Working Paper Monetary aggregates, financial intermediate and the business cycle


 Harriet Manning
 3 years ago
 Views:
Transcription
1 econsor Der OpenAccessPublikaionsserver der ZBW LeibnizInformaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Hong, Hao Working Paper Moneary aggregaes, financial inermediae and he business cycle Cardiff Economics Working Papers, No. E2011/16 Provided in Cooperaion wih: Cardiff Business School, Cardiff Universiy Suggesed Ciaion: Hong, Hao (2011) : Moneary aggregaes, financial inermediae and he business cycle, Cardiff Economics Working Papers, No. E2011/16 This Version is available a: hp://hdl.handle.ne/10419/65767 Nuzungsbedingungen: Die ZBW räum Ihnen als Nuzerin/Nuzer das unengelliche, räumlich unbeschränke und zeilich auf die Dauer des Schuzrechs beschränke einfache Rech ein, das ausgewähle Werk im Rahmen der uner hp:// nachzulesenden vollsändigen Nuzungsbedingungen zu vervielfäligen, mi denen die Nuzerin/der Nuzer sich durch die erse Nuzung einversanden erklär. Terms of use: The ZBW grans you, he user, he nonexclusive righ o use he seleced work free of charge, erriorially unresriced and wihin he ime limi of he erm of he propery righs according o he erms specified a hp:// By he firs use of he seleced work he user agrees and declares o comply wih hese erms of use. zbw LeibnizInformaionszenrum Wirschaf Leibniz Informaion Cenre for Economics
2 CARDIFF BUSINESS SCHOOL WORKING PAPER SERIES Cardiff Economics Working Papers Hao Hong Moneary aggregaes, financial inermediae and he business cycle E2011/16 Cardiff Business School Cardiff Universiy Colum Drive Cardiff CF10 3EU Unied Kingdom : +44 (0) f: +44 (0) ISSN June 2011 This working paper is produced for discussion purpose only. These working papers are expeced o be published in due course, in revised form, and should no be quoed or cied wihou he auhor s wrien permission. Cardiff Economics Working Papers are available online from: hp:// Enquiries:
3 1 Moneary aggregaes, nancial inermediae and he business cycle Hao Hong Cardi Business School Version: 20/06/2011 This paper explains and evaluaes he ransmissions and e eciveness of moneary policy shock in a simple CashinAdvance (CIA) economy wih nancial inermediaes. LucasFuers s (1992) limied paricipaion CIA models are able o explain decreasing nominal ineres raes and increasing real economic aciviy wih moneary expansion hrough limied paricipaion moneary shock and he cos channel of moneary policy. Calvo s (1983) sicky price moneary model examines he real e ecs of money injecions hrough rms price seing behaviour, bu i fails o generae a negaive correlaion beween nominal ineres raes and money growh rae, which has been observed in he daa. This paper employs McCandless (2008) nancial inermediaes CIA model o explain he ransmissions and impacs of moneary shocks. The model does no reques limied paricipaion moneary shock or Keynesian ype of sicky price/wage, o examine he lower nominal ineres rae and increasing real economic aciviy wih moneary expansion. By exending he model wih Sockman s (1981) CIA consrain, i is able o accoun for boh posiive response of consumpion subjec o moneary innovaions, which has been found in Leeper e al. (1996) and he posiive correlaion beween oupu and consumpion which has been observed in he daa. Key Words: Moneary business cycle; nancial inermediae; cashinadvance model Subjec Classi caion: E44; E52
4 2 1. INTRODUCTION The negaive correlaion beween shorerm nominal ineres raes and money growh rae is an imporan moneary ransmission channel in boh radiional Keynesian (Tobin, 1947) and monearis (Friedman, 1968 and Cagan, 1972) macroeconomics models. The increasing real aciviy wih moneary expansion also has been recognised as sylise fac of he moneary business cycle. The sandard CIA models wih exible price from Lucas (1982) and Svensson (1985) indicae posiive correlaions beween money injecions and he nominal ineres raes. By a ecing leisureconsumpion subsiuion, he model generaes negaive e ecs on real economic aciviy 1. In conras, sicky price models are able o accoun for posiive correlaions beween moneary aggregaes and real aciviy hrough Calvo s (1983) price seing behaviour, bu i canno explain he negaive correlaion beween nominal ineres raes and money growh rae. Limied paricipaion CIA models were developed by Lucas (1990), and followed by Fuers (1992). Chrisiano and Eichenbaum (1995), and Chrisiano, Eichenbaum and Evan (1997) are able o explain he negaive response of nominal ineres raes, and he posiive response of real aciviy, o moneary innovaion under a exible price framework. Lucas (1990) modi ed sandard cashinadvance economy by assuming ha households canno adjus heir consumpionsaving porfolio subjec o moneary innovaions o explain liquidiy e ec on nominal ineres rae. Since he supply of governmen bonds has been deermined by he amoun of savings from households before a moneary shock occurs, he money injecions increase he demand for governmen bonds and lower he reurn of bonds. This negaive response of bond rae subjec o moneary expansion has been referred as he liquidiy e ec of money growh rae. However, Chrisiano (1991) argued ha he inroducion of a liquidiy e ec ino he model may no be enough o generae a lower nominal ineres rae. He suggess ha he liquidiy e ec mus be su cienly srong o dominae he anicipaed in aion e ec. This, in urn, depends on he precise relaionship among is variables or he values of is parameers. The real impacs of moneary aggregaes hrough he liquidiy e ec from Fuers (1992), who supposed ha rms have o borrow from he capial marke o pay heir wage bills in advanced. Wih a lower borrowing rae, rms are more willing o increase heir borrowing from he capial marke and employ more labour. Wih a given iniial sock capial, an increasing labour demand raises he aggregae oupu hrough he producion funcion. This allows limied paricipaion CIA models o explain he posiive response of real aciviy o money injecions, wihou sicky price, hrough he cos channel of moneary policy. However, he weakness of his model is ha i fails o examine he increasing consumpion wih money injecions, and i canno generae he posiive correlaion beween oupu and consumpion which been observed in he daa. Chrisiano and Eichenbaum (1995), and Chrisiano, Eichenbaum and Evan (1997) modi ed he CIA consrain, which allows aggregae consumpion o be equal o he nex period of money demand. This modi caion generaes he behaviour of consumpion ha is observed in he daa. This paper employs McCandless (2008) nancial inermediaes CIA model o explain he ransmissions and impacs of moneary innovaion o real aciviy. The model includes wo nominal ineres raes which re ec he price of money a he goods and capial markes, respecively. Alhough his model is able o accoun 1 Cooley and Hansen (1995) referred as he in aion ax e ec of moneary aggregaes on real aciviy
5 3 for he posiive correlaion beween oupu and moneary aggregaes hrough wo nominal ineres raes, i fails o examine he behaviour of consumpion subjec o moneary expansion, such as he response of consumpion o moneary shock and correlaion wih oupu. Afer exending he model wih Sockman s (1981) CIA consrain, which indicaes ha boh consumpion and invesmen have o be purchased by households using real money balance, he model is able o explain he posiive response of consumpion subjec o moneary shock and also he replicae posiive correlaion beween oupu and consumpion in he daa. Sockman s (1981) CIA consrain is crucial o explain he behaviour of consumpion subjec o moneary innovaions. The paper is organised ino seven secions, he rs of which is his inroducion. Secion 2 presens he heoreical dynamic sochasic general equilibrium (DSGE) CIA model wih funcions of nanical inermediae. Secion 3 explains he procedure of model calibraions. Secion 4 discusses how he model s seady sae is a eced by he money growh rae. Secion 5 examines he model s dynamic and ndings. Secion 6 is a conclusion. 2. THE MODEL ECONOMY Figure 1: he srucure of model economy Household consumers U = E M P 1 0 β (ln c + Ψ ln x ) = 0 n = c + Ωi Firms y e w h + r k 1 y z g 1 α g α = ( l ) ( s k 1) R w h b = w h Moneary auhoriy u * T e + Θ 1) M = ( 1 n m R n Financial inermediaes n + T = b T Figure 1 describes he srucure of he model economy. The economy includes four represenaive agens, who are: household consumers, rms, nancial inermediaes, and he moneary auhoriy. I assumes ha money injecions from he moneary auhoriy are received by nancial inermediaes insead of households. Financial inermediaes also receive savings from households, money injecions from he cenral bank in he form of savings funds, and issue loans o rms in he capial marke. Firms have o borrow heir wage paymens from nancial inermediaes before any goods have been produced and pay wages, and capial and loan bills.
