Monetary Policy and Unemployment: A New Keynesian Perspective
|
|
- Francine Russell
- 5 years ago
- Views:
Transcription
1 Monetary Policy and Unemployment: A New Keynesian Perspective Jordi Galí CREI, UPF and Barcelona GSE May 218 Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
2 Introducing Unemployment in the Standard NK Model Recent literature: labor market frictions + nominal rigidities Walsh, Trigari, Blanchard-Galí, Thomas, Gertler-Sala-Trigari, Faia, Ravenna-Walsh, Christiano-Eichenbaum-Trabandt Alternative approach developed in my Zeuthen lectures [1] - reformulation of the standard NK model ) unemployment Applications: - An empirical model of wage in ation and unemployment dynamics [2] - Unemployment and the measurement of the output gap (ch. 2 in [1]) - Unemployment and the design of monetary policy (ch.3 in [1]) - Revisiting the sources of uctuations in the Smets-Wouters model [3] - A structural interpretation of slow recoveries [4] - European unemployment [5], [6] Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
3 References [1] Unemployment Fluctuations and Stabilization Policies: A New Keynesian Perspective (211, MIT Press) [2] "The Return of the Wage Phillips Curve" Journal of the European Economic Association, 211. [3] "An Estimated New Keynesian Model with Unemployment," (with F. Smets and R. Wouters), NBER Macroeconomics Annual 211 [4] "Slow Recoveries: A Structural Interpretation," (with F. Smets and R. Wouters), Journal of Money, Credit and Banking, 212. [5] "Hysteresis and the European Unemployment Problem Revisited," Proceedings of the ECB Forum on Central Banking, 215, [6] "Insider-Outsider Labor Markets, Hysteresis, and Monetary Policy," unpublished manuscript. Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
4 A New Keynesian Model with Unemployment Households Representative household with a continuum of members, indexed by (j, s) 2 [, 1] [, 1] Continuum of di erentiated labor services, indexed by j 2 [, 1] Disutility from (indivisible) labor: χs ϕ, for s 2 [, 1], where ϕ Full consumption risk sharing within the household Household utility: E t= β t U(C t, fn t (j)g; Z t ) U(C t, fn t (j)g; Z t ) where C t = C 1 R 1 C t(i) 1 1 ɛp ɛp 1 ɛp di σ t 1 1 σ C 1 σ t 1 1 σ Z 1 χ χ Z 1 Z Nt (j) N t (j) 1+ϕ 1 + ϕ dj s ϕ dsdj Z t Z t Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
5 Budget constraint Z 1 Z 1 P t (i)c t (i)di + Q t B t B t 1 + W t (j)n t (j)dj + D t Two optimality conditions where P t Pt (i) ɛp C t (i) = C t P t R 1 1 P t(i) 1 ɛ 1 p di ɛp, implying R 1 P t(i)c t (i)di = P t C t. ( Ct+1 σ Zt+1 Pt Q t = βe t C t Z t P t+1 ) Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
6 Wage Setting Nominal wage for each labor type reset with probability 1 period Average wage dynamics θ w each Optimal wage setting rule w t = µ w + (1 βθ w ) ɛ w ɛ w w t = θ w w t 1 + (1 θ w )w t k= (βθ w ) k E t mrst+kjt + p t+k where µ w log 1 and mrs t+kjt σc t+k + ϕn t+kjt + ξ Wage in ation equation π w t = βe t fπ w t+1g λ w (µ w t µ w ) where π w t w t w t 1, µ w t w t p t mrs t, mrs t σc t + ϕn t + ξ, and λ w (1 θ w )(1 βθ w ) θ w (1+ɛ w ϕ). Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
7 Introducing Unemployment Participation condition for an individual (j, s): W t (j) P t χc σ t s ϕ Marginal participant, L t (j), given by: W t (j) P t = χc σ t L t (j) ϕ Taking logs and integrating over i, w t p t = σc t + ϕl t + ξ where w t ' R 1 w t(j)dj and l t R 1 l t(j)dj is the model s implied (log) aggregate labor force. Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
8 Introducing Unemployment Unemployment rate u t l t n t Average wage markup and unemployment µ w t = (w t p t ) (σc t + ϕn t + ξ) = ϕu t Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
9 Introducing Unemployment Unemployment rate u t l t n t Average wage markup and unemployment µ w t = (w t p t ) (σc t + ϕn t + ξ) = ϕu t Under exible wages: µ w = ϕu n ) u n : natural rate of unemployment A New Keynesian Wage Phillips Curve π w t = βe t fπ w t+1g λ w ϕ(u t u n ) Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
10 Figure 7.1 The Wage Markup and the Unemployment Rate Wage Labor demand Labor supply u t wt p t w µ t nt lt Employment Labor force
