Author: Kai ChristoffelPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The Impact of Labor Markets on the Transmission of Monetary Policy in an Estimated DSGE Model
Author: Kai ChristoffelIdentifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model
Author: Kai Philipp ChristoffelPublisher:
ISBN:
Category :
Languages : en
Pages : 76
Book Description
We focus on a quantitative assessment of rigid labor markets in an environment of stable monetary policy. We ask how wages and labor market shocks feed into the inflation process and derive monetary policy implications. Towards that aim, we structurally model matching frictions and rigid wages in line with an optimizing rationale in a New Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques for German data from the late 1970s to present. Given the pre-euro heterogeneity in wage bargaining we take this as the first-best approximation at hand for modelling monetary policy in the presence of labor market frictions in the current European regime. In our framework, we find that labor market structure is of prime importance for the evolution of the business cycle, and for monetary policy in particular. Yet shocks originating in the labor market itself may contain only limited information for the conduct of stabilization policy.
Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model
Author: Kai ChristoffelAn Estimated DSGE Model for Integrated Policy Analysis
Author: Kaili ChenPublisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 65
Book Description
We estimate a New Keynesian small open economy model which allows for foreign exchange (FX) market frictions and a potential role for FX interventions for a large set of emerging market economies (EMEs) and some inflation targeting (IT) advanced economy (AE) countries serving as a control group. Next, we use the estimated model to examine the empirical support for the view that interest rate policy may not be sufficient to stabilize output and inflation following capital outflow shocks, and the extent to which FX interventions (FXI) can improve policy tradeoffs. Our results reveal significant structural differences between AEs and EMEs—in particular FX market depth—leading to different transmission of capital outflow shocks which justifies occasional use of FXI in some EMEs in certain situations. Our analysis also highlights the critical importance of accounting for the endogeneity of FXI behavior when assessing FX market depth and policy tradeoffs associated with volatile capital flows in past episodes.
Identifying the Role of Labor Markets for Monetary Policy in an Sstimated DSGE Model
Author: Kai ChristoffelInvoluntary Unemployment and Financial Frictions in Estimated DSGE Models
Author: Antoine DevulderPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Thanks to their internal consistency. DSGE models, built on microecoc behavor, have become prevalenl for business cycle and policy analysis in institutions. The recent crisis and governments' concern about persistent unemployment advocate for mechanism, capturing imperfect adjustments in credit and labor markets. However, popular models such as the one of Smets and Wouters (2003-2007), although unsophisticated in their representation of these markets, are able to replicate the data as well as usual econometric tools. It is thus necessary to question the benefits of including these frictions in theoretical models for operational use.ln this thesis, I address this issue and show that microfounded mechanisms specifiç to labor and credit markets can significantly alter the conclusions based on the use of an estimated DSGE model, fom both a positive and a normative perspective.For this purpose, I build a two-country model of France and the rest of the euro area with exogenous rest of the world variables, and estimate it with and without these two frictions using Bayesian techniques. By contrast with existing models, I propose two improvements of the representation of labor markets. First, following Pissarides (2009), only wages in new jobs are negotiated by firms and workers, engendering stickiness in the average real wage. Second, I develop a set of assumptions to make labor market participation endogenous and unemployment involuntary in the sense that the unemployed workers are worse-off that the employed ones. Yet, including this setup in the estimated model is left for future research.Using the four estimated versions of the model, I undertake a number of analyses to highlight the role of financial and labor market frictions : an historical shock decomposition of fluctuations during the crisis, the evaluation of several monetary policy rules, a counterfactual simulation of the crisis under the assumption of a flexible exchange rate regime between France and the rest of the euro area and, lastly, the simulation of social VAT scenarios.
The Role of Labor Markets in Monetary DSGE Models and Robust Monetary Policy
Author: Keith KüsterThe Role of Labor Markets for Euro Area Monetary Policy
Author: Kai ChristoffelPublisher:
ISBN:
Category : Bayesian statistical decision theory
Languages : en
Pages : 0
Book Description
In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions. We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, having estimated the model by Bayesian techniques we analyze to which extent labor market shocks, such as disturbances in the vacancy posting process, shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations. Our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations. In sum, the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy.
Unemployment, the Business Cycle and Monetary Policy
Author: Alexander KollPublisher:
ISBN: 9783330501003
Category :
Languages : en
Pages : 108
Book Description
Designing a Simple Loss Function for Central Banks
Author: Davide DebortoliPublisher: International Monetary Fund
ISBN: 1484311752
Category : Business & Economics
Languages : en
Pages : 56
Book Description
Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.