6 4 Households have o divide heir real money balance ino goods marke ransacion and savings which are paid o nancial inermediaes. Therefore, he model includes wo nominal ineres raes, which are: he ineres rae on he savings funds and he ineres rae on rms borrowing. The ineres raes are equal wihou money injecions. Money injecions lower he ineres rae on rms borrowing wih excess demand in he capial marke, and increase he ineres rae on savings funds hrough an expeced in aion e ec. The lower nominal ineres rae a capial marke has posiive e ec on real economic aciviy hrough marginal cos of labour and he increasing saving rae on saving has negaive e ec hrough leisureconsumpion susbiuion Household Consumers Represenaive households maximise heir expeced log uiliy funcion (1), which includes consumpion c and leisure x, wih discoun facor 2 (0; 1), and allocae heir ime endowmen beween leisure and working hours h. U = E 0 1 X =0 (ln c + ln x ) (1) 1 = x + h (2) Aggregae oupu y includes consumpion and invesmen i goods. The nex period s physical capial socks k have o be accumulaed hrough he law of moion equaion, wih a consan quarerly depreciaion rae. y = c + i (3) i = k (1 )k 1 (4) A he beginning of each period, he iniial real money balance is held by households and divided ino he amoun of savings and goods marke ransacion. Households have o deposi heir saving funds ino nancial inermediaes, and receive a gross ineres rae R m. Cash is he only exchange echnology which can be used for goods marke ransacions. Equaion (5) represens he exchange echnology consrain ha is faced by households in he goods marke. The model assumes ha money injecions are received by nancial inermediaes insead of households. This indicaes ha money injecions from he cenral bank do no ener a CIA consrain a he goods marke. Where n represens households savings, P represens price level, and M 1 represens he iniial nominal money sock. M 1 P n = c + i (5) When = 0 he exchange consrain implies ha he real money balance is used o purchase consumpion goods only. When = 1 he exchange echnology consrain represens ha boh consumpion and invesmen goods can be purchased by real money balance, which is indicaed by Sockman s (1981) CIA consrain. The nex period s money holding includes labour w h, capial r k 1, and saving
7 5 incomes R m n. And he expendiures are on consumpion, invesmen, and savings. The lifeime budge consrain which is faced by households is represened in equaion (6). M P = M 1 P + w (1 x ) + r k 1 + R m n n c k + (1 )k 1 (6) Equilibrium condiions of households are represened by equaions (7)(11), which come from maximising he expeced log uiliy funcion subjec o lifeime and good marke CIA consrains. 1 c = + (7) x c = Rm w (8) 1 + = R m (9) P c E ( R m ) = 1 (10) P +1 c +1 E [ +1 (r ) + (1 ) ] = 1 + (11) Where and represen he shadow price of lifeime and goods marke CIA consrain. Equaion (9) implies ha he marginal cos of money is equal o he saving rae across equilibrium. The Fisher s relaion, which saes ha he nominal ineres rae on he savings fund depends on expeced in aion and currenfuure consumpion subsiuion, has been indicaed by equaion (10). Clearly, equaion (8) indicaes he nominal ineres rae on he savings fund has a posiive e ec on leisureconsumpion subsiuion. I re ecs ha he expeced in aion e ecs of money growh rae have a negaive impac on real aciviy. Equaion (7) and (9) show ha he marginal uiliy of consumpion depends on he lifeime shadow price and he marginal cos of money. The model s Euler equaion is represened by equaion (11). When = 0 he exchange consrain is represened by equaion (5), his implies a sandard CIA consrain in which consumpion and invesmen are subsiuion goods. The Euler relaionship which is represened by equaion (12) indicaes ha boh he curren and fuure consumpion subsiuion is a eced by he real ineres rae and he movemen of he nominal ineres rae on he savings fund. Moneary injecions raise he nominal ineres rae on savings hrough an expeced in aion e ec. This has a negaive e ec on money holding and lowers consumpion hrough he CIA consrain. c R m E [ c +1 R+1 m (r )] = 1 (12) If = 1 hen he exchange consrain which is represened by equaion (5) indicaes ha Sockman s CIA consrain is applied, which indicaes ha consumpion and invesmen goods are complemenary goods. The Euler relaionship which is represened by equaion (13) indicaes ha subsiuion beween curren and fuure marginal consumpion of uiliy depends on a real ineres rae which is discouned
8 6 by he marginal cos of money. According o equaions (7) and (13), he behaviour of consumpion subjec o money injecions depends on he real ineres rae and he marginal cos of money. Moneary expansion increases he marginal cos of money hrough an in aion e ec of he money growh rae, and has a negaive e ec on consumpion. Real ineres raes rise wih money injecions as oupu increases, and have a posiive e ec on consumpion. Therefore, consumpion increases wih money injecions as he real ineres rae dominaes he expeced in aion e ec. c E [ ( r )] = 1 (13) c +1 R m Financial Inermediaes The funcion of nancial inermediaes is followed Fuers (1992) and McCandless (2008) ha money injecions are received by nancial inermediaes insead of households. The cash ow consrain which has been faced by nancial inermediaes is represened by equaion (14). n + T = b (14) Where T sands for money injecions from he cenral bank, and b denoes he demand of he capial marke. By assuming ha nancial inermediaes have zero pro, he gross reurn of he saving fund which is received by households is equal o he income of nancial inermediaes from he capial marke; his is indicaed by equaion (15). R m n = R b (15) Where R m represens he nominal ineres rae on savings, and R sands for he nominal ineres rae on borrowing a he capial marke. The money injecions from he cenral bank which are received by nancial inermediaes increase he loan able funds for he capial marke. They have a negaive e ec on he borrowing rae in order o increase he loan able money supply of he capial marke. This indicaes ha here is a lower nominal ineres rae on he capial marke wih moneary expansion Firms Aggregae oupu is produced by represenaive rms hrough he CobbDouglas producion funcion; wih labour, capial sock, and exogenous echnology. The shares of labour and capial are 1 and, respecively. y = e z h 1 k 1 (16) The exogenous Toal Facors Produciviy (TFP) is assumed o follow an AR (1) process wih auoregressive parameer z, and srucure shock " z. z = z z 1 + " z (17) Following Fuers s (1992) assumpion, goods producing rms are he only borrowers a he capial marke and hey have o borrow cash from capial marke for wage paymen before any goods have been produced. This creaes an addiional CIA consrain which is faced by rms a capial marke, represened by equaion
9 7 (18). Therefore, a lower nominal ineres rae on borrowing wih moneary expansion reduces he marginal cos of labour and encourages rms o employ more labour and raise aggregae oupu. This has been referred o in he lieraure as he cos channel of moneary policy. b = w h (18) The aggregae incomes of rms include capial marke borrowing and goods marke sales. The capial marke income is used o pay wages. Goods marke income is used for rening capial and borrowing paymens. Equaion (19) indicaes ha a lifeime budge consrain has been faced by rms. Represenaive rms maximise heir producion funcion subjec o heir lifeime budge and capial marke CIA consrain o obain he marginal cos of labour and capial, which are indicaed by equaions (20) and (21). R w h + r k 1 = y (19) R w = (1 ) y h (20) r = y k 1 (21) Where w and r represens he real wage and real ineres rae, respecively. Equaion (20) indicaes ha he marginal cos of labour is varied wih he borrowing rae a he capial marke. This furher implies ha an increasing borrowing rae has a negaive e ec on labour demand, while a decreasing borrowing rae has a posiive e ec on labour demand. In conras o a sandard CIA model, here is a gap beween household labour income and rms labour coss in his model. The gap, which is given by (R 1)w h, can be considered as a nancial fricion wih money injecions. I allows he borrowing rae o be varied wih money injecions. Moneary expansion a ecs real economic aciviy hrough he labour demand equaion as he marginal coss of labour are varied wih he nominal ineres rae on borrowing Moneary Policy The moneary policy ha has been implemened by he cenral bank hrough he money supply rule is represened by equaion (22). M = M 1 + T (22) Moneary expansion has been represened by equaion (23). I indicaes ha money injecions from he cenral bank depend on seadysae money growh rae, moneary shock e u, and he iniial money sock. T = ( + e u 1)M 1 (23) The deviaion of he money growh rae was assumed o follow AR (1) process, wih auoregressive parameers m and srucure shock " m. u = m u 1 + " m (24)
