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Author: Hoonsik Yang
Publisher:
ISBN:
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Languages : en
Pages :
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This dissertation consists of three essays in monetary economics. Although the topic of each chapter differs, the approach is shared: I extend a random matching model of money by augmenting the set of money holdings, and compute socially desirable allocations in the spirit of mechanism design analysis. The augmentation is not just technically improving the model, but making the model rich enough to think about the economic problem that each chapter delves into. I document some interesting properties of the desirable allocations, and highlight the differences generated by the extension.Chapter 1. "A beneficial role of government bonds"I study a random matching model of money to show that the existence of bonds can be beneficial to a society, compared to having only money. In the model, anonymous agents randomly meet in pairs to produce and consume, hence money becomes essential. I compare two identical economies except the availability of bonds, in the sense that people can use any available assets as payments. Following the mechanism design approach, I define implementable allocations and the optimum. Under the notion of the implementability, social planner can devise trading mechanisms that induce people to hold both assets without exogenously given advantages of money as means of payment. I find that having both bondsand money in the economy can improve social welfare over having only money. This role of bonds is associated with a beneficial effect of inflation produced by lump-sum transfers, and it is achieved differently from the previously documented mechanism.Chapter 2. "Optimal intervention in a random-matching model of money" (joint with Wataru Nozawa)Wallace [2014] conjectures that there generically exists an inflation-financed transfer scheme that improves welfare over no intervention in pure-currency economies. We investigate this conjecture in the Shi-Trejos-Wright model with different upper bounds on money holdings. The choice of an upper bound affects the results as some potentially beneficial transfer schemes cannot be studied under small upper bounds. Numerical optima are computed for different degrees of discounting rate and risk aversion. As the upper bound on money holdings increases, optima are more likely to have positive money creation (and inflation),and this result is in line with the conjecture.Chapter 3. "Optimal inflation in a model of inside money: A further result" (joint with Wataru Nozawa)We extend the Deviatov and Wallace [2014] model of inside money in which they find some examples where inflation is beneficial. Their model is restrictive in that it cannot address policies that provide interests on cash (Friedman rule). With a higher upper bound on money holdings than what they use, such policies can be engineered without inflation and resulting allocations are potentially better than what they find, in which case positive inflation is not a property of good allocation. We investigate this possibility and confirm their results in a more generalized setting for some parameters. At optima for the examples, interest on cash is not provided and positive inflation arises in a similar manner to their work. Welfareat optimum increases monotonically with respect to discount factor and public monitoring capacity of a society, but other variables change in a more complex way.
Author: Hoonsik Yang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This dissertation consists of three essays in monetary economics. Although the topic of each chapter differs, the approach is shared: I extend a random matching model of money by augmenting the set of money holdings, and compute socially desirable allocations in the spirit of mechanism design analysis. The augmentation is not just technically improving the model, but making the model rich enough to think about the economic problem that each chapter delves into. I document some interesting properties of the desirable allocations, and highlight the differences generated by the extension.Chapter 1. "A beneficial role of government bonds"I study a random matching model of money to show that the existence of bonds can be beneficial to a society, compared to having only money. In the model, anonymous agents randomly meet in pairs to produce and consume, hence money becomes essential. I compare two identical economies except the availability of bonds, in the sense that people can use any available assets as payments. Following the mechanism design approach, I define implementable allocations and the optimum. Under the notion of the implementability, social planner can devise trading mechanisms that induce people to hold both assets without exogenously given advantages of money as means of payment. I find that having both bondsand money in the economy can improve social welfare over having only money. This role of bonds is associated with a beneficial effect of inflation produced by lump-sum transfers, and it is achieved differently from the previously documented mechanism.Chapter 2. "Optimal intervention in a random-matching model of money" (joint with Wataru Nozawa)Wallace [2014] conjectures that there generically exists an inflation-financed transfer scheme that improves welfare over no intervention in pure-currency economies. We investigate this conjecture in the Shi-Trejos-Wright model with different upper bounds on money holdings. The choice of an upper bound affects the results as some potentially beneficial transfer schemes cannot be studied under small upper bounds. Numerical optima are computed for different degrees of discounting rate and risk aversion. As the upper bound on money holdings increases, optima are more likely to have positive money creation (and inflation),and this result is in line with the conjecture.Chapter 3. "Optimal inflation in a model of inside money: A further result" (joint with Wataru Nozawa)We extend the Deviatov and Wallace [2014] model of inside money in which they find some examples where inflation is beneficial. Their model is restrictive in that it cannot address policies that provide interests on cash (Friedman rule). With a higher upper bound on money holdings than what they use, such policies can be engineered without inflation and resulting allocations are potentially better than what they find, in which case positive inflation is not a property of good allocation. We investigate this possibility and confirm their results in a more generalized setting for some parameters. At optima for the examples, interest on cash is not provided and positive inflation arises in a similar manner to their work. Welfareat optimum increases monotonically with respect to discount factor and public monitoring capacity of a society, but other variables change in a more complex way.
