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Author: Rahul Anand Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
The objective of this dissertation is to understand the role of financial frictions in the transmission of shocks and their effect on the monetary policy transmission mechanism. To accomplish the task, we develop Dynamic Stochastic General equilibrium models with financial frictions. In the first chapter, we develop a model to analytically determine the appropriate price index to target in the presence of financial frictions (where a fraction of households are constrained to consume their wage income each period). The analysis suggests that in the presence of financial frictions, a welfare-maximizing central bank should adopt flexible headline inflation targeting-i.e. a headline inflation target but with some weight on the output gap. These results are particularly relevant for emerging markets, where the share of food expenditures in total consumption expenditures is high and a large proportion of consumers are credit constrained. In the second chapter, we develop a small open economy model with macrofinancial linkages. The model includes a financial accelerator - entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt - to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks to productivity, interest rates and net worth of firms. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and to assess the optimality of the current monetary policy rule. In the third chapter, we develop a small open economy New Keynesian model with financial frictions and an active banking sector for India. We find that the presence of a monopolistic banking sector with sticky interest rate setting attenuates the shocks. However, if the interest rates are flexible it results in the amplification of shocks. We also find that an unexpected reduction in bank capital can have a substantial impact on the real economy and particularly on investment. Use of nonmonetary policy tools result in greater volatility as compared to when central banks use traditional monetary tightening.
Author: Rahul Anand Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
The objective of this dissertation is to understand the role of financial frictions in the transmission of shocks and their effect on the monetary policy transmission mechanism. To accomplish the task, we develop Dynamic Stochastic General equilibrium models with financial frictions. In the first chapter, we develop a model to analytically determine the appropriate price index to target in the presence of financial frictions (where a fraction of households are constrained to consume their wage income each period). The analysis suggests that in the presence of financial frictions, a welfare-maximizing central bank should adopt flexible headline inflation targeting-i.e. a headline inflation target but with some weight on the output gap. These results are particularly relevant for emerging markets, where the share of food expenditures in total consumption expenditures is high and a large proportion of consumers are credit constrained. In the second chapter, we develop a small open economy model with macrofinancial linkages. The model includes a financial accelerator - entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt - to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks to productivity, interest rates and net worth of firms. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and to assess the optimality of the current monetary policy rule. In the third chapter, we develop a small open economy New Keynesian model with financial frictions and an active banking sector for India. We find that the presence of a monopolistic banking sector with sticky interest rate setting attenuates the shocks. However, if the interest rates are flexible it results in the amplification of shocks. We also find that an unexpected reduction in bank capital can have a substantial impact on the real economy and particularly on investment. Use of nonmonetary policy tools result in greater volatility as compared to when central banks use traditional monetary tightening.
Author: Qiao Zhang Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
In this dissertation, my research aims at dwelling on the questions, at understanding and explaining -- as a follow of current strand of literature on financial frictions -- the mechanisms that allowed the imperfect and perfect credit intermediation to affect the dynamics of economy and the transmission of monetary policy, and providing a new theoretical formulation for evaluating the unconventional monetary policy. To do this, I first considered the impact of financial intermediation on the analysis of central bank transparency issue (Chapter 2). ln Chapter 3, I focused on the role played by the imperfect financial intermediation/financial frictions in the transmission of shocks : through which mechanisms, do the presence of balance-sheet constraint financial intermediaries affect the effect of shocks on the macroeconomy? Finally, in Chapter 4, 1 construct an theoreticalmodel to analyze an important issue which have net been carried out in existing literature: the transmission mechanism of the central bank's large-scale purchase of mortgage-backed securities. ln this chapter, I first simulated a financial crisis to see if the model is able to replicate some of the most important stylized facts of the Great Recession. Then, basing on the simulated crisis, I examine the efficacy and transmission mechanism of large scale purchases of MBS through comparing these purchases to the purchases of corporate bonds. This experiment is conducted in two credit market configurations, i.e., a partially and a totally segmented credit market. The latter case of market condition is considered by many economists as main obstacle that impedes the nominal functioning of the financial markets. ln this work, we have obtained rich and important findings for guiding the use of unconventional monetary policy. The following parts briefly present the findinqs of the thesis.