11 Firms and Price Setting Continuum of rms, i 2 [, 1], each producing a di erentiated good. Technology Y t (i) = A t N t (i) 1 R ɛw 1 where N t (i) N t(i, j) 1 1 ɛw 1 ɛw di Price of each good reset with a probability 1 Average price dynamics Opimal price setting rule p t = θ p p t 1 + (1 θ p )p t α θ p each period where p t = µ p + (1 βθ p ) k= (βθ p ) k E t fψ t+kjt g ψ t+kjt w t (a t αn t+kjt + log(1 α)) Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
12 Firms and Price Setting Implied price in ation equation π p t = βe t fπ p t+1 g λ p(µ p t µ p ) where µ p t p t ψ t ψ t w t (a t αn t + log(1 α)) and λ p (1 θ p)(1 βθ p ) θ p 1 α 1 α + αɛ p. Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
13 Equilibrium Non-Policy block ey t = 1 σ (i t E t fπ p t+1 g r n t ) + E t fey t+1 g π p t = βe t fπ p t+1 g + { pey t + λ p eω t π w t = βe t fπ w t+1g λ w ϕbu t eω t eω t 1 + π w t π p t ω n t ϕbu t = bµ w t = eω t (σec t + ϕen t ) = eω t σ + ϕ 1 α ey t Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
14 Policy block Example: i t = ρ + φ p π p t + φ y by t + v t Natural equilibrium by n t = ψ ya a t with ψ ya r n t = ρ σ(1 ρ a )ψ ya a t + (1 ρ z )z t bω n t = ψ wa a t 1+ϕ σ(1 α)+ϕ+α and ψ wa 1 αψ ya 1 α >. Exogenous AR(1) processes for fa t g, fz t g, and fv t g Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
15 Calibration Baseline calibration Description Value Target ϕ Curvature of labor disutility 5 Frisch elasticity.2 α Index of decrasing returns to labor 1/4 ɛ w Elasticity of substitution (labor) 4.52 u n =.5 ɛ p Elasticity of substitution (goods) 9 S = 1 α ɛ p /(ɛ p 1) = 2/3 θ p Calvo index of price rigidities 3/4 avg. duration = 4 θ w Calvo index of wage rigidities 3/4 avg. duration = 4 φ p In ation coe cient in policy rule 1.5 Taylor (1993) φ y Output coe cient in policy rule.125 Taylor (1993) β Discount factor.99 ρ a Persistence: technology shocks.9 ρ z Persistence: demand shocks.5 ρ v Persistence: monetary shocks.5 Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
16 The E ects of Monetary Policy Shocks on Unemployment - Impulse responses - Volatility, Persistence and Cyclicality Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
17 Figure 7.2 Response of Labor Market Variables to a Monetary Policy Shock unemployment rate employment labor force real wage
18 Source: Galí (215, ch. 7)
19 The E ects of Monetary Policy Shocks on Unemployment - Impulse responses - Volatility, Persistence and Cyclicality Optimal Monetary Policy Problem min 1 2 E β t σ + ϕ + α ey t 2 + ɛ p (π p t ) 2 + ɛ w (1 α) (π w t ) 2 t= 1 α λ p λ w subject to: π p t = βe t fπ p t+1 g + { pey t + λ p eω t π w t = βe t fπ w t+1g + { w ey t λ w eω t eω t eω t 1 + π w t π p t ω n t Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
20 Optimality conditions σ + ϕ + α ey t + { p ζ 1 α 1,t + { w ζ 2,t = (1) ɛ p π p t ζ λ 1,t + ζ 3,t = (2) p ɛ w (1 α) λ w π w t ζ 2,t ζ 3,t = (3) λ p ζ 1,t λ w ζ 2,t + ζ 3,t βe t fζ 3,t+1 g = (4) Impulse responses: Optimal policy vs. Taylor rule Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
21 Figure 7.3 Optimal Policy vs. Taylor Rule: Technology Shocks 1 taylor rule optimal output unemployment employment labor force real wage price inflation
22 Figure 7.4 Optimal Policy vs. Taylor Rule: Demand Shocks 1.5 taylor rule optimal output unemployment employment labor force real wage price inflation
23 Optimality conditions σ + ϕ + α ey t + { p ζ 1 α 1,t + { w ζ 2,t = (5) ɛ p π p t ζ λ 1,t + ζ 3,t = (6) p ɛ w (1 α) λ w π w t ζ 2,t ζ 3,t = (7) λ p ζ 1,t λ w ζ 2,t + ζ 3,t βe t fζ 3,t+1 g = (8) Impulse responses: Optimal policy vs. Taylor rule A simple rule with unemployment: i t = π p t.5bu t (9) Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment May / 18
24 Figure 7.5 Optimal Policy vs. Simple Rule: Technology Shocks 1.5 simple taylor optimal output unemployment employment labor force real wage price inflation
25 Figure 7.6 Optimal Policy vs. Simple Rule: Demand Shocks 1.5 simple taylor optimal output unemployment employment labor force real wage price inflation
Monetary Policy and Unemployment: A New Keynesian Perspective
Monetary Policy and Unemployment: A New Keynesian Perspective Jordi Galí CREI, UPF and Barcelona GSE April 215 Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment April 215 1 / 16
More informationThe Return of the Wage Phillips Curve
The Return of the Wage Phillips Curve Jordi Galí CREI, UPF and Barcelona GSE March 2010 Jordi Galí (CREI, UPF and Barcelona GSE) The Return of the Wage Phillips Curve March 2010 1 / 15 Introduction Two
