts of 2007–2009 Austan D. Goolsbee and Alan B. Krueger, “A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler” W. Scott Frame, Andreas Fuster, Joseph Tracy, and James Vickery, “The Rescue of Fannie Mae and Freddie Mac” Charles W. Calomiris and Urooj Khan, “An Assessment of TARP Assistance to Financial Institutions” Robert McDonald and Anna Paulson, “AIG in Hindsight” Phillip Swagel, “Legal, Political, and Institutional Constraints on A journal of the the Financial Crisis Policy Response” American Economic Association Disability Insurance Jeffrey B. Liebman, “Understanding the Increase in Disability Insurance Benet 29, Number 2 Spring 2015 Volume Receipt in the United States” Pierre Koning and Maarten Lindeboom, “The Rise and Fall of Disability Insurance Enrollment in the Netherlands” James Banks, Richard Blundell, and Carl Emmerson, “Disability Benet Receipt and Reform: Reconciling Trends in the United Kingdom” Articles Darrell Dufe and Jeremy C. Stein, “Reforming LIBOR and Other Financial Market Benchmarks” Rainer Böhme, Nicolas Christin, Benjamin Edelman, and Tyler Moore, “Bitcoin: Economics, Technology, and Governance” Konstantin Kashin, Gary King, and Samir Soneji, “Systematic Bias and Nontransparency in US Social Security Administration Forecasts” Recommendations for Further Reading Spring 2015 The Journal of Economic Perspectives A journal of -
Price Rigidity: Microeconomic Evidence and Macroeconomic
PRICE RIGIDITY: MICROECONOMIC EVIDENCE AND MACROECONOMIC IMPLICATIONS Emi Nakamura Jón Steinsson UC Berkeley March 2019 Nakamura-Steinsson (UC Berkeley) Price Rigidity 1 / 79 Diverse evidence that demand shocks affect output: Monetary shocks: Friedman-Schwartz 63, Eichengreen-Sachs 85, Mussa 86, Christiano-Eichenbaum-Evans 99, Romer-Romer 04, Gertler-Karadi 15, Nakamura-Steinsson 18 Fiscal shocks: Blanchard-Perotti 02, Ramey 11, Barro-Redlick 11, Nakamura-Steinsson 14, Guajardo-Leigh-Pescatori 14 Household deleveraging shocks: Mian-Sufi 14 Major challenge: How to explain this empirical finding? In RBC type models, demand shocks have small effects on output Leading explanation: Prices adjust sluggishly to shocks WHY CARE ABOUT PRICE RIGIDITY IN MACRO? Nakamura-Steinsson (UC Berkeley) Price Rigidity 2 / 79 Major challenge: How to explain this empirical finding? In RBC type models, demand shocks have small effects on output Leading explanation: Prices adjust sluggishly to shocks WHY CARE ABOUT PRICE RIGIDITY IN MACRO? Diverse evidence that demand shocks affect output: Monetary shocks: Friedman-Schwartz 63, Eichengreen-Sachs 85, Mussa 86, Christiano-Eichenbaum-Evans 99, Romer-Romer 04, Gertler-Karadi 15, Nakamura-Steinsson 18 Fiscal shocks: Blanchard-Perotti 02, Ramey 11, Barro-Redlick 11, Nakamura-Steinsson 14, Guajardo-Leigh-Pescatori 14 Household deleveraging shocks: Mian-Sufi 14 Nakamura-Steinsson (UC Berkeley) Price Rigidity 2 / 79 In RBC type models, demand shocks have small effects on output Leading explanation: Prices adjust sluggishly -
A Reconsideration of Full-Cost Pricing
A Reconsideration of Full-Cost Pricing Methodological Aspects of Marginalism and Theoretical Explanations of Pricing Behaviour Inaugural-Dissertation zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.) an der Ludwig-Maximilians-Universität München 2010 vorgelegt von Elmar Nubbemeyer Referent: Ekkehart Schlicht Korreferent: Kenneth Coutts Datum der mündlichen Prüfung: 8. November 2010 Promotionsabschlussberatung: 17. November 2010 Acknowledgements This thesis was written in the years 2007-2010 during my time as a research and teaching assistant at the Seminar für Theorie und Politik der Einkom- mensverteilung at the Ludwig-Maximilians-Universität München and my stay at the University of Cambridge, UK. First and foremost, I would like to thank my supervisor Ekkehart Schlicht. His trust, universal support and strong interest in my research ideas were cru- cial for the success of this project. He always took time for my requests, in- spired me with countless suggestions and was a great mentor in matters both academic and not. Furthermore, I thank Ken Coutts, who invited me to a re- search visit at the University of Cambridge, UK and later agreed to act as my secondary supervisor. I am very grateful for his generous hospitality and his interest in my work. I also want to thank Florian Englmaier, who kindly agreed to act as my third examiner. Many friends and co-workers supported me in the course of this work. My dear colleagues and friends Roberto Cruccolini and Christoph Stoeckle helped me in many ways and contributed to a great working atmosphere. Maria Mor- genroth took care of all administrative tasks and often provided good advice.