Author: Zhengyang Chen Publisher: ISBN: Category : Capital market Languages : en Pages :
Book Description
The federal funds rate became uninformative about the stance of monetary policy from December 2008 to November 2015. During the same period, unconventional monetary policy actions, like forward guidance and large-scale asset purchases, show the Federal Reserve’s intention to depress longer-term interest rates. My research question is whether, after the 2007-2009 financial crisis, monetary policy still effectively influences or adjusts the real economy. The critical challenges are to indicate the impacts of increasingly diversified monetary policy actions and empirically identify monetary policy shocks more comprehensively than exclusively focusing on variation in the policy rate. Chapter 2 considers a long-term real interest rate as an alternative monetary policy indicator in a structural VAR framework. Based on an event study of FOMC announcements, I advance a novel measure of long-term interest rate volatility with important implications for monetary policy identification. I find that monetary policy shocks identified with this volatility measure drive significant swings in credit market sentiments and real output. In contrast, monetary policy shocks identified by otherwise standard unexpected policy rate changes lead to muted responses of financial frictions and production. These finding supports the validity of the risk-taking channel and suggests an indispensable role of financial markets in monetary policy transmission. Chapter 3 documents the pass-through of the short-term interest rate onto the components of Divisia monetary aggregates. The information factors extracted from real balances of monetary assets alleviate the price puzzle, which is commonly seen in conventional monetary VAR analysis of the transmission mechanism. We also show that financial and monetary markets reacted strongly to the Federal Reserve policy after 2007. The strong monetary response varies not only quantitatively over time, but qualitatively across asset classes. Although far from a one-to-one relationship, balances of assets more closely associated with household demand, such as currency and savings, tend to move in the opposite direction of short-term rates—indicative of a liquidity effect. Whereas balances more closely associated with firms returns are mixed, where institutional money markets also show a liquidity effect, large time deposits or commercial paper exhibit a strong Fisher effect post 2007. In summary, this dissertation sets the foundation for future research in the measurement of monetary policy and the investigation of monetary policy transmission to the real economy post the financial crisis.
Author: Ida Maria Hjortsø Publisher: ISBN: Category : Europe Languages : en Pages : 144
Book Description
This thesis investigates the implications of imbalances within a monetary union. In the first chapter, I study how international financial frictions lead to international imbalances and affect optimal fiscal policy in a two-country, two-good DSGE model of a monetary union. I show that the presence of international imbalances affects the optimal conduct of cooperative fiscal policies when the traded goods are complements. Government expenditures optimally play a cross-country risk sharing role which is in conflict with the domestic stabilization role: optimal fiscal policy consists in setting government expenditures such as to reduce international imbalances at the expense of higher domestic inefficiencies. In the second chapter, I assess the implications of strategic fiscal policy interactions in a two-country DSGE model of a monetary union with nominal rigidities and international financial frictions. I show that the fiscal policy makers face an incentive to set fiscal policy such as to switch the terms of trade in their favour. This incentive results in a Nash equilibrium characterized by excessive inflation differentials as well as sub-optimally high current account imbalances within the monetary union. There are thus non-negligeable welfare losses associated with strategic fiscal policy making in a monetary union. The third chapter investigates empirically the degree of risk sharing in the European Economic and Monetary Union (EMU), using two different methods. The first measure relates to the capacity of consumption smoothing. This measure indicates that risk sharing is rather low and that the introduction of the common currency did not lead to higher intra-EMU risk sharing. The second measure is based on the welfare losses associated with deviations from full risk sharing. These welfare losses have fallen since the introduction of the common currency. However, this is mostly due to changes in macroeconomic risk - not to changes in risk sharing per se.
Author: Rahul Anand
Author: Rahul Anand
Author: Qiao Zhang
Author: Conglin Xu
Author: David B. Gordon
Author: Jiri Woschitz
Author: Juan Yang
Author: Sarbari Banerjee-Rothe
Author: Nan Sheng
Author: Zhengyang Chen
Author: Ida Maria Hjortsø