More informationThe Basic New Keynesian Model. Jordi Galí. June 2008
The Basic New Keynesian Model by Jordi Galí June 28 Motivation and Outline Evidence on Money, Output, and Prices: Short Run E ects of Monetary Policy Shocks (i) persistent e ects on real variables (ii)
More informationThe Basic New Keynesian Model. Jordi Galí. November 2010
The Basic New Keynesian Model by Jordi Galí November 2 Motivation and Outline Evidence on Money, Output, and Prices: Short Run E ects of Monetary Policy Shocks (i) persistent e ects on real variables (ii)
More informationAdvanced Macroeconomics II. Monetary Models with Nominal Rigidities. Jordi Galí Universitat Pompeu Fabra April 2018
Advanced Macroeconomics II Monetary Models with Nominal Rigidities Jordi Galí Universitat Pompeu Fabra April 208 Motivation Empirical Evidence Macro evidence on the e ects of monetary policy shocks (i)
More informationMonetary Economics. Lecture 15: unemployment in the new Keynesian model, part one. Chris Edmond. 2nd Semester 2014
Monetary Economics Lecture 15: unemployment in the new Keynesian model, part one Chris Edmond 2nd Semester 214 1 This class Unemployment fluctuations in the new Keynesian model, part one Main reading:
More informationLecture 6, January 7 and 15: Sticky Wages and Prices (Galí, Chapter 6)
MakØk3, Fall 2012/2013 (Blok 2) Business cycles and monetary stabilization policies Henrik Jensen Department of Economics University of Copenhagen Lecture 6, January 7 and 15: Sticky Wages and Prices (Galí,
More informationDynamic stochastic general equilibrium models. December 4, 2007
Dynamic stochastic general equilibrium models December 4, 2007 Dynamic stochastic general equilibrium models Random shocks to generate trajectories that look like the observed national accounts. Rational
More informationMonetary Policy Design in the Basic New Keynesian Model. Jordi Galí. October 2015
Monetary Policy Design in the Basic New Keynesian Model by Jordi Galí October 2015 The E cient Allocation where C t R 1 0 C t(i) 1 1 1 di Optimality conditions: max U (C t ; N t ; Z t ) subject to: C t
More informationDynamics and Monetary Policy in a Fair Wage Model of the Business Cycle
Dynamics and Monetary Policy in a Fair Wage Model of the Business Cycle David de la Croix 1,3 Gregory de Walque 2 Rafael Wouters 2,1 1 dept. of economics, Univ. cath. Louvain 2 National Bank of Belgium
More informationLecture 3, November 30: The Basic New Keynesian Model (Galí, Chapter 3)
MakØk3, Fall 2 (blok 2) Business cycles and monetary stabilization policies Henrik Jensen Department of Economics University of Copenhagen Lecture 3, November 3: The Basic New Keynesian Model (Galí, Chapter
More informationThe Basic New Keynesian Model, the Labor Market and Sticky Wages
The Basic New Keynesian Model, the Labor Market and Sticky Wages Lawrence J. Christiano August 25, 203 Baseline NK model with no capital and with a competitive labor market. private sector equilibrium
More informationResolving the Missing Deflation Puzzle. June 7, 2018
Resolving the Missing Deflation Puzzle Jesper Lindé Sveriges Riksbank Mathias Trabandt Freie Universität Berlin June 7, 218 Motivation Key observations during the Great Recession: Extraordinary contraction
More informationMonetary Policy and Exchange Rate Volatility in a Small Open Economy. Jordi Galí and Tommaso Monacelli. March 2005
Monetary Policy and Exchange Rate Volatility in a Small Open Economy by Jordi Galí and Tommaso Monacelli March 2005 Motivation The new Keynesian model for the closed economy - equilibrium dynamics: simple
More informationThe Labor Market in the New Keynesian Model: Incorporating a Simple DMP Version of the Labor Market and Rediscovering the Shimer Puzzle
The Labor Market in the New Keynesian Model: Incorporating a Simple DMP Version of the Labor Market and Rediscovering the Shimer Puzzle Lawrence J. Christiano April 1, 2013 Outline We present baseline
More informationA Modern Equilibrium Model. Jesús Fernández-Villaverde University of Pennsylvania
A Modern Equilibrium Model Jesús Fernández-Villaverde University of Pennsylvania 1 Household Problem Preferences: max E X β t t=0 c 1 σ t 1 σ ψ l1+γ t 1+γ Budget constraint: c t + k t+1 = w t l t + r t
More informationCan News be a Major Source of Aggregate Fluctuations?