10 Compeiive Equilibrium Compeiive equilibrium of his economy consiss of a se of feasible allocaions {y, c, k, M, h, n, x }, a se of prices{r, w, R m, R }, exogenous shocks{z, u }, and aggregae oucomes, such ha: Given r, w, R m, allocaion c, k, M, x, n, solves he households problem; Given r, w, R, allocaion h, k, y, solves he rms problem; The goods, labour, and money marke are clear; 3. CALIBRATION The procedure of calibraing deep srucure parameers is o map he model economy ino he observed feaures of daa. This means ha he seadysae value of he variables can be implied by he deep srucure parameers. Wih given deep srucure parameers, he model s seadysae can generae grea raios which can be observed direcly from daa. Table 1 concludes he behaviour of echnology and moneary shocks. Seadysae echnology shock has o be normalised equal o one. Auoregressive process and variaion of echnology shock follows Cooley and Hansen (1995), which has a persisence parameer of 0.95 and a variance of srucure shock of 0.7%. The persisence and variance of money growh rae will be esimaed from following he M1 money growh rae regression, wih ime duraion from 1959Q4 o 2009Q4. The resuls indicae ha here is a 1.2% money growh rae per quarer a seadysae, wih a persisence of This compares wih Cooley and Hansen (1995) who had seadysae money growh raes of 1.3%, wih a persisence of I also compares wih Benk, Gillman and Kejak (2005) who found a 1.23% seadysae money growh rae, wih a persisence of The variance of moneary shock from M1 regression is 0.9%, which is also close o he resuls of Cooley and Hansen (1995) and Benk, Gillman and Kejak (2005), which are 0.89% and 0.1%, respecively. log M = 0: :64 log M 1 (0:0009) (0:0545) Table 1 also summarises he base line deep srucure parameers, which can be implied from wo groups of U.S daa. Firsly, he daa se from Gomme and Ruper (2007) wih duraion from 1948 Q1 o 2004 Q2 indicaes ha he quarerly depreciaion rae is 0.024, which compares wih he resuls of Cooley and Hansen (1995) which found ha. I also indicaes ha he invesmenoupu raio is Wih a given depreciaion rae and invesmen oupu raio, he seadysae capialoupu raio is going o be There are wo sources of income for households, which are: labour and capial income. Capial and labour income shares are calibraed in he model by using U.S daa from 1950 Q1 o 2009Q4. The daa implies ha he share of wage income is equal o 0.6, and which compares wih he resuls of Cooley and Hansen (1995) which were ha. Wih a capial share of 0.4, a depreciaion rae 0.024, and a capialoupu raio of 10.8, he model implies ha he real ineres rae is equal o before depreciaion rae. Since he quarerly seadysae in aion is equal o he money growh rae, he seadysae Euler equaion implies ha he preference parameer is equal o U.S daa also indicaes ha he seadysae working hours from he goods producing secor and leisure are 1/3 and 2/3, respecively.
11 9 This requires deep srucure parameers which are equal o Wih Sockman s (1981) CIA consrain, he model s Euler equaion and grea raios imply ha is equal o 0.988, and ha is equal o Table 1: Baseline parameers Preferences 0.987/0.988 Discoun facor wih/wihou Sockman CIA consrain 1.58/1.59 Leisure weigh wih/wihou Sockman CIAconsrain Goods Producion 0.4 Capial share in goods secor Capial sock depreciaion rae e z 1 Good secor produciviy parameer Moneary auhoriy 1.2% Quarerly money growh rae Shocks processes Auocorrelaionparameers z 0.95 Goods secor produciviy m 0.64 Money growh rae Sandard Deviaion of Shock Innovaions z 0.7% Goods secor produciviy m 0.9% Money growh rae Table 2: Targe values ss 1.2% Quarerly in aion rae i ss =y ss 0.26 Invesmenoupu raio k ss =y ss 10.7 Capialoupu raio x ss 2/3 Leisure 4. MONETARY TRANSMISSIONS AND REAL ACTIVITIES AT STEADYSTATE This par of paper discusses moneary properies of model a saionary sae wih varying money growh rae. Firs of all, he in aion e ec of he money growh rae a a saionarysae is given by equaion (25), which indicaes a posiive correlaion beween he nominal ineres rae on saving and he rae of in aion. By combining he households and rms seadysae CIA consrain, equaion (26) and (27) re ecs a negaive relaionship beween borrowing and in aion raes a a saionarysae. In oher words, he saionary sae money growh rae is posiively correlaed wih he saving rae, and negaively correlaed wih he borrowing rae a capial marke. R m ss = ss (25) R ss = 1 ss c ss (mss m ss c ss ) (26) R ss = 1 ss y ss (mss m ss y ss ) (27)
12 10 Wih a sandard CIA consrain, he model s saionary sae Euler relaion, which is represened by equaion (28), indicaes ha he real ineres rae is independen of he rae of in aion and leads o grea raios such as invesmen oupu, consumpion oupu and capial oupu raios, which are independen o he rae of in aion or he moneary growh rae. Wih Sockman s (1981) CIA consrain, he model s saionary sae Euler relaion, which is implied by equaion (29), indicaes ha he real ineres rae varies wih in aion or money growh rae, and leads boh real price and grea raios o vary wih he money growh rae. This re ecs he hird moneary ransmission channel a saionarysae, which has been called a real ineres rae e ec of he money growh rae. yss k ss = rss = (28) yss k ss = rss = ( ) ss Since he rms wage bill varies wih he lending rae, boh leisureconsumpion and leisurelabour subsiuions are a eced by he saving rae, and he borrowing and real ineres raes. The e ecs of saving, borrowing, and real ineres raes on leisureconsumpion and leisurelabour subsiuions a a saionary sae will be considered as in aion, liquidiy, and real ineres rae e ecs of he money growh rae. Wih a sandard CIA consrain, he real ineres rae e ec is zero because real prices are independen of he money growh rae. Furhermore, he negaive e ec of moneary aggregaes on leisurelabour subsiuion hrough saving rae is dominaed by posiive e ec of money growh rae hrough borrowing rae, equaion (31) indicaes lower leisurelabour raio wih money growh rae, which means increasing labour supply. Equaion (32) indicaes lower capiallabour raio wih money growh rae due o borrowing rae channel. This is he opposie of he Tobin e ec (1965), where increases in he seadysae money growh rae will also increase he capiallabour raio. And consisen wih Sockman (1981) argumen, where i needed he Sockman CIA consrain and he model does no. I is increase capial sock hrough equaion (32) and raises he aggregae oupu hrough CobbDouglas producion funcion; he level of invesmen wih he law of moion equaion. Wih a Sockman CIA consrain, equaion (30)(32) indicaes ha he money growh rae has a negaive e ec on leisurelabour subsiuion hrough he borrowing rae; posiive e ec hrough saving rae and he real ineres rae. If a negaive e ec from he borrowing rae is dominaed by he posiive e ec from he saving and real ineres rae, hen he model concludes ha here is an increase in leisure and a decrease labour supply wih he moneary aggregaes. This is lower capial socks wih equaion (32) and aggregae oupu hrough producion funcion. x ss h ss = (29) i ss = yss r ss (30) Rm ssr ss c ss (1 )y ss (31) k ss h ss = Rss w ss (1 )r ss (32)
