Three Essays on the Significance of Consumer Expectations in Monetary Economics PDF Download

Author: Alexander M. Dietrich
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Languages : en
Pages : 0

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Author: Rolande Carine Baï Kpekou Tossou
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Languages : en
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Author: Stephen Edwin Spear
Publisher:
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Category :
Languages : en
Pages : 298

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Author: Timur Hulagu
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Languages : en
Pages : 198

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In the first chapter, I examine an incomplete markets economy in a politico-economic general equilibrium setting in which the median voter chooses the inflation rate. I use an environment where individuals face an uninsurable idiosyncratic labor productivity shock, and money is the only asset. Being an effective tax on savings, inflation acts as a redistribution mechanism transferring resources from the rich to the poor. I show that the median voter chooses a positive inflation rate as the politico-economic equilibrium outcome. In the second chapter, I analyze how forming a monetary union affects consumption and earnings inequalities through monetary policy changes implied by adopting a common currency. I use a two country open-economy, overlapping-generations model with heterogenous individuals to investigate these effects. In the model, inflation tax is the only redistributive tool and consumption and earnings inequalities are decreasing functions of inflation. When forming a monetary union, countries face a trade-off between the undesirable distributional effects of losing their monetary autonomy and benefits from the elimination of trade frictions. Findings suggest that when countries choose to do so, the country with higher initial inflation will definitely experience a fall in its inflation, hence an increase in its inequalities. In the country with lower initial inflation, however, inflation and inequalities might go in either direction depending on the degree of heterogeneity and the trade dependency between the countries. As the inflationary effect of uniting its monetary policy with a high inflation country can dominate the reducing effect of vanished trade frictions on inflation, this country might have an increase in its inflation, and a decrease in its inequalities. Finally, in the third chapter, I compare the indirect measure of inflation expectations derived by Ireland (1996b) to the direct measures obtained from expectations surveys in two case studies: the US and Turkey. Our results show that the inflation bounds calculated for US data are more volatile than survey results, and are too narrow to contain them due to low standard errors in consumption growth series stemming from high persistence. For the Turkish case, on the other hand, out of three different surveys on inflation expectations in Turkey compared with the bounds computed using Turkish data, expectations obtained by the Consumer Tendency Survey fall within these bounds throughout the whole sample period. Moreover we show that, as Fisher's theory suggests, real interest rates are extremely volatile in Turkey and movements in nominal interest rates cannot be directly used as an indicator of changes in inflation expectations.

Author: Martin Shubik
Publisher: MIT Press
ISBN: 9780262693110
Category : Business & Economics
Languages : en
Pages : 472

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This first volume in a three-volume exposition of Shubik's vision of "mathematical institutional economics" explores a one-period approach to economic exchange with money, debt, and bankruptcy. This is the first volume in a three-volume exposition of Martin Shubik's vision of "mathematical institutional economics"--a term he coined in 1959 to describe the theoretical underpinnings needed for the construction of an economic dynamics. The goal is to develop a process-oriented theory of money and financial institutions that reconciles micro- and macroeconomics, using as a prime tool the theory of games in strategic and extensive form. The approach involves a search for minimal financial institutions that appear as a logical, technological, and institutional necessity, as part of the "rules of the game." Money and financial institutions are assumed to be the basic elements of the network that transmits the sociopolitical imperatives to the economy. Volume 1 deals with a one-period approach to economic exchange with money, debt, and bankruptcy. Volume 2 explores the new economic features that arise when we consider multi-period finite and infinite horizon economies. Volume 3 will consider the specific role of financial institutions and government, and formulate the economic financial control problem linking micro- and macroeconomics.

Author: Devrim Ikizler
Publisher:
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Languages : en
Pages : 150

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In the first chapter, I analyze the US banking industry in order to explain two facts. First, larger banks have lower but less volatile returns on loans compared to smaller banks over the years. Second, larger borrowers have better financial records, i.e. verifiable "hard" information, and they are more likely to match with larger banks, as documented by Berger et al.(2005). I show that these two facts can be explained using a segmented loan markets model with loan contracts between banks and borrowers. Moreover, I show that the difference between the banks returns is not due to diversification advantage of larger banks. Instead, it is because of the fact that larger banks can operate in both large and small loan markets, whereas small banks can only operate in small loans market. Therefore large banks are able to match with larger and less risky borrowers more frequently, which are less likely to default. Moreover, I take the model to infinite horizon allowing bank size to be endogenous to answer multiple policy questions about the future of small business finance and consolidation. I use the data set from the Consolidated Reports of Condition and Income provided by FDIC for 1984-2010 to motivate our research question and to estimate the model. My second chapter revisits the welfare cost of anticipated inflation in an incomplete markets environment where agents can substitute time for money by increasing their shopping frequency. Shopping activity provides an insurance channel to individuals against changes in the return on nominal balances through inflation as documented by Aguiar and Hurst (2007) and McKenzie and Schargrodsky (2011). In my model economy, a higher level of inflation affects people through two channels. First, it distorts the portfolio decision between real and nominal balances, second it redistributes wealth from those who hold more money to those who hold less. People, on average, respond to a higher level of inflation by increasing their price search activity, as they relative return on nominal balances goes down. I find that a 5 percent increase in inflation causes the welfare level go down by 2 percent if people are allowed to substitute time for money, and by 10 percent if we take this channel away from the model. Finally, in the third chapter, I compare the indirect measure of inflation expectations derived by Ireland (1996b) to the direct measures obtained from expectations surveys in multiple countries. Our results show that the inflation bounds calculated for US and UK data are more volatile than survey results, and are too narrow to contain them due to low standard errors in consumption growth series stemming from high persistence. For Chilean and Turkish cases, however, computed bound for inflation expectations seems to fit the survey results better. Out of three different surveys on inflation expectations in Turkey compared with the bounds computed using Turkish data, expectations obtained by the Consumer Tendency Survey fall within these bounds throughout the whole sample period. The success in the Turkish and Chilean cases can be attributed to the fact that volatility in the consumption series, whereas the failure in US and UK cases are most probably stemming from the fact that the current theoretical model is missing a risk-premium component.