Can News be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach Ippei Fujiwara 1 Yasuo Hirose 1 Mototsugu 2 1 Bank of Japan 2 Vanderbilt University August 4, 2009 Contributions of this paper
More informationMonetary Policy with Heterogeneous Agents: Insights from Tank Models
Monetary Policy with Heterogeneous Agents: Insights from Tank Models Davide Debortoli Jordi Galí October 2017 Davide Debortoli, Jordi Galí () Insights from TANK October 2017 1 / 23 Motivation Heterogeneity
More informationAdvanced Macroeconomics II. Real Business Cycle Models. Jordi Galí. Universitat Pompeu Fabra Spring 2018
Advanced Macroeconomics II Real Business Cycle Models Jordi Galí Universitat Pompeu Fabra Spring 2018 Assumptions Optimization by consumers and rms Perfect competition General equilibrium Absence of a
More informationAssessing the Fed s Performance through the Effect of Technology Shocks: New Evidence
through the Effect of Technology Shocks: New Evidence Carlo Coen Castellino September 2010 Abstract In this work I revisit the paper by Galí et al. (2003), which explains how the changes over time in the
More informationThe New Keynesian Model: Introduction
The New Keynesian Model: Introduction Vivaldo M. Mendes ISCTE Lisbon University Institute 13 November 2017 (Vivaldo M. Mendes) The New Keynesian Model: Introduction 13 November 2013 1 / 39 Summary 1 What
More informationThe Labor Market in the New Keynesian Model: Foundations of the Sticky Wage Approach and a Critical Commentary
The Labor Market in the New Keynesian Model: Foundations of the Sticky Wage Approach and a Critical Commentary Lawrence J. Christiano March 30, 2013 Baseline developed earlier: NK model with no capital
More informationGetting to page 31 in Galí (2008)
Getting to page 31 in Galí 2008) H J Department of Economics University of Copenhagen December 4 2012 Abstract This note shows in detail how to compute the solutions for output inflation and the nominal
More informationFiscal Multipliers in a Nonlinear World
Fiscal Multipliers in a Nonlinear World Jesper Lindé Sveriges Riksbank Mathias Trabandt Freie Universität Berlin November 28, 2016 Lindé and Trabandt Multipliers () in Nonlinear Models November 28, 2016
More informationGali (2008), Chapter 3
Set 4 - The Basic New Keynesian Model Gali (28), Chapter 3 Introduction There are several key elements of the baseline model that are a departure from the assumptions of the classical monetary economy.
More informationStagnation Traps. Gianluca Benigno and Luca Fornaro
Stagnation Traps Gianluca Benigno and Luca Fornaro May 2015 Research question and motivation Can insu cient aggregate demand lead to economic stagnation? This question goes back, at least, to the Great
More informationFiscal Multipliers in a Nonlinear World
Fiscal Multipliers in a Nonlinear World Jesper Lindé and Mathias Trabandt ECB-EABCN-Atlanta Nonlinearities Conference, December 15-16, 2014 Sveriges Riksbank and Federal Reserve Board December 16, 2014
More informationThe Analytics of New Keynesian Phillips Curves. Alfred Maußner
The Analytics of New Keynesian Phillips Curves Alfred Maußner Beitrag Nr. 313, November 2010 The Analytics of New Keynesian Phillips Curves Alfred Maußner November 2010 Abstract This paper introduces the
More informationPublic Economics The Macroeconomic Perspective Chapter 2: The Ramsey Model. Burkhard Heer University of Augsburg, Germany
Public Economics The Macroeconomic Perspective Chapter 2: The Ramsey Model Burkhard Heer University of Augsburg, Germany October 3, 2018 Contents I 1 Central Planner 2 3 B. Heer c Public Economics: Chapter
More informationTaylor Rules and Technology Shocks
Taylor Rules and Technology Shocks Eric R. Sims University of Notre Dame and NBER January 17, 2012 Abstract In a standard New Keynesian model, a Taylor-type interest rate rule moves the equilibrium real
More informationThe Natural Rate of Interest and its Usefulness for Monetary Policy
The Natural Rate of Interest and its Usefulness for Monetary Policy Robert Barsky, Alejandro Justiniano, and Leonardo Melosi Online Appendix 1 1 Introduction This appendix describes the extended DSGE model
More informationDSGE-Models. Calibration and Introduction to Dynare. Institute of Econometrics and Economic Statistics
DSGE-Models Calibration and Introduction to Dynare Dr. Andrea Beccarini Willi Mutschler, M.Sc. Institute of Econometrics and Economic Statistics willi.mutschler@uni-muenster.de Summer 2012 Willi Mutschler
More informationNew Keynesian DSGE Models: Building Blocks
New Keynesian DSGE Models: Building Blocks Satya P. Das @ NIPFP Satya P. Das (@ NIPFP) New Keynesian DSGE Models: Building Blocks 1 / 20 1 Blanchard-Kiyotaki Model 2 New Keynesian Phillips Curve 3 Utility
More informationEconomics Discussion Paper Series EDP Measuring monetary policy deviations from the Taylor rule
Economics Discussion Paper Series EDP-1803 Measuring monetary policy deviations from the Taylor rule João Madeira Nuno Palma February 2018 Economics School of Social Sciences The University of Manchester
More informationMonetary Economics Notes
Monetary Economics Notes Nicola Viegi 2 University of Pretoria - School of Economics Contents New Keynesian Models. Readings...............................2 Basic New Keynesian Model...................