13 11 In conclusion, he nancial inermediae CIA model wih sandard consrain indicaes boh a real ineres rae and grea raios which are independen o he money growh rae a saionarysae. By assuming ha rms borrow funds from he capial marke o pay he wage bill in advance, real wages are varied wih he borrowing rae and his leads o a leisurelabour subsiuion which is a eced by boh he saving rae from Fisher relaion and by he bond rae from he wage equaion. A rising saionary sae money growh rae will increase he goods secor labour demand, he capial sock, and he level of real aciviies. Therefore, he model generaes he posiive e ec of he money growh rae on real aciviy a saionarysae. By exending he model wih Sockman s (1981) CIA consrain, he model indicaes ha boh he real ineres rae and he consumpionoupu raio are increased wih he saionary sae money growh rae. This leads leisurelabour subsiuion o a ec he saving rae, bond rae, and consumpionoupu raio. Increasing he saionary sae money growh rae will lower he level of real aciviies since he posiive e ec of liquidiy e ec is dominaed by negaive e ecs of saving rae and real ineres rae. Therefore, he model wih sockman consrain generaes he negaive e ec of he money growh rae on real aciviy a saionarysae. 5. THE MODEL S DYNAMIC AND SIMULATION This par of he paper analyses he dynamic behaviour of moneary ransmissions, discusses he e eciveness of moneary policy shock on real economic aciviy hrough various moneary ransmission channels, and evaluaes he e eciveness of he model economy wih business cycle facs The E ecs on Nominal Ineres Raes The e eciveness of moneary aggregaes on nominal ineres raes is invesigaed hrough he cenralised economy as follows. The represenaive agens problem under a cenralised economy can be considered as maximising he expeced uiliy subjec o lifeime, goods marke CIA consrains, and capial marke CIA consrains. max E 0 1 X =0 (ln c + ln x ) + ( m 1 + r k 1 + w (1 x ) + (R m 1)n m c k (R 1)b + (1 )k 1 + ( m 1 n c ) + (b w (1 x )) n : (R m 1) = (33) b : (R 1) = (34) m : E ( ) = (35) Fisher relaions on nominal ineres raes for he borrowing and saving funds have been represened by following equaions, where = (R R m ) :
14 R = ( ) + ( + ) E ( ) (36) R m + = E ( ) Clearly, here is only an in aion e ec on he saving rae and he liquidiy e ec on he borrowing rae depends on. Wih equaion (14) and (15), he borrowing rae is less han he saving rae wih posiive money injecions from he cenral bank, which implies ha he liquidiy e ec erm is negaive. This is because he value of cash in he capial marke is less han he value of cash in he goods marke as money injecions are received by nancial inermediaes and loaned o rms in he capial marke. (37) 5.2. Moneary Transmissions and Real E ecs Figure 2: Variables response o a 1% posiive echnology shock Figures 2 and 3 re ec he moneary ransmissions and real variables response o 1% posiive echnology and moneary shocks in he model economy, boh wih and wihou a Sockman CIA consrain. A negaive response of in aion o echnology shock re ecs he counercycle behaviour of he price level. Real economic aciviies are increased wih a echnology shock. The moneary ransmissions which include savings and borrowing raes have a posiive response o a echnology shock. The responses of velociy o a echnology shock re ec he relaionship beween he exchange echnology consrain and he quaniy heory of money. The Sockman ype of exchange echnology consrain implies ha velociy does no move wih a echnology shock due o he e eciveness of echnology shock on oupu which is 12
15 13 re eced by real money demand. The sandard ype of exchange echnology consrain indicaes ha only he e eciveness of echnology shock on consumpion is re eced on real money demand. Because he oupu increases more han consumpion wih a echnology shock, he quaniy heory of money requess a velociy increase wih oupu. Figure 3: Variables response o a 1% posiive moneary shock For he model wih a sandard CIA consrain, he posiive response of he saving rae o moneary expansion re ecs he expeced in aion e ec of money growh rae. This has been referred o by Cooley and Hansen (1995) as an in aion ax e ec and i has a negaive e ec on real economic aciviy. Since he money injecions are received by nancial inermediaes insead of households, and have o be loaned o rms for wage paymens in he capial marke, i creaes excess demand in he capial marke. Since he supply of he capial marke is deermined by real aciviy (which is rms wage bills) nancial inermediaes have o lower he borrowing rae in order o allow he exra savings funds o be loaned o rms a he capial marke. I leads negaive response of he borrowing rae subjec o moneary expansion and has a posiive e ec on real aciviy hrough he marginal cos of labour. In oher words, here are wo moneary ransmission channels when he sandard CIA model is exended wih funcion of nancial inermediaes, which are: saving and borrowing raes. The money injecions increase leisure, decrease he labour supply, and have a negaive e ec on real aciviy hrough he saving rae channel. They decrease he leisure, increase labour demand, and have a posiive e ec on oupu hrough he borrowing rae channel. Figure 3 concludes ha boh employmen and oupu are increased wih moneary expansion because he posiive e ec from he borrowing rae dominaes he negaive e ec from he saving rae. The model wihou Sockman CIA consrain fails o generae he behaviour of consumpion subjec o moneary shock since he consumpion is decreased insead of increased wih moneary expansion. This indicaes ha he posiive e ec from
16 14 he borrowing rae canno dominae he negaive e ec from he saving rae on consumpion. Beside he borrowing and saving raes, he model wih a Sockman CIA consrain inroduces an addiional moneary ransmission channel hrough he real ineres rae in he Euler equaion, and has posiive e ecs on real aciviy, paricularly on consumpion. This allows he model o overcome he weakness on consumpion behaviour. Figure 3 shows ha he consumpion does increase wih moneary expansion since he posiive e ec from borrowing rae is able o dominae he negaive e ec from he saving rae, wih a lower subsiuion rae 2 of consumpion due o he Sockman CIA consrain. The velociy has negaive response o moneary shock since money demand increases more han aggregae oupu. Therefore, he CIA model which employs he Sockman CIA consrain, and assumes ha money injecions are received by nancial inermediaes insead of households, is able o examine he behaviour of real aciviy subjec o moneary expansion hrough he cos channel of moneary policy under a exible price framework, wihou a limied paricipaion moneary shock Business Cycle Facs Table 4 describes conemporaneous correlaions wih aggregae oupu from he log derended ime series daa wih duraion from 1959Q1 o 2004Q2. I also summarises he simulaed economy saisics wih boh echnology and moneary shocks. The saisics of simulaion are compued from an ari cial ime series consiss of 182 periods wih 50,000 imes simulaions. In order o compare hese resuls wih real daa saisics, i has o be aken logged and derended by a HodrickPresco ler. When a sandard CIA consrain is applied (where = 0), he moneary innovaion is able o generae a posiive correlaion beween he nominal ineres rae and oupu; however, i fails o replicae he posiive correlaion beween aggregae oupu and consumpion. Therefore, i does no imply he consumpion behaviours which have been observed in he daa. By exending he model wih Sockman s (1981) consrain (where = 1), he model is able o overcome he weakness of he model economy (i.e. consumpion behaviour canno explained) and is able o replicae he posiive correlaion beween oupu and consumpion. Table 4: Conemporaneous correlaions wih aggregae oupu Daa = 0 = 1 Oupu 1:00 1:00 1:00 Consumpion 0:79 0:11 0:91 Invesmen 0:92 0:89 0:99 Employmen 0:82 0:81 0:80 Treasury bill rae 0:24 0:47 0:38 6. CONCLUSION This paper inegraes he CIA economy wih he funcion of nancial inermediaes, and allows money injecions o be received by nancial inermediaes insead 2 The subsiuion rae refers o he real ineres rae discouned by saving rae, which is indicaed by he model s Euler equaion.
