Understanding the degree of measurement error in the estimates of the output gap available to pol... more Understanding the degree of measurement error in the estimates of the output gap available to policy-makers in 'real time' is important both for the formulation of monetary policy and for the study of inflation behaviour. For the United Kingdom, no official output gap series exists, but an approximate series can be deduced from analysis of statistical releases and policy-makers' statements.
The paper evaluates the performance of three popular monetary policy rules when the central bank ... more The paper evaluates the performance of three popular monetary policy rules when the central bank is learning about the parameter values of a simple New Keynesian model. The three policies are: (1) the optimal non-inertial rule; (2) the optimal history-dependent rule; (3) the optimal price-level targeting rule. Under rational expectations rules (2) and (3) both implement the fully optimal equilibrium
This paper asks two main questions: (1) What makes some asset price bubbles more costly for the r... more This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2) When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by
We evaluate the performance of three kinds of rule-based monetary policy under central bank learn... more We evaluate the performance of three kinds of rule-based monetary policy under central bank learning about the parameter values of a simple New Keynesian model. The central bank and the private sector learn the slopes of the IS and the Phillips curves by recursive least squares estimation, and form expectations and set policy based on their estimated model. The three
This paper is a quantitatively-oriented theoretical study of the interaction between housing pric... more This paper is a quantitatively-oriented theoretical study of the interaction between housing prices, aggregate production, and household behavior over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial real estates. We find that, in an economy where the share of land in the value of real estates is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing a large redistribution between net buyers and net sellers of houses. Changing financing constraints, however, has limited effects on housing prices.
ABSTRACT We introduce a money demand motive in a life-cycle portfolio choice model and estimate t... more ABSTRACT We introduce a money demand motive in a life-cycle portfolio choice model and estimate the structural parameters that can generate limited stock market participation and plausible holdings of money, bonds and stocks. The model predicts an increase in bond holdings over the life cycle, and a declining share of money in portfolios as wealth increases. Both predictions are consistent with the data, even though the model overpredicts (underpredicts) stock (bond) holdings in early life. When mean inflation approaches zero, the share of money in the financial portfolio rises at the expense of both bond and stockholdings, generating simultaneously a lower stock market participation rate.
This paper is a quantitatively-oriented theoretical study into the interaction between housing pr... more This paper is a quantitatively-oriented theoretical study into the interaction between housing prices, aggregate production, and household behaviour over a lifetime. We develop an overlapping generations model of a production economy in which land and capital are combined into residential and commercial structures. We find that, in the economy where land is more important for structures, the housing price is
I analyze optimal monetary policy in an economy with search and matching frictions in the labor m... more I analyze optimal monetary policy in an economy with search and matching frictions in the labor market and staggered nominal wage and price contracts. In this framework, as opposed to the standard New Keynesian model, preset nominal wages need not have any effect on existing employment relationships. However, staggered bargaining of nominal wages distorts aggregate job creation and creates inefficient
Understanding the degree of measurement error in the estimates of the output gap available to pol... more Understanding the degree of measurement error in the estimates of the output gap available to policy-makers in 'real time' is important both for the formulation of monetary policy and for the study of inflation behaviour. For the United Kingdom, no official output gap series exists, but an approximate series can be deduced from analysis of statistical releases and policy-makers' statements.
The paper evaluates the performance of three popular monetary policy rules when the central bank ... more The paper evaluates the performance of three popular monetary policy rules when the central bank is learning about the parameter values of a simple New Keynesian model. The three policies are: (1) the optimal non-inertial rule; (2) the optimal history-dependent rule; (3) the optimal price-level targeting rule. Under rational expectations rules (2) and (3) both implement the fully optimal equilibrium
This paper asks two main questions: (1) What makes some asset price bubbles more costly for the r... more This paper asks two main questions: (1) What makes some asset price bubbles more costly for the real economy than others? and (2) When do costly bubbles occur? We construct a model of rational bubbles under credit frictions and show that when bubbles held by banks burst this is followed by a costly financial crisis. In contrast, bubbles held by
We evaluate the performance of three kinds of rule-based monetary policy under central bank learn... more We evaluate the performance of three kinds of rule-based monetary policy under central bank learning about the parameter values of a simple New Keynesian model. The central bank and the private sector learn the slopes of the IS and the Phillips curves by recursive least squares estimation, and form expectations and set policy based on their estimated model. The three
This paper is a quantitatively-oriented theoretical study of the interaction between housing pric... more This paper is a quantitatively-oriented theoretical study of the interaction between housing prices, aggregate production, and household behavior over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial real estates. We find that, in an economy where the share of land in the value of real estates is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing a large redistribution between net buyers and net sellers of houses. Changing financing constraints, however, has limited effects on housing prices.
ABSTRACT We introduce a money demand motive in a life-cycle portfolio choice model and estimate t... more ABSTRACT We introduce a money demand motive in a life-cycle portfolio choice model and estimate the structural parameters that can generate limited stock market participation and plausible holdings of money, bonds and stocks. The model predicts an increase in bond holdings over the life cycle, and a declining share of money in portfolios as wealth increases. Both predictions are consistent with the data, even though the model overpredicts (underpredicts) stock (bond) holdings in early life. When mean inflation approaches zero, the share of money in the financial portfolio rises at the expense of both bond and stockholdings, generating simultaneously a lower stock market participation rate.
This paper is a quantitatively-oriented theoretical study into the interaction between housing pr... more This paper is a quantitatively-oriented theoretical study into the interaction between housing prices, aggregate production, and household behaviour over a lifetime. We develop an overlapping generations model of a production economy in which land and capital are combined into residential and commercial structures. We find that, in the economy where land is more important for structures, the housing price is
I analyze optimal monetary policy in an economy with search and matching frictions in the labor m... more I analyze optimal monetary policy in an economy with search and matching frictions in the labor market and staggered nominal wage and price contracts. In this framework, as opposed to the standard New Keynesian model, preset nominal wages need not have any effect on existing employment relationships. However, staggered bargaining of nominal wages distorts aggregate job creation and creates inefficient
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Papers by Kalin Nikolov