More informationThe New Keynesian Model
The New Keynesian Model Basic Issues Roberto Chang Rutgers January 2013 R. Chang (Rutgers) New Keynesian Model January 2013 1 / 22 Basic Ingredients of the New Keynesian Paradigm Representative agent paradigm
More informationNew Keynesian Macroeconomics
New Keynesian Macroeconomics Chapter 4: The New Keynesian Baseline Model (continued) Prof. Dr. Kai Carstensen Ifo Institute for Economic Research and LMU Munich May 21, 212 Prof. Dr. Kai Carstensen (LMU
More informationMonetary Policy with Heterogeneous Agents: Insights from TANK models
Monetary Policy with Heterogeneous Agents: Insights from TANK models Davide Debortoli UPF, CREI and Barcelona GSE Jordi Galí CREI, UPF and Barcelona GSE September 217 Preliminary and Incomplete Abstract
More informationNew Keynesian Model Walsh Chapter 8
New Keynesian Model Walsh Chapter 8 1 General Assumptions Ignore variations in the capital stock There are differentiated goods with Calvo price stickiness Wages are not sticky Monetary policy is a choice
More informationSimple New Keynesian Model without Capital
Simple New Keynesian Model without Capital Lawrence J. Christiano March, 28 Objective Review the foundations of the basic New Keynesian model without capital. Clarify the role of money supply/demand. Derive
More informationThe Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy
The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy E. Pasten 1 R. Schoenle 2 M. Weber 3 1 Banco Central de Chile and Toulouse University 2 Brandeis University 3 Chicago Booth
More informationThe Smets-Wouters Model
The Smets-Wouters Model Monetary and Fiscal Policy 1 1 Humboldt Universität zu Berlin uhlig@wiwi.hu-berlin.de Winter 2006/07 Outline 1 2 3 s Intermediate goods firms 4 A list of equations Calibration Source
More informationSimple New Keynesian Model without Capital
Simple New Keynesian Model without Capital Lawrence J. Christiano January 5, 2018 Objective Review the foundations of the basic New Keynesian model without capital. Clarify the role of money supply/demand.
More informationRBC Model with Indivisible Labor. Advanced Macroeconomic Theory
RBC Model with Indivisible Labor Advanced Macroeconomic Theory 1 Last Class What are business cycles? Using HP- lter to decompose data into trend and cyclical components Business cycle facts Standard RBC
More informationDeep Habits, Nominal Rigidities and Interest Rate Rules
Deep Habits, Nominal Rigidities and Interest Rate Rules Sarah Zubairy August 18, 21 Abstract This paper explores how the introduction of deep habits in a standard new-keynesian model affects the properties
More informationAre Uncertainty Shocks Aggregate Demand Shocks?
Are Uncertainty Shocks Aggregate Demand Shocks? Stefano Fasani University of Milan Bicocca Lorenza Rossi y University of Pavia December 24 27 Abstract This note considers the Leduc and Liu (JME 26) model
More informationTopic 9. Monetary policy. Notes.