17 of households. I is, herefore, able o explain he ransmission and real impacs of moneary aggregaes wihou sicky price/wage and limied paricipaion moneary shock. For he model wih a sandard CIA consrain, money injecions increase he saving rae hrough an expeced in aion e ec, and have a negaive e ec on labour supply. A he same ime, i lowers he borrowing rae a he capial marke and has a posiive e ec on labour demand hrough he marginal cos of labour. Since he posiive e ec on labour demand dominaes he negaive e ec on labour supply, employmen rises wih moneary expansion and increases oupu hrough he producion funcion. However, he model wih a sandard CIA consrain is unable o explain he behaviour of consumpion because consumpion has a negaive response o moneary shock, and here is a negaive correlaion beween consumpion and oupu. By replacing he sandard CIA consrain wih a Sockman consrain, he model s Euler equaion indicaes ha he subsiuion of curren and fuure marginal uiliy of consumpion is a eced by he real ineres rae discouned by saving rae. This means ha he real ineres rae is a eced by he money growh rae hrough Euler equaion, and inroduces a posiive e ec of moneary expansion on real ineres rae wih an increasing saving rae. This has been considered as a hird moneary e eciveness channel (which is referred o as a real ineres rae e ec in his chaper). An increasing real ineres rae wih a posiive moneary shock has a posiive e ec on consumpion. When combined wih a lower borrowing rae a he capial marke, hey are able o dominae he expeced in aion e ec on consumpion and replicae he consumpion behaviour which has been observed in he daa. Sockman s (1981) CIA consrain plays a major rule o obain a posiive response of consumpion o moneary expansion, and a posiive correlaion beween oupu and consumpion is observed in he daa. In a word, he paper employs McCandless (2008) working capial CIA model by replacing moneary ransacions services wih Sockman s (1981) CIA consrain, which exchanges he echnology used for boh consumpion and invesmen, o explain he real e ecs of moneary shock and he moneary ransmission mechanism. The model does no reques limied paricipaion moneary shock from Lucas (1990), bu i does assume ha money injecions are received by nancial inermediaes insead of households o generae he real impacs of moneary aggregaes. The model wih sandard CIA consrain which from McCandless (2008) canno explain he behaviour of consumpion and generae negaive correlaion beween consumpion and oupu. The paper employs he Sockman CIA consrain o explain he cyclical behaviour of consumpion and velociy. I generaes a posiive response of consumpion and a negaive response of velociy o moneary innovaion, and a posiive correlaion beween oupu and consumpion. The nancial inermediae CIA model wih Sockman s (1981) consrain no only generaes he posiive response of oupu, consumpion, and invesmen o moneary expansion bu also he negaive response of he nominal ineres rae o moneary shock. I is able o explain boh moneary ransmissions and he impacs of moneary shock o real aciviy wihou limied paricipaion moneary shock and sicky price/wage seing. 15
18 16 REFERENCES [1] Cagan, P., (1972) The Channels of Moneary E ecs on Ineres Raes, Columbia Universiy Press, New York [2] Chrisiano, L.J., (1991) Modelling he liquidiy e ec of a money shock, Quarerly review, Federal Reserve Bank of Minneapolis, 15, 334 [3] Chrisiano, L.J., Eichenbaum, M., (1995) Liquidiy e ecs, moneary policy and he business cycle, Journal of Money, Credi and Banking 27, [4] Chrisiano, L.J., Eichenbaum, M., Evans, C.L., (1997) Sicky prices and limied paricipaion models: a comparison, European Economic Review 41, [5] Thomas F Cooley and Gary D Hansen (1995) Money and Business Cycle, in Froniers of Business Cycle Research (T. F. Cooley, Ed.), Princeon Universiy Press [6] Fuers, Timohy S (1992) Liquidiy, loanable funds and real aciviy, Journal of Moneary Economics 29, 324 [7] Friedman, Milon (1968) The role of moneary policy, American Economic Review, 58:1, 119 [8] Lucas, Rober E (1990) Liquidiy and ineres rae, Journal of Economic Theory 50, [9] George McCandless (2008) The ABDs of RBCs: An Inroducion o Dynamic Macroeconomic Models, Harvard Universiy Press [10] Alan C. Sockman (1981) Anicipaed in aion and he capial sock in a cash in advance economy, Journal of Moneary Economics 8, [11] James, Tobin ( ) Liquidiy preference and moneary policy, Review of Economics and Saisics 29:2, ; 30:4, [12] Tobin, J (1965) Money and economic growh, Economerica, 33(4)(Par2),
The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of
Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world
More informationA Brief Introduction to the Consumption Based Asset Pricing Model (CCAPM)
A Brief Inroducion o he Consumpion Based Asse Pricing Model (CCAPM We have seen ha CAPM idenifies he risk of any securiy as he covariance beween he securiy's rae of reurn and he rae of reurn on he marke
More informationReal Business Cycles Theory
Real Business Cycles Theory Research on economic flucuaions has progressed rapidly since Rober Lucas revived he profession s ineres in business cycle heory. Business cycle heory is he heory of he naure
More informationEconomics Honors Exam 2008 Solutions Question 5
Economics Honors Exam 2008 Soluions Quesion 5 (a) (2 poins) Oupu can be decomposed as Y = C + I + G. And we can solve for i by subsiuing in equaions given in he quesion, Y = C + I + G = c 0 + c Y D + I
More informationINVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS
INVESTIGATION OF THE INFLUENCE OF UNEMPLOYMENT ON ECONOMIC INDICATORS Ilona Tregub, Olga Filina, Irina Kondakova Financial Universiy under he Governmen of he Russian Federaion 1. Phillips curve In economics,
More informationImpact of Debt on Primary Deficit and GSDP Gap in Odisha: Empirical Evidences
S.R. No. 002 10/2015/CEFT Impac of Deb on Primary Defici and GSDP Gap in Odisha: Empirical Evidences 1. Inroducion The excessive pressure of public expendiure over is revenue receip is financed hrough
More informationDOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR
Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios
More informationA Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation
A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion
More information11/6/2013. Chapter 14: Dynamic ADAS. Introduction. Introduction. Keeping track of time. The model s elements
Inroducion Chaper 14: Dynamic DS dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuingedge
More informationOptimal Research and Development Expenditure: a General Equilibrium Approach
Opimal Research and Developmen Expendiure: a General Equilibrium Approach Galo Nuño y Banco de España May 7, 2 Absrac How much should be spen in research and developmen (R&D)? How should R&D vary over
More informationWorking Paper Capital Mobility, Consumption Substitutability, and the Effectiveness of Monetary Policy in Open Economies
econsor www.econsor.eu Der OpenAccessPublikaionsserver der ZBW LeibnizInformaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Pierdzioch, Chrisian
More informationWhy Did the Demand for Cash Decrease Recently in Korea?
Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in
More informationThe real interest rate gap as an inflation indicator
The real ineres rae gap as an inflaion indicaor Kaharine S. Neiss* and Edward Nelson** * Srucural Economic Analysis Division, Moneary Analysis, Bank of England. Email: kaharine.neiss@bankofengland.co.uk
More informationII.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal
Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.
More informationMarkit Excess Return Credit Indices Guide for price based indices
Marki Excess Reurn Credi Indices Guide for price based indices Sepember 2011 Marki Excess Reurn Credi Indices Guide for price based indices Conens Inroducion...3 Index Calculaion Mehodology...4 Semiannual
More informationReal exchange rate variability in a twocountry business cycle model
Real exchange rae variabiliy in a wocounry business cycle model Håkon Trevoll, November 15, 211 Absrac Real exchange rae flucuaions have imporan implicaions for our undersanding of he sources and ransmission
More informationA OneSector Neoclassical Growth Model with Endogenous Retirement. By Kiminori Matsuyama. Final Manuscript. Abstract
A OneSecor Neoclassical Growh Model wih Endogenous Reiremen By Kiminori Masuyama Final Manuscrip Absrac This paper exends Diamond s OG model by allowing he agens o make he reiremen decision. Earning a
More informationPROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE
Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees
More informationBALANCE OF PAYMENTS. First quarter 2008. Balance of payments
BALANCE OF PAYMENTS DATE: 20080530 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se
More informationInterest Rates, Inflation, and Federal Reserve Policy Since 1980. Peter N. Ireland * Boston College. March 1999
Ineres Raes, Inflaion, and Federal Reserve Policy Since 98 Peer N. Ireland * Boson College March 999 Absrac: This paper characerizes Federal Reserve policy since 98 as one ha acively manages shorerm nominal
More informationOptimal Investment and Consumption Decision of Family with Life Insurance
Opimal Invesmen and Consumpion Decision of Family wih Life Insurance Minsuk Kwak 1 2 Yong Hyun Shin 3 U Jin Choi 4 6h World Congress of he Bachelier Finance Sociey Torono, Canada June 25, 2010 1 Speaker
More informationInterest Rates and the Market For New Light Vehicles
Federal Reserve Bank of New York Saff Repors Ineres Raes and he Marke For New Ligh Vehicles Adam Copeland George Hall Louis Maccini Saff Repor No. 741 Sepember 2015 This paper presens preliminary findings
More informationDuration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.
Graduae School of Business Adminisraion Universiy of Virginia UVAF38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised
More informationPresent Value Methodology
Presen Value Mehodology Econ 422 Invesmen, Capial & Finance Universiy of Washingon Eric Zivo Las updaed: April 11, 2010 Presen Value Concep Wealh in Fisher Model: W = Y 0 + Y 1 /(1+r) The consumer/producer
More informationRisk Modelling of Collateralised Lending
Risk Modelling of Collaeralised Lending Dae: 4112008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies
More informationMorningstar Investor Return
Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion
More informationDYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS
DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS Hong Mao, Shanghai Second Polyechnic Universiy Krzyszof M. Osaszewski, Illinois Sae Universiy Youyu Zhang, Fudan Universiy ABSTRACT Liigaion, exper
More informationWorking Paper A Monte Carlo Comparison between the Free Cash Flow and Discounted Cash Flow Approaches
econsor www.econsor.eu Der OpenAccessPublikaionsserver der ZBW LeibnizInformaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Akalu, Mehari Mekonnen;
More informationHiring as Investment Behavior
Review of Economic Dynamics 3, 486522 Ž 2000. doi:10.1006redy.1999.0084, available online a hp:www.idealibrary.com on Hiring as Invesmen Behavior Eran Yashiv 1 The Eian Berglas School of Economics, Tel
More informationLIFE INSURANCE WITH STOCHASTIC INTEREST RATE. L. Noviyanti a, M. Syamsuddin b
LIFE ISURACE WITH STOCHASTIC ITEREST RATE L. oviyani a, M. Syamsuddin b a Deparmen of Saisics, Universias Padjadjaran, Bandung, Indonesia b Deparmen of Mahemaics, Insiu Teknologi Bandung, Indonesia Absrac.
More informationAsymmetric Labor Market Institutions in the EMU and the Volatility of Inflation and Unemployment Differentials
D I S C U S S I O N P A P E R S E R I E S IZA DP No. 6488 Asymmeric Labor Marke Insiuions in he EMU and he Volailiy of Inflaion and Unemploymen Differenials Mirko Abbrii Andreas I. Mueller April 2012 Forschungsinsiu
More information2009 / 2 Review of Business and Economics. Federico Etro 1
The Economic Impac of Cloud Compuing on Business Creaion, Employmen and Oupu in Europe An applicaion of he Endogenous Marke Srucures Approach o a GPT innovaion Federico Ero ABSTRACT Cloud compuing is a
More informationWage Bargaining, Job Matching, and the Great Depression
Wage Bargaining, Job Maching, and he Grea Depression Chris Reicher UC San Diego May 2008 Wage Bargaining, Job Maching, and he Grea Depression January 2008 Oupu, employmen (% of rend): 19231941 110% 100%
More informationThe Macroeconomics of MediumTerm Aid ScalingUp Scenarios
WP//6 The Macroeconomics of MediumTerm Aid ScalingUp Scenarios Andrew Berg, Jan Goschalk, Rafael Porillo, and LuisFelipe Zanna 2 Inernaional Moneary Fund WP//6 IMF Working Paper Research Deparmen The
More informationGraduate Macro Theory II: Notes on Neoclassical Growth Model
Graduae Macro Theory II: Noes on Neoclassical Growh Model Eric Sims Universiy of Nore Dame Spring 2011 1 Basic Neoclassical Growh Model The economy is populaed by a large number of infiniely lived agens.
More informationThe dynamic newkeynesian model
Chaper 4 The dynamic newkeynesian model A leas since Keynes, i has been hough ha in order o have real e ecs from moneary acions, i is key o have some degree of nominal rigidiy. The quesion we wan o explore
More informationThe effects of stock market movements on consumption and investment: does the shock matter?
The effecs of sock marke movemens on consumpion and invesmen: does he shock maer? Sephen Millard and John Power Working paper no. 236 Bank of England, Threadneedle Sree, London, EC2R 8AH. Email: sephen.millard@bankofengland.co.uk
More informationChapter 6: Business Valuation (Income Approach)
Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he
More informationVector Autoregressions (VARs): Operational Perspectives
Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101115. Macroeconomericians
More informationChapter 1.6 Financial Management
Chaper 1.6 Financial Managemen Par I: Objecive ype quesions and answers 1. Simple pay back period is equal o: a) Raio of Firs cos/ne yearly savings b) Raio of Annual gross cash flow/capial cos n c) = (1
More informationPart 1: White Noise and Moving Average Models
Chaper 3: Forecasing From Time Series Models Par 1: Whie Noise and Moving Average Models Saionariy In his chaper, we sudy models for saionary ime series. A ime series is saionary if is underlying saisical
More informationMeasuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry
Measuring he Effecs of Exchange Rae Changes on Invesmen in Ausralian Manufacuring Indusry Robyn Swif Economics and Business Saisics Deparmen of Accouning, Finance and Economics Griffih Universiy Nahan
More informationINVESTMENT GUARANTEES IN UNITLINKED LIFE INSURANCE PRODUCTS: COMPARING COST AND PERFORMANCE
INVESMEN UARANEES IN UNILINKED LIFE INSURANCE PRODUCS: COMPARIN COS AND PERFORMANCE NADINE AZER HAO SCHMEISER WORKIN PAPERS ON RISK MANAEMEN AND INSURANCE NO. 4 EDIED BY HAO SCHMEISER CHAIR FOR RISK MANAEMEN
More informationThe Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas
The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he
More informationTotal factor productivity growth in the Canadian life insurance industry: 19791989
Toal facor produciviy growh in he Canadian life insurance indusry: 19791989 J E F F R E Y I. B E R N S T E I N Carleon Universiy and Naional Bureau of Economic Research 1. Inroducion Produciviy growh
More informationInternational Real Business Cycles with Endogenous Markup Variability *
Federal Reserve Bank of Dallas Globalizaion and Moneary Policy Insiue Working Paper No. 6 hp://www.dallasfed.org/asses/documens/insiue/wpapers/2/6.pdf Inernaional Real Business Cycles wih Endogenous Markup
More informationWhat is a swap? A swap is a contract between two counterparties who agree to exchange a stream of payments over an agreed period of several years.
