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Author: Jess Benhabib
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 48
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Book Description
Author: Jess Benhabib
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 48
Get Book Here
Book Description
Author: Mr.Itai Agur
Publisher: International Monetary Fund
ISBN: 1484382757
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
The notion of a tradeoff between output and financial stabilization is based on monetarymacroprudential models with unique equilibria. Using a game theory setup, this paper shows that multiple equilibria lead to qualitatively different results. Monetary and macroprudential authorities have tools that impose externalities on each other's objectives. One of the tools (macroprudential) is coarse, while the other (monetary policy) is unconstrained. We find that this asymmetry always leads to multiple equilibria, and show that under economically relevant conditions the authorities prefer different equilibria. Giving the unconstrained authority a weight on "helping" the constrained authority ("leaning against the wind") now has unexpected effects. The relation between this weight and the difficulty of coordinating is hump-shaped, and therefore a small degree of leaning worsens outcomes on both authorities' objectives.
Author: Robert G. King
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 52
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Book Description
In a plain-vanilla New Keynesian model with two-period staggered price-setting, discretionary monetary policy leads to multiple equilibria. Complementarity between the pricing decisions of forward-looking firms underlies the multiplicity, which is intrinsically dynamic in nature. At each point in time, the discretionary monetary authority optimally accommodates the level of predetermined prices when setting the money supply because it is concerned solely about real activity. Hence, if other firms set a high price in the current period, an individual firm will optimally choose a high price because it knows that the monetary authority next period will accommodate with a high money supply. Under commitment, the mechanism generating complementarity is absent: the monetary authority commits not to respond to future predetermined prices. We compute a traditional inflation bias equilibrium, in which price-setters are optimistic, rationally expecting small adjustments by other firms. But there is another steady-state equilibrium in which price setters are pessimistic and inflation is much higher. Further, we find that there are multiple equilibria at a point in time, not just in steady states. In a stochastic setting with equilibrium selection each period determined by an i.i.d. sunspot, there is greater inflation bias on average than if price-setters were always optimistic. The sunspot realization also has real effects: periods of higher than average inflation are accompanied by low output. Thus, increased real volatility may be an additional cost of discretion in monetary policy.
Author: Mr.Paul R. Masson
Publisher: International Monetary Fund
ISBN: 1451857977
Category : Business & Economics
Languages : en
Pages : 26
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Book Description
The paper surveys the types of models producing multiple equilibria in financial markets. It argues that such models are consistent with observed phenomena, such as the greater volatility of financial asset prices than of macroeconomic fundamentals. Alternative explanations are compared with the stylized facts concerning capital flows, portfolio shifts, and exchange rate crises. Implications for crisis prediction and prevention are then discussed.
Author: Luis-Felipe Zanna
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 70
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Book Description
Author: Andreas Schabert
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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Book Description
Author: Andreas Schabert
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
Author: Mr.Jorge A. Chan-Lau
Publisher: International Monetary Fund
ISBN: 1451922442
Category : Business & Economics
Languages : en
Pages : 20
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Book Description
The paper analyzes the effects of monetary policy in a dynamic model of a small open economy with cash and credit goods production, where government consumption is financed by seignorage. It shows that the interrelationships between the growth rate of the monetary aggregate and the technological properties of the economy have an important bearing on the existence and uniqueness of equilibrium, the optimal inflation rate, and the occurrence of explosive hyperinflations. In consequence, the paper concludes that monetary policy does matter in the long run.
Author: Jess Benhabib
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 12
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Book Description
When monetary policy is subject to regime switches conditions for determinacy become more complex. Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009a) have studied such conditons. Using some new results from stochastic processes, we characterize the moments of the stationary distribution of inflation under regime switiching to obtain conditions for indeterminacy that can be easily checked and interpreted in terms of expected values of Taylor coefficients. In the last section, we outline methods to compute the moments of stationary distributions in regime switching models of higher dimensions.
Author: Levon Barseghyan
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
We analyze optimal discretionary monetary policy in an endogenous sticky prices model. Similar models with exogenous sticky prices can deliver multiple equilibria. This is a necessary condition for the occurrence of expectation traps (when private agents' expectations determine the equilibrium level of inflation). In our model, sticky price firms are allowed to switch to flexible pricing by paying a random cost. For plausible parametrizations, our model has a unique low-inflation equilibrium. With endogenous sticky prices, the monetary authority does not validate high-inflation expectations and deviates to the Friedman rule.