14.452. Topic 9. Monetary policy. Notes. Olivier Blanchard May 12, 2007 Nr. 1 Look at three issues: Time consistency. The inflation bias. The trade-off between inflation and activity. Implementation and
More informationMonetary Economics: Problem Set #4 Solutions
Monetary Economics Problem Set #4 Monetary Economics: Problem Set #4 Solutions This problem set is marked out of 100 points. The weight given to each part is indicated below. Please contact me asap if
More informationResolving the Missing Deflation Puzzle
Resolving the Missing Deflation Puzzle Jesper Lindé Sveriges Riksbank Mathias Trabandt Freie Universität Berlin 49th Konstanz Seminar on Monetary Theory and Monetary Policy May 16, 2018 Lindé and Trabandt
More informationOptimal Inflation Stabilization in a Medium-Scale Macroeconomic Model
Optimal Inflation Stabilization in a Medium-Scale Macroeconomic Model Stephanie Schmitt-Grohé Martín Uribe Duke University 1 Objective of the Paper: Within a mediumscale estimated model of the macroeconomy
More informationDynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework
MPRA Munich Personal RePEc Archive Dynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework Mesut Murat Arslan Middle East Technical University (METU) August 27 Online at
More informationModelling Czech and Slovak labour markets: A DSGE model with labour frictions
Modelling Czech and Slovak labour markets: A DSGE model with labour frictions Daniel Němec Faculty of Economics and Administrations Masaryk University Brno, Czech Republic nemecd@econ.muni.cz ESF MU (Brno)
More informationProblem 1 (30 points)
Problem (30 points) Prof. Robert King Consider an economy in which there is one period and there are many, identical households. Each household derives utility from consumption (c), leisure (l) and a public
More informationOptimal Monetary Policy with Nominal Rigidities. and Lumpy Investment
Optimal Monetary Policy with Nominal Rigidities and Lumpy Investment Tommy Sveen a, Lutz Weinke b a BI Norwegian Business School b Humboldt-Universität zu Berlin October 31, 2011 Abstract New Keynesian
More informationAggregate Supply. A Nonvertical AS Curve. implications for unemployment, rms pricing behavior, the real wage and the markup
A Nonvertical AS Curve nominal wage rigidity nominal price rigidity labor and goods markets implications for unemployment, rms pricing behavior, the real wage and the markup Case 1: Sticky W, Flexible
More informationGCOE Discussion Paper Series
GCOE Discussion Paper Series Global COE Program Human Behavior and Socioeconomic Dynamics Discussion Paper No.34 Inflation Inertia and Optimal Delegation of Monetary Policy Keiichi Morimoto February 2009
More informationInference. Jesús Fernández-Villaverde University of Pennsylvania
Inference Jesús Fernández-Villaverde University of Pennsylvania 1 A Model with Sticky Price and Sticky Wage Household j [0, 1] maximizes utility function: X E 0 β t t=0 G t ³ C j t 1 1 σ 1 1 σ ³ N j t
More informationFinancial Factors in Economic Fluctuations. Lawrence Christiano Roberto Motto Massimo Rostagno
Financial Factors in Economic Fluctuations Lawrence Christiano Roberto Motto Massimo Rostagno Background Much progress made on constructing and estimating models that fit quarterly data well (Smets-Wouters,
More informationThe Price Puzzle: Mixing the Temporary and Permanent Monetary Policy Shocks.
The Price Puzzle: Mixing the Temporary and Permanent Monetary Policy Shocks. Ida Wolden Bache Norges Bank Kai Leitemo Norwegian School of Management BI September 2, 2008 Abstract We argue that the correct
More informationA Dynamic Model of Aggregate Demand and Aggregate Supply
A Dynamic Model of Aggregate Demand and Aggregate Supply 1 Introduction Theoritical Backround 2 3 4 I Introduction Theoritical Backround The model emphasizes the dynamic nature of economic fluctuations.
More informationSimple New Keynesian Model without Capital. Lawrence J. Christiano
Simple New Keynesian Model without Capital Lawrence J. Christiano Outline Formulate the nonlinear equilibrium conditions of the model. Need actual nonlinear conditions to study Ramsey optimal policy, even
More informationLecture 7. The Dynamics of Market Equilibrium. ECON 5118 Macroeconomic Theory Winter Kam Yu Department of Economics Lakehead University
Lecture 7 The Dynamics of Market Equilibrium ECON 5118 Macroeconomic Theory Winter 2013 Phillips Department of Economics Lakehead University 7.1 Outline 1 2 3 4 5 Phillips Phillips 7.2 Market Equilibrium:
More informationEmpirical and Policy Performance of a Forward-Looking Monetary Model
Empirical and Policy Performance of a Forward-Looking Monetary Model Alexei Onatski Department of Economics Columbia University e-mail: ao227@columbia.edu Noah Williams Department of Economics University
More informationSolutions to Problem Set 4 Macro II (14.452)
Solutions to Problem Set 4 Macro II (14.452) Francisco A. Gallego 05/11 1 Money as a Factor of Production (Dornbusch and Frenkel, 1973) The shortcut used by Dornbusch and Frenkel to introduce money in
More informationBayesian Estimation of DSGE Models: Lessons from Second-order Approximations