Currency swaps Wha is a swap? A swap is a conrac beween wo counerparies who agree o exchange a sream of paymens over an agreed period of several years. Types of swap equiy swaps (or equiyindexlinked
More informationEconomists and policymakers alike have noticed the striking correlation between
How Resilien Is he Modern Economy o Energy Price Shocks? RAJEEV DHAWAN AND KARSTEN JESKE Dhawan is he direcor of he Economic Forecasing Cener and an associae professor of managerial sciences a he J. Mack
More information4. International Parity Conditions
4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency
More informationStochastic Optimal Control Problem for Life Insurance
Sochasic Opimal Conrol Problem for Life Insurance s. Basukh 1, D. Nyamsuren 2 1 Deparmen of Economics and Economerics, Insiue of Finance and Economics, Ulaanbaaar, Mongolia 2 School of Mahemaics, Mongolian
More informationEstimating TimeVarying Equity Risk Premium The Japanese Stock Market 19802012
Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing TimeVarying Equiy Risk Premium The Japanese Sock Marke 19802012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA
More informationPrice elasticity of demand for crude oil: estimates for 23 countries
Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh
More informationFinancial Frictions and Policy Cooperation: A Case with Monopolistic Banking and Staggered Loan Contracts *
Federal Reserve Bank of Dallas Globalizaion and Moneary Policy Insiue Working Paper No. 37 hp://www.dallasfed.org/asses/documens/insiue/wpapers/05/037.pdf Financial Fricions and Policy Cooperaion: A Case
More informationChapter 8: Regression with Lagged Explanatory Variables
Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One
More informationChapter 10 Social Security 1
Chaper 0 Social Securiy 0. Inroducion A ypical social securiy sysem provides income during periods of unemploymen, illhealh or disabiliy, and financial suppor, in he form of pensions, o he reired. Alhough
More informationAppendix D Flexibility Factor/Margin of Choice Desktop Research
Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\22348900\4
More informationTable of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities
Table of conens Chaper 1 Ineres raes and facors 1 1.1 Ineres 2 1.2 Simple ineres 4 1.3 Compound ineres 6 1.4 Accumulaed value 10 1.5 Presen value 11 1.6 Rae of discoun 13 1.7 Consan force of ineres 17
More informationThe Interest Rate Risk of Mortgage Loan Portfolio of Banks
The Ineres Rae Risk of Morgage Loan Porfolio of Banks A Case Sudy of he Hong Kong Marke Jim Wong Hong Kong Moneary Auhoriy Paper presened a he Exper Forum on Advanced Techniques on Sress Tesing: Applicaions
More informationFiscal Limits, External Debt, and Fiscal Policy in Developing Countries
WP/14/49 Fiscal Limis, Exernal Deb, and Fiscal Policy in Developing Counries Huixin Bi,Wenyi Shen, and ShuChun S. Yang 2014 Inernaional Moneary Fund WP/14/49 IMF Working Paper Research Deparmen and Sraegy,
More informationStock Returns with Consumption and Illiquidity Risks
Sock Reurns wih Consumpion and Illiquidiy Risks Elena Márquez (Universidad Compluense de Madrid) Belén Nieo (Universidad de Alicane) Gonzalo Rubio (Universidad CEU Cardenal Herrera) Sepember 5, 0 Key words:
More informationThe Effect of Public Expenditure Shocks on Macroeconomic Variables in a Real Business Cycle Model. Case Study: Iran
40 School of Docoral Sudies (European Union) Journal 2010 The Effec of Public Expendiure Shocks on Macroeconomic Variables in a Real Business Cycle Model. Case Sudy: Iran Khosrow Pyraee a, Gholam Reza
More informationProduction Sharing and Real Business Cycles in a Small Open Economy *
Federal Reserve Bank of Dallas Globalizaion and oneary Policy Insiue Working Paper o. 5 hp://www.dallasfed.org/asses/documens/insiue/wpapers/2007/0005.pdf Producion Sharing and Real Business ycles in a
More informationWhy Do Real and Nominal. InventorySales Ratios Have Different Trends?
Why Do Real and Nominal InvenorySales Raios Have Differen Trends? By Valerie A. Ramey Professor of Economics Deparmen of Economics Universiy of California, San Diego and Research Associae Naional Bureau
More informationPhillips Curve. Macroeconomics Cunningham
Phillips Curve Macroeconomics Cunningham Original Phillips Curve A. W. Phillips (1958), The Relaion Beween Unemploymen and he Rae of Change of Money Wage Raes in he Unied Kingdom, 18611957, Economica.
More informationWorking Paper Social security systems, human capital, and growth in a small open economy
econsor www.econsor.eu Der OpenAccessPublikaionsserver der ZBW LeibnizInformaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Kaganovich, Michael;
More informationThe Determinants of Trade Credit: Vietnam Experience
Proceedings of he Second AsiaPacific Conference on Global Business, Economics, Finance and Social Sciences (AP15Vienam Conference) ISBN: 9781634158336 Danang, Vienam, 1012 July 2015 Paper ID: V536
More informationCointegration: The Engle and Granger approach
Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be nonsaionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require
More information2009 / 2 Review of Business and Economics. Federico Etro 1
The Economic Impac of Cloud Compuing on Business Creaion, Employmen and Oupu in Europe An applicaion of he Endogenous Marke Srucures Approach o a GPT innovaion Federico Ero ABSTRACT Cloud compuing is a
More informationCOMPLEMENTARY RELATIONSHIPS BETWEEN EDUCATION AND INNOVATION
Discussion Paper No. 731 COMPLEMENTARY RELATIONSHIPS BETWEEN EDUCATION AND INNOVATION Kasuhiko Hori and Kasunori Yamada February 2009 The Insiue of Social and Economic Research Osaka Universiy 61 Mihogaoka,
More informationThe Real Exchange Rate, the Current Account, and Foreign Debt in a Stochastic Optimizing Model with Imperfect Capital Flows. Jafar A.
The Real Echange Rae, he Curren Accoun, and Foreign Deb in a Sochasic Opimizing Model wih Imperfec Capial Flows Jafar A. Khondaker Deparmen of Economics Carleon Universiy, Oawa The Real Echange Rae, he
More information16. Real business cycle models, endogenous growth models and cyclical growth: a critical survey
16. Real business cycle models, endogenous growh models and cyclical growh: a criical survey Davide Fiaschi and Serena Sordi 16.1. INTRODUCTION Since he early conribuions o he opic, business cycles have
More informationInternational Risk Sharing: Through Equity Diversification or Exchange Rate Hedging?