Author: Michael D. Bordo
Publisher: University of Chicago Press
ISBN: 0226066959
Category : Business & Economics
Languages : en
Pages : 545

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Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

Author: Peter J. N. Sinclair
Publisher: Routledge
ISBN: 1135179778
Category : Business & Economics
Languages : en
Pages : 402

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Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Author: Mohammad Iqbal Ahmed
Publisher:
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Languages : en
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This dissertation consists of three essays in asymmetric empirical macroeconomics. Making macroeconomic policies has become increasingly difficult because of intricate relationships among macroeconomic variables. In this dissertation, we apply state-of-the-art macroeconometric techniques to investigate asymmetric relationships between key macroeconomic aggregates. Our findings have important macroeconomic policy implications. An analogue to the Phillips curve shows a positive relationship between inflation and capacity utilization. Some recent empirical work has shown that this relationship has broken down when using data after the mid-1980s and several popular explanations for this changing relationship, including advancements in technology and globalization, were put forward as possible explanations. In the first essay, we empirically investigate this issue using several threshold error correction models. We find, in the long run, a 1% increase in the rate of inflation leads to approximately a 0.0046% increase in capacity utilization. The asymmetric error correction structure shows that changes in capacity utilization show significant corrective measures only during booms while changes in inflation correct during both phases of the business cycle with the corrections being stronger during recessions. We also find that, in the short run, changes in the inflation rate do Granger cause capacity utilization while changes in capacity utilization do not Granger cause inflation. The Granger causality from inflation to capacity utilization can be interpreted as supporting recent calls made in the popular press by some economists that it may be desirable for the Federal Reserve Bank to try to induce some inflation in an effort to stimulate the economy. In the second essay, we examine the role of consumer confidence on economic activities like households' consumption in good and bad economic times. We consider the "news" versus "animal spirit" approach interpretation of consumer confidence. In the wake of the Great Recession of 2008-09, many have called for confidence-boosting policies to help speed up the recovery. A recent study has reinforced these policy calls by showing that the Michigan Consumer Confidence Index contains important information about "news" on future productivity that has long-lasting effects on economic activities like aggregate consumption. Using US data, we show this conclusion is more nuanced when considering an economy that has different potential states. We investigate regime-switching models which use the National Bureau of Economic Research US business cycle expansion and contraction data to create an indicator series that distinguishes bad and good economic times and use this series to investigate impulse responses and variance decompositions. We show the connection between consumer confidence to some types of consumer purchases is important during good economic times but is relatively unimportant during bad economic times. We also use this type of model to investigate the connection between news and consumer confidence and this connection is also shown to be state dependent. In the context of the animal spirits versus news debate, our findings show that during economic expansions, consumer confidence shocks likely reflect news, while during economic contractions, consumer confidence shocks are consistent with animal spirits. These findings also have important implications for recent policy debates which consider whether confidence boosting policies, like raising inflation expectations on big-ticket items such as automobiles or business equipment, would lead to a faster recovery. The third essay investigates expectation shocks and their effect on the economy. For instance, this essay investigates whether the economy responds to expectation shocks in an importantly asymmetric way. A growing literature shows that agents' expectation about the future can lead to boom-bust cycles. These studies so far ignore the transmission effects of expectations on current economic activities across the policy regimes. Using the Survey of Professional Forecasters and Livingstone Survey data, this study empirically investigates the effects of expectation shocks on macroeconomic activities when policy regimes shift. Identifying a structural shock to expectations by using the timing of information in the forecast surveys and actual data releases, we show that the effects of agents' expectations about the future on current macroeconomic activities are asymmetric across the policy regimes. In particular, we find that a perception of good times ahead typically leads to a significant rise in current measures of economic activity in a hawkish regime relative to a dovish regime. We also find that monetary policy's reactions to agents' expectations are asymmetric across the policy regimes. Our findings do not support the views of critics of the central banks, who argued that keeping monetary policy too easy for too long is responsible for fueling the booms. Instead, our findings support the traditional view that a positive (negative) expectation about the future coincides with an anticipatory tightening (easing) of monetary policy.

Author: Harry G. Johnson
Publisher: Routledge
ISBN: 1134623917
Category : Business & Economics
Languages : en
Pages : 299

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A sequel to Essays in Monetary Economics, this book develops the ideas on domestic and international monetary issues, with reference to specific events and crises of the 1960s and 70s. These essays are distinguished by the author’s expert grasp of the analytical techniques and contemporaneous policy problems of both domestic and international monetary economics.