Bayesian Estimation of DSGE Models: Lessons from Second-order Approximations Sungbae An Singapore Management University Bank Indonesia/BIS Workshop: STRUCTURAL DYNAMIC MACROECONOMIC MODELS IN ASIA-PACIFIC
More informationThe New Keynesian Model and the Small Open Economy RBC Model: Equivalence Results for Consumption
The New Keynesian Model and the Small Open Economy RBC Model: Equivalence Results for Consumption Dan Cao, Jean-Paul L Huillier, Donghoon Yoo December 24 Abstract We consider a modern New Keynesian model
More informationReal Wage Rigidities and the Cost of Disin ations
Real Wage Rigidities and the Cost of Disin ations Guido Ascari y University of Pavia Christian Merkl z IfW and University of Kiel June 27, 27 Abstract This paper analyzes the cost of disin ations under
More informationReal Wage Rigidities and the Cost of Disin ations: A Comment on Blanchard and Galí
Real Wage Rigidities and the Cost of Disin ations: A Comment on Blanchard and Galí Guido Ascari University of Pavia Christian Merkl y IfW and University of Kiel January 29, 27 Abstract This paper analyzes
More informationUnemployment Benefits and Matching Efficiency in an. Estimated DSGE Model with Labor Market Search. Frictions
Unemployment Benefits and Matching Efficiency in an Estimated DSGE Model with Labor Market Search Frictions Ji Zhang PBC School of Finance, Tsinghua University Abstract To explain the high and persistent
More informationConsumption. Dan Cao, Jean-Paul L Huillier, Donghoon Yoo. December Abstract
The New Keynesian Model and the Small Open Economy RBC Model: Equivalence Results for Consumption Dan Cao, Jean-Paul L Huillier, Donghoon Yoo December 24 Abstract We consider a modern New Keynesian model
More informationMacroeconomics Theory II
Macroeconomics Theory II Francesco Franco FEUNL February 2011 Francesco Franco Macroeconomics Theory II 1/34 The log-linear plain vanilla RBC and ν(σ n )= ĉ t = Y C ẑt +(1 α) Y C ˆn t + K βc ˆk t 1 + K
More informationAggregate Demand, Idle Time, and Unemployment
Aggregate Demand, Idle Time, and Unemployment Pascal Michaillat (LSE) & Emmanuel Saez (Berkeley) September 2014 1 / 44 Motivation 11% Unemployment rate 9% 7% 5% 3% 1974 1984 1994 2004 2014 2 / 44 Motivation
More informationAggregate Demand, Idle Time, and Unemployment
Aggregate Demand, Idle Time, and Unemployment Pascal Michaillat (LSE) & Emmanuel Saez (Berkeley) July 2014 1 / 46 Motivation 11% Unemployment rate 9% 7% 5% 3% 1974 1984 1994 2004 2014 2 / 46 Motivation
More informationMacroeconomics Theory II
Macroeconomics Theory II Francesco Franco Novasbe February 2016 Francesco Franco (Novasbe) Macroeconomics Theory II February 2016 1 / 8 The Social Planner Solution Notice no intertemporal issues (Y t =
More informationEquilibrium Conditions for the Simple New Keynesian Model
Equilibrium Conditions for the Simple New Keynesian Model Lawrence J. Christiano August 4, 04 Baseline NK model with no capital and with a competitive labor market. private sector equilibrium conditions
More informationPotential Output, the Output Gap, and the Labor Wedge
Potential Output, the Output Gap, and the Labor Wedge Luca Sala Ulf Söderström Antonella Trigari June 21 Preliminary and incomplete Abstract We estimate potential output and the output gap in a quantitative
More informationPotential Output, the Output Gap, and the Labor Wedge
Potential Output, the Output Gap, and the Labor Wedge Luca Sala Ulf Söderström Antonella Trigari March 1 Preliminary and incomplete Abstract We estimate a monetary business cycle model on post-war U.S.
More informationStructural Estimation of the Output Gap: A Bayesian DSGE Approach for the U.S. Economy
Bank of Japan Working Paper Series Structural Estimation of the Output Gap: A Bayesian DSGE Approach for the U.S. Economy Yasuo Hirose* yasuo.hirose@boj.or.jp Saori Naganuma** saori.naganuma@boj.or.jp
More informationS TICKY I NFORMATION Fabio Verona Bank of Finland, Monetary Policy and Research Department, Research Unit
B USINESS C YCLE DYNAMICS UNDER S TICKY I NFORMATION Fabio Verona Bank of Finland, Monetary Policy and Research Department, Research Unit fabio.verona@bof.fi O BJECTIVE : analyze how and to what extent
More informationADVANCED MACROECONOMICS I
Name: Students ID: ADVANCED MACROECONOMICS I I. Short Questions (21/2 points each) Mark the following statements as True (T) or False (F) and give a brief explanation of your answer in each case. 1. 2.
More informationResearch Division Federal Reserve Bank of St. Louis Working Paper Series
Research Division Federal Reserve Bank of St. Louis Working Paper Series Imperfect Competition and Sunspots Pengfei Wang and Yi Wen Working Paper 2006-05A http://research.stlouisfed.org/wp/2006/2006-05.pdf
More informationAdvanced Macroeconomics II The RBC model with Capital
Advanced Macroeconomics II The RBC model with Capital Lorenza Rossi (Spring 2014) University of Pavia Part of these slides are based on Jordi Galì slides for Macroeconomia Avanzada II. Outline Real business
More informationSimple New Keynesian Model without Capital
Simple New Keynesian Model without Capital Lawrence J. Christiano Gerzensee, August 27 Objective Review the foundations of the basic New Keynesian model without capital. Clarify the role of money supply/demand.