WP/09/38 Inernaional Risk Sharing: Through Equiy Diversificaion or Exchange Rae Hedging? Charles Engel and Akio Masumoo 2009 Inernaional Moneary Fund WP/09/38 IMF Working Paper Research Deparmen Inernaional
More informationPremium Income of Indian Life Insurance Industry
Premium Income of Indian Life Insurance Indusry A Toal Facor Produciviy Approach Ram Praap Sinha* Subsequen o he passage of he Insurance Regulaory and Developmen Auhoriy (IRDA) Ac, 1999, he life insurance
More informationWhat Drives the Business Cycle in a Small Open Economy? Evidence from an estimated DSGE Model of the Danish Economy
Wha Drives he Business Cycle in a Small Open Economy? Evidence from an esimaed DSGE Model of he Danish Economy Jesper Pedersen Danmarks Naionalbank and Universiy of Copenhagen Søren Hove Ravn Danmarks
More informationOption PutCall Parity Relations When the Underlying Security Pays Dividends
Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 22523 Opion Puall Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,
More informationA Conceptual Framework for Commercial Property Price Indexes
GraninAid for Scienific Research(S) Real Esae Markes, Financial Crisis, and Economic Growh : An Inegraed Economic Approach Working Paper Series No.4 A Concepual Framework for Commercial Propery Price
More informationMika Kortelainen. Adjustment of the US current account deficit
Mika Korelainen Adjusmen of he US curren accoun defici Bank of Finland Research Discussion Papers 9 2007 Suomen Pankki Bank of Finland P.O.Box 160 FI00101 HELSINKI Finland + 358 10 8311 hp://www.bof.fi
More informationThe Optimal Inflation Rate in New Keynesian Models: Should Central Banks Raise Their Inflation Targets in Light of the ZLB?
The Opimal Inflaion Rae in New Keynesian Models: Should Cenral Banks Raise Their Inflaion Targes in Ligh of he ZLB? Olivier Coibion Yuriy Gorodnichenko Johannes Wieland College of William and Mary U.C.
More informationMonetary and Fiscal Policy Interactions with Debt Dynamics
Moneary and Fiscal Policy Ineracions wih Deb Dynamics Sefano Gnocchi and Luisa Lamberini Preliminary and Incomplee November, 22 Absrac We analyze he ineracion beween commied moneary and discreionary fiscal
More informationBehavior and Importance of Bank Loan Components after Monetary and NonMonetary Shocks
Behavior and Imporance of Bank oan Componens afer Moneary and NonMoneary Shocks Wouer J. den Haan Deparmen of Economics Universiy of California a San Diego CEPR & NBER Seven Sumner Deparmen of Economics
More informationGovernment Spending Multipliers and the Zero Lower Bound in an Open Economy
214s43 Governmen Spending Mulipliers and he Zero Lower Bound in an Open Economy Charles Olivier Mao Takongmo Série Scienifique Scienific Series Monréal Novembre 214/November 214 214 Charles Olivier Mao
More informationIndividual Health Insurance April 30, 2008 Pages 167170
Individual Healh Insurance April 30, 2008 Pages 167170 We have received feedback ha his secion of he e is confusing because some of he defined noaion is inconsisen wih comparable life insurance reserve
More informationTREASURY WORKING PAPER 01/32
TREASURY WORKING PAPER 01/32 Saving and growh in an open economy Iris Claus, David Haugh, Gran Scobie and Jonas Törnquis Absrac Concern has been raised by an apparen lack of saving in New Zealand. I is
More informationSPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.
Paul Ferley Assisan Chief Economis 4169747231 paul.ferley@rbc.com Nahan Janzen Economis 4169740579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.
More informationARCH 2013.1 Proceedings
Aricle from: ARCH 213.1 Proceedings Augus 14, 212 Ghislain Leveille, Emmanuel Hamel A renewal model for medical malpracice Ghislain Léveillé École d acuaria Universié Laval, Québec, Canada 47h ARC Conference
More informationHedging with Forwards and Futures
Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buyside of a forward/fuures
More informationMeasuring macroeconomic volatility Applications to export revenue data, 19702005
FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a
More informationDISCUSSION PAPER. Emissions Targets and the Real Business Cycle. Intensity Targets versus Caps or Taxes. Carolyn Fischer and Michael R.
DISCUSSION PAPER November 2009 RFF DP 0947 Emissions Targes and he Real Business Cycle Inensiy Targes versus Caps or Taxes Carolyn Fischer and Michael R. Springborn 66 P S. NW Washingon, DC 20036 2023285000
More informationTerms of Trade and Present Value Tests of Intertemporal Current Account Models: Evidence from the United Kingdom and Canada
Terms of Trade and Presen Value Tess of Ineremporal Curren Accoun Models: Evidence from he Unied Kingdom and Canada Timohy H. Goodger Universiy of Norh Carolina a Chapel Hill November 200 Absrac This paper
More informationUSE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES
USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES Mehme Nuri GÖMLEKSİZ Absrac Using educaion echnology in classes helps eachers realize a beer and more effecive learning. In his sudy 150 English eachers were
More informationHOW SHOULD MONETARY POLICY RESPOND TO CHANGES IN THE RELATIVE PRICE OF OIL? CONSIDERING SUPPLY AND DEMAND SHOCKS
HOW SHOULD MONETARY POLICY RESPOND TO CHANGES IN THE RELATIVE PRICE OF OIL? CONSIDERING SUPPLY AND DEMAND SHOCKS MICHAEL PLANTE RESEARCH DEPARTMENT WORKING PAPER 1202 Federal Reserve Bank of Dallas HOW
More informationGraphing the Von Bertalanffy Growth Equation
file: d:\b1732013\von_beralanffy.wpd dae: Sepember 23, 2013 Inroducion Graphing he Von Beralanffy Growh Equaion Previously, we calculaed regressions of TL on SL for fish size daa and ploed he daa and
More informationA Model for Monetary Policy Analysis in Pakistan
Working paper A Model for Moneary Policy Analysis in Pakisan The Role of Foreign Exchange and Credi Markes Ehsan U. Choudhri Hamza Malik March 2014 When ciing his paper please use he ile and he following
More informationEstimating the Term Structure with Macro Dynamics in a Small Open Economy
Esimaing he Term Srucure wih Macro Dynamics in a Small Open Economy Fousseni ChabiYo Bank of Canada Jun Yang Bank of Canada April 18, 2006 Preliminary work. Please do no quoe wihou permission. The paper
More informationDeclining bargaining power of workers and the rise of early retirement in Europe
Declining bargaining power of workers and he rise of early reiremen in Europe Anna Bayra, David de la Croix, Olivier Pierrard, Henri R. Sneessens January 2013 Absrac We offer an alernaive explanaion for
More informationDoes Option Trading Have a Pervasive Impact on Underlying Stock Prices? *
Does Opion Trading Have a Pervasive Impac on Underlying Sock Prices? * Neil D. Pearson Universiy of Illinois a UrbanaChampaign Allen M. Poeshman Universiy of Illinois a UrbanaChampaign Joshua Whie Universiy
More informationBrazil through the eyes of CHORINHO
Brazil hrough he eyes of CHORINHO Fabio Kanczuk FEA/USP Dep of Economics, Universiy of São Paulo April 204 Absrac CHORINHO, a medium scale DSGE model used in he financial secor o inform invesmen decisions,
More informationMarket Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand
36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,
More informationEndogenous Flows of Foreign Direct Investment and International Real Business Cycles
Endogenous Flows of Foreign Direc Invesmen and Inernaional Real Business Cycles Nicolas PeroskyNadeau Carnegie Mellon Universiy January 2011 Absrac This paper models flows of foreign direc invesmen (FDI)
More informationUNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES. Nadine Gatzert
UNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES Nadine Gazer Conac (has changed since iniial submission): Chair for Insurance Managemen Universiy of ErlangenNuremberg Lange Gasse
More information