This paper studies Tobin's proposition that in ation \greases " the wheels of the labor... more This paper studies Tobin's proposition that in ation \greases " the wheels of the labor market. The analysis is carried out using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. Optimal in ation is de-termined by a benevolent government that maximizes the households ' welfare. The Simulated Method of Moments is used to estimate the nonlinear model based on its second-order approximation. Econometric results indicate that nominal wages are downwardly rigid and that the optimal level of grease in ation for the U.S. economy is about 1.2 percent per year, with a 95 % condence interval ranging from 0.2 to 1.6 percent. JEL Classication: E4, E5.
SUMMARY What caused the housing boom of the 2000s? A number of researchers have suggested that lo... more SUMMARY What caused the housing boom of the 2000s? A number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run-up in house prices in many countries. However, using a common statistical approach, we find that monetary policy was not the main factor. That should not be surprising: Although low interest rates raise house prices, the increase in prices during the mid-2000s was much larger than the historical relationship between the two variables would suggest. Instead, we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices. This link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom. Our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms.
Recent sovereign debt crisis in Europe has challenged policy makers to explore the possibility of... more Recent sovereign debt crisis in Europe has challenged policy makers to explore the possibility of establishing a …scal-transfer system that can alleviate the negative impact of asymmetric shocks among European countries. Using a simple labor-production economy model, we …rst derive an analytically tractable solution for optimal degree of …scal transfers. In this economy, …scal transfers can improve welfare by moving the competitive equilibrium with …scal transfers closer to the social planner’s solution. We then extend the model to a DSGE setting with
Most general equilibrium models calculate welfare gains from international risk sharing based on ... more Most general equilibrium models calculate welfare gains from international risk sharing based on a loglinear approximation. They have reported welfare gains ranging from zero to one percent of permanent consumption. Some simulation results -- Tesar (1995), van Wincoop (1997), ...
This paper addresses three issues on the conduct of monetary policy in open economies on the basi... more This paper addresses three issues on the conduct of monetary policy in open economies on the basis of a two-country model with Calvo-type sticky prices. Is the isomorphism of the optimal policy problems between closed and open economies robust to whether the foreign country is buffeted by cost-push shocks? How can we obtain a linear quadratic approximation that replicates the
This paper studies Tobin's proposition that in ation \greases " the wheels of the labor... more This paper studies Tobin's proposition that in ation \greases " the wheels of the labor market. The analysis is carried out using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. Optimal in ation is de-termined by a benevolent government that maximizes the households ' welfare. The Simulated Method of Moments is used to estimate the nonlinear model based on its second-order approximation. Econometric results indicate that nominal wages are downwardly rigid and that the optimal level of grease in ation for the U.S. economy is about 1.2 percent per year, with a 95 % condence interval ranging from 0.2 to 1.6 percent. JEL Classication: E4, E5.
SUMMARY What caused the housing boom of the 2000s? A number of researchers have suggested that lo... more SUMMARY What caused the housing boom of the 2000s? A number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run-up in house prices in many countries. However, using a common statistical approach, we find that monetary policy was not the main factor. That should not be surprising: Although low interest rates raise house prices, the increase in prices during the mid-2000s was much larger than the historical relationship between the two variables would suggest. Instead, we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices. This link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom. Our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms.
Recent sovereign debt crisis in Europe has challenged policy makers to explore the possibility of... more Recent sovereign debt crisis in Europe has challenged policy makers to explore the possibility of establishing a …scal-transfer system that can alleviate the negative impact of asymmetric shocks among European countries. Using a simple labor-production economy model, we …rst derive an analytically tractable solution for optimal degree of …scal transfers. In this economy, …scal transfers can improve welfare by moving the competitive equilibrium with …scal transfers closer to the social planner’s solution. We then extend the model to a DSGE setting with
Most general equilibrium models calculate welfare gains from international risk sharing based on ... more Most general equilibrium models calculate welfare gains from international risk sharing based on a loglinear approximation. They have reported welfare gains ranging from zero to one percent of permanent consumption. Some simulation results -- Tesar (1995), van Wincoop (1997), ...
This paper addresses three issues on the conduct of monetary policy in open economies on the basi... more This paper addresses three issues on the conduct of monetary policy in open economies on the basis of a two-country model with Calvo-type sticky prices. Is the isomorphism of the optimal policy problems between closed and open economies robust to whether the foreign country is buffeted by cost-push shocks? How can we obtain a linear quadratic approximation that replicates the
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