Author: Paola Boel
Publisher:
ISBN:
Category :
Languages : en
Pages : 111
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Book Description
In Chapter 3 we construct a monetary economy where agents hold cash to insure against consumption risk. We calibrate the model to the U.S. economy and use it to quantify the welfare cost of inflation. At the aggregate level, we obtain estimates similar to previous representative agent models. However, when we look at the distributional effects of inflation, we find that positive inflation can in fact be welfare increasing for agents with low consumption risk.
Author: Christian D. Bustamante Amaya
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 119
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Book Description
In these essays, I study the interplay of monetary policy with agent heterogeneity in economies with frictional markets. While accounting for the heterogeneity observed at the micro level, I investigate the implications of having persistent differences in firms and households' balance sheets and their consequences for business cycle fluctuations in monetary economies during both normal times and in times of economic distress. In the first chapter, “Debt Overhang, Monetary Policy, and Economic Recoveries After Large Recessions”, I explore why conventional monetary policy was so ineffective in mitigating the severity of the 2007 U.S. recession and unsuccessful thereafter in stimulating aggregate demand. Linking firm-level data with predictions from a model, I show that accounting for individual firms’ debt structures is crucial in explaining why business investment fell so dramatically through the recession and remained low for several years, despite the Federal Reserve repeatedly cutting its target interest rate until conventional policy tools were exhausted. Using a sample of publicly traded firms, I establish that firms with greater long-term debt exposure experienced larger contractions and slower recoveries in their investment expenditure. Next, I show that debt overhang episodes were unusually prevalent over the years following the onset of the recession, and particularly so among firms relying more heavily on long-maturing debt. To understand these microeconomic observations and their implications for aggregates, I develop a New Keynesian model where heterogeneous firms finance investment using defaultable nominal long-term debt and where the central bank faces an explicit zero lower bound constraint. There, the greater a firm’s leverage, the higher its likelihood of experiencing a debt overhang episode following a large aggregate shock. Moreover, the severity of debt overhang problems, and their consequences for the distribution and level of aggregate investment, compounds with (1) an increased real value of debt, i.e., debt deflation, and (2) the monetary authority’s inability to restore inflation once nominal interest rates reach the zero lower bound. Together, firms’ long maturity debt positions and the binding zero lower bound are critical in transmitting the consequences of a deep recession into a remarkably anemic recovery in aggregate investment.
Author: Nobuhide Okahata
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 0
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In these essays, I study the implications of macroeconomic policies under the environment with rich heterogeneities of economic agents. The analyses in these essays highlight that income and wealth inequality among agents could change the responses of macroeconomic policies and large aggregate shocks from those in the representative agent models. These results could modify our understanding of economic dynamics and the effect of macroeconomic policies. As an illustration, I focus on the monetary policy in a closed economy model and capital controls in an open economy model. I also develop a new nonlinear and global numerical solution method to analyze a class of heterogeneous-agent macroeconomic models. In the first chapter, ''An Alternative Solution Method for Continuous-Time Heterogeneous Agent Models with Aggregate Shocks'', I propose an alternative solution method for continuous-time heterogeneous agent models with aggregate shocks by extending the Backward Induction method developed initially for discrete-time models by Reiter (2010). The existing methods commonly used in the literature essentially rely on the local linearization and are only applicable to the problems where certainty equivalence with respect to aggregate shocks holds. On the other hand, the proposed method is nonlinear and global with respect to both idiosyncratic and aggregate shocks and thus suitable to investigate models where large aggregate shocks exist or nonlinearity matters. I apply this method to solve a Krusell and Smith (1998) economy and evaluate its performance along two dimensions: accuracy and computation speed. I find that the proposed method is accurate even with large aggregate shocks and high curvature without surrendering computation speed (the baseline economy is solved within a few seconds). This new method is also applied to a model with recursive utility and an Overlapping Generations (OLG) model, and it is able to solve both models quickly and accurately. In the second chapter, ''Consumption Inequality and Monetary Policy in a Heterogeneous-Agent New Keynesian Model'', I consider a continuous-time heterogenous-agent New Keynesian model with the wealth effect of the labor supply and study quantitative implications of additional insurance mechanisms available to the households. Our numerical experiment illustrates cross-sectional consumption inequality increases after a contractionary monetary policy shock which is consistent with the previous empirical result while it contradicts with predictions of the model without the wealth effect of the labor supply. Furthermore, consumption response to contractionary monetary policy shock is dampened, and a cross-sectional average of utilities decreases while the opposite is true in the model without wealth effect. These results suggest that propagation of monetary policy shock to the aggregate variables and welfare depends critically on additional insurance instruments available to agents. The third chapter, ''Capital Controls under Income Heterogeneity'', studies the welfare implication of capital controls under the small open economy model with the idiosyncratic income risks and the borrowing constraints. A calibrated model computes the change in welfare for different levels of capital controls. Compared to the recent studies, welfare gain of capital controls becomes small under agent income heterogeneity. For the economy with low borrowing capacity, capital controls become more effective compared to the baseline case.
Author: Florian Kuhn
Publisher:
ISBN:
Category :
Languages : en
Pages : 250
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This dissertation investigates several business cycle relationships when economic agents are heterogeneous. The particular focus is on the interactions between the cross-section of agents and the aggregate state of the economy. The first chapter shows that, when occasionally binding capacity constraints limit the production of heterogeneous firms, demand shocks can endogenously generate a number of important business cycle regularities: recessions are deeper than booms are high, firm-level volatility is countercyclical, the aggregate Solow residual is procyclical and the fiscal multiplier is countercyclical. A baseline calibration of a basic New Keynesian DSGE model with capacity constraints shows that this mechanism can explain more than a quarter of the empirically observed asymmetry in output, and matches the cyclicality of firm-level profitability dispersion and of the measured Solow residual. The model implies fluctuations in the fiscal multiplier of around 0.12 between expansions and recessions. Chapter two takes a different approach to firm level uncertainty, exploring how recessions can cause an endogenous rise in firm risk. If heterogeneous firms face real and financial frictions, then a shock to the mean of aggregate productivity endogenously leads to countercyclical profitability risk through firms' heterogeneous responses in price setting. Additionally, the mechanism endogenously generates countercyclical credit spreads and credit spread dispersion. The model explains a large share of the observed fluctuations in profitability dispersion (69%) and in credit spreads (40%) through fluctuations in aggregate TFP holding productivity risk constant. This suggests that the scope for uncertainty shocks to explain recessions may be smaller than previously thought. The third chapter focuses on distributional effects of oil price shocks on the household side. In the model, household behavior replicates two patterns found in household-level data which show that gas consumption increases with income, but on the intensive margin gasoline consumption as a share of the household's budget decreases with income. The model includes gas consumption in household utility on top of a fixed minimum level of gas consumption. Calibrated simulations suggest that a shock to the gas price is almost twice as costly for relatively poor households than for relatively rich households.
Author: Alaïs Martin-Baillon
Publisher:
ISBN:
Category :
Languages : en
Pages : 256
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It is now recognized that the heterogeneity of economic agents plays a crucial role in understanding the fluctuations of an economy. The different chapters of my thesis serve the same question: How does heterogeneity changes the way economic policies should be conducted? Today, heterogeneous-agent macroeconomics is developing in several directions, each shedding different light on the problems we face as economists. My thesis is at the confluence of the different facets of this field. The first chapter of my thesis, participates in the heterogeneous agent macroeconomics that derives analytical solutions in reduced-heterogeneity models. I study how governments should increase or decrease taxes on firms over the business cycle. I show that taking into account firms heterogeneity greatly changes tax policy recommendations. The second chapter of my thesis is part of quantitative heterogeneous agent macroeconomics. We study whether monetary policy should use its ability to redistribute wealth among heterogenous households to achieve its objectives. The third chapter of my thesis participates in field that uses micro data to understand macroeconomics and to design public policies. I estimate firms' propensities to invest to better understand how economic policies can vary firms' investment by varying their income.
Author: Robert Jump
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Category :
Languages : en
Pages :
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Author: Antzelos Kyriazis
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This dissertation has three chapters. In the first chapter, I build a three-agent preferred-habitat New Keynesian (PHANK) model. I show that the fiscal multiplier decreases in the presence of countercyclical QE policies after a fiscal expansion since countercyclical QE implies that the central bank sells government bonds, leading to higher expected returns on these bonds, which in turn incentivizes the bondholders to save more. However, since bondholders save more, they consume less, and as a result, consumption inequality between the savers and the non-savers falls, but wealth inequality increases. The qualitative results are similar in a medium-scale heterogeneous agents New Keynesian (HANK) model. In the three-agent model, I also solve for the optimal fiscal and QE policies at the zero lower bound, and I find that both are expansionary. The optimal increase in central bank asset purchases allows the government to increase government spending by less relative to the case where QE follows a countercyclical rule, so lower tax revenues are needed. In the second chapter, I study how US QE programs affect the US economy and the emerging market economies regarding their macro aggregates and asset prices. First, using Bayesian VAR models, I find that expansionary QE has positive and statistically significant effects in the US economy and the emerging market economies; real GDP, real investment, the price level, and asset prices rise. However, in emerging market economies, the currencies appreciate, the current account-to-GDP ratios deteriorate, the money supply increases, and the government bond yields increase. Then, I build a two-country HANK model that matches the empirical responses. Through the model, I examine how wealth inequality evolves both in the US economy and in the emerging market economy after a positive QE shock. Wealth inequality increases in the short run but decreases over the medium run in both countries. Also, I study the effects of policies that aim to reduce the leverage in the financial sector of the emerging market economy, such as capital controls, and I find that this policy indeed reduces the capital flows and leverage. However, economic activity also falls, and the welfare effects are mixed across households.The last chapter resulted from my strong interest in digital assets that emerged during my last year in the program. In this chapter, which results from collaborative work with Iason Ofeidis, Georgios Palaiokrassas, and Leandros Tassiulas, we examine the effects of unexpected changes in US monetary policy on digital asset returns, and on DeFi-related variables such as borrowing rates, outstanding debt, and TVL. We also examine the effects that the FOMC statement releases and the Minutes releases have on the volatility of digital asset returns. Finally, we examine how DeFi activity evolves around the FOMC announcements. The results from this chapter show first that the returns on digital assets are significantly affected by the unexpected part of the FOMC announcements. The volatility of the returns is also significantly affected by the FOMC releases but less significantly affected by the Minutes releases. Second, the DeFi-related variables are also affected by unexpected changes in monetary policy. Lastly, we find that the most significant spikes in DeFi activity occur on the FOMC announcement days or days very close to the announcement days.
Author: Anne Patricia Villamil
Publisher:
ISBN:
Category :
Languages : en
Pages : 106
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Author: Roberto Dieci
Publisher: Springer
ISBN: 3319074709
Category : Business & Economics
Languages : en
Pages : 384
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Book Description
This book reflects the state of the art on nonlinear economic dynamics, financial market modelling and quantitative finance. It contains eighteen papers with topics ranging from disequilibrium macroeconomics, monetary dynamics, monopoly, financial market and limit order market models with boundedly rational heterogeneous agents to estimation, time series modelling and empirical analysis and from risk management of interest-rate products, futures price volatility and American option pricing with stochastic volatility to evaluation of risk and derivatives of electricity market. The book illustrates some of the most recent research tools in these areas and will be of interest to economists working in economic dynamics and financial market modelling, to mathematicians who are interested in applying complexity theory to economics and finance and to market practitioners and researchers in quantitative finance interested in limit order, futures and electricity market modelling, derivative pricing and risk management.