More informationInflation Inertia and Monetary Policy Shocks
Inflation Inertia and Monetary Policy Shocks Julia Lendvai (First version: December 2003) This version: October 2006 Abstract This paper studies the implications of inflation inertia on business cycle
More informationNominal wage rigidities in a new Keynesian model with frictional unemployment
Working paper research n 97 October 26 Nominal wage rigidities in a new Keynesian model with frictional unemployment Vincent Bodart Grégory de Walque Olivier Pierrard Henri R. Sneessens Raf Wouters NATIONAL
More informationMonetary Policy that Transmits Through Endogenous Productivity
Monetary Policy that Transmits Through Endogenous Productivity May 5, 217 University of Pennsylvania Preample (Version 1) Literature The prevailing NK-DSGEs typically use price and wage rigidity to get
More informationNominal and Real Wage Rigidities. In Theory and in Europe
Nominal and Real Wage Rigidities. In Theory and in Europe Markus Knell Oesterreichische Nationalbank Economic Studies Division February 2009 Abstract In this paper I study the relation between real wage
More informationTo Respond or Not to Respond: Measures of the Output Gap in Theory and in Practice
To Respond or Not to Respond: Measures of the Output Gap in Theory and in Practice Guy Segal Bank of Israel This paper analyzes the implications of responding to either the model-based New Keynesian output
More informationTHE SLOW JOB RECOVERY IN A MACRO MODEL OF SEARCH AND RECRUITING INTENSITY. I. Introduction
THE SLOW JOB RECOVERY IN A MACRO MODEL OF SEARCH AND RECRUITING INTENSITY SYLVAIN LEDUC AND ZHENG LIU Abstract. Despite steady declines in the unemployment rate and increases in the job openings rate after
More informationFoundations for the New Keynesian Model. Lawrence J. Christiano
Foundations for the New Keynesian Model Lawrence J. Christiano Objective Describe a very simple model economy with no monetary frictions. Describe its properties. markets work well Modify the model to
More informationGraduate Macro Theory II: Business Cycle Accounting and Wedges
Graduate Macro Theory II: Business Cycle Accounting and Wedges Eric Sims University of Notre Dame Spring 2017 1 Introduction Most modern dynamic macro models have at their core a prototypical real business
More informationMacroeconomics Theory II
Macroeconomics Theory II Francesco Franco Nova SBE March 9, 216 Francesco Franco Macroeconomics Theory II 1/29 The Open Economy Two main paradigms Small Open Economy: the economy trades with the ROW but
More informationThe 2001 recession displayed unique characteristics in comparison to other
Smoothing the Shocks of a Dynamic Stochastic General Equilibrium Model ANDREW BAUER NICHOLAS HALTOM AND JUAN F RUBIO-RAMÍREZ Bauer and Haltom are senior economic analysts and Rubio-Ramírez is an economist
More informationRecent Developments in Monetary Economics. Lawrence Christiano
MACRO-LINKAGES, OIL PRICES AND DEFLATION WORKSHOP JANUARY 6 9, 2009 Recent Developments in Monetary Economics Lawrence Christiano Recent Developments in Monetary Economics Lawrence Christiano Northwestern
More informationThe full RBC model. Empirical evaluation
The full RBC model. Empirical evaluation Lecture 13 (updated version), ECON 4310 Tord Krogh October 24, 2012 Tord Krogh () ECON 4310 October 24, 2012 1 / 49 Today s lecture Add labor to the stochastic
More informationFoundation of (virtually) all DSGE models (e.g., RBC model) is Solow growth model
THE BASELINE RBC MODEL: THEORY AND COMPUTATION FEBRUARY, 202 STYLIZED MACRO FACTS Foundation of (virtually all DSGE models (e.g., RBC model is Solow growth model So want/need/desire business-cycle models
More informationFinal Exam. You may not use calculators, notes, or aids of any kind.
Professor Christiano Economics 311, Winter 2005 Final Exam IMPORTANT: read the following notes You may not use calculators, notes, or aids of any kind. A total of 100 points is possible, with the distribution
More informationSignaling Effects of Monetary Policy
Signaling Effects of Monetary Policy Leonardo Melosi London Business School 24 May 2012 Motivation Disperse information about aggregate fundamentals Morris and Shin (2003), Sims (2003), and Woodford (2002)
More informationLars Svensson 2/16/06. Y t = Y. (1) Assume exogenous constant government consumption (determined by government), G t = G<Y. (2)
Eco 504, part 1, Spring 2006 504_L3_S06.tex Lars Svensson 2/16/06 Specify equilibrium under perfect foresight in model in L2 Assume M 0 and B 0 given. Determine {C t,g t,y t,m t,b t,t t,r t,i t,p t } that
More informationAssessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model
MPRA Munich Personal RePEc Archive Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model Ricardo Marto 1. December 2013 Online at http://mpra.ub.uni-muenchen.de/55647/
More information