This paper studies the performance of monetary policy under alternative fiscal regimes in a dynamic New Keynesian optimizing general equilibrium model with wealth effects. The interactions between fiscal policy and interest rate rules are... more
This paper studies the performance of monetary policy under alternative fiscal regimes in a dynamic New Keynesian optimizing general equilibrium model with wealth effects. The interactions between fiscal policy and interest rate rules are shown to have relevant implications for the existence of a unique rational expectations equilibrium. When calibrated to Euro Area quarterly data, the model simulation results show
Based on Plasmans et al. (2006), we develop a microfounded macro New-Keynesian model for open economies, be them large or small, and we investigate the exchange rate pass-through to import prices in the context of a monetary policy. More... more
Based on Plasmans et al. (2006), we develop a microfounded macro New-Keynesian model for open economies, be them large or small, and we investigate the exchange rate pass-through to import prices in the context of a monetary policy. More specifically, we study two different versions of a Taylor rule (without and with interest rate smoothing), each in contemporaneous, backward-looking and
This article offers a deconstructive analysis of the alternative benchmarking conceptualization with reference to Taylor's rule. The conceptual note which is the subject of the article is based on the idea that the Taylor equation is... more
This article offers a deconstructive analysis of the alternative benchmarking conceptualization with reference to Taylor's rule. The conceptual note which is the subject of the article is based on the idea that the Taylor equation is based on two variables: inflation and production. However, the rule has a third variable: the real interest rate. Giving a fixed value to a variable does not mean its cancellation, just as giving a zero value to the interest rate does not mean its cancellation. Even if this assumption was not considered, it should be noted that the driving force behind the mainstream growth model is the banking credit based on ex nihilo money creation. The analysis of quantitative models should not be limited to the exploration of the relationship between variables, it must first identify the epistemological presuppositions, i.e. fundamentally the underlying worldviews.
This paper examines the Taylor rule in the context of United States monetary policy since 1965, particularly with respect to the zero-lower-bound era of the federal funds rate from 2009 to 2016. A nonlinear Taylor rule is developed which... more
This paper examines the Taylor rule in the context of United States monetary policy since 1965, particularly with respect to the zero-lower-bound era of the federal funds rate from 2009 to 2016. A nonlinear Taylor rule is developed which features smooth transitions in the first two moments of the federal funds rate. This flexible specification is found to usefully capture observed nonlinearity, while accounting for the well-documented structural changes in monetary policy formation at the Federal Reserve in the last fifty years, and especially in the recent zero-lower-bound era.
This paper aims at providing a self contained presentation of the ideas and solution procedure of New Keynesian Macroeconomics models. Using the benchmark “3 equation model”, we introduce the reader to an intuitive, static version of the... more
This paper aims at providing a self contained presentation of the ideas and solution procedure of New Keynesian Macroeconomics models. Using the benchmark “3 equation model”, we introduce the reader to an intuitive, static version of the model before incorporating more technical aspects associated with the dynamic nature of the model. We then discuss the relative contribution of supply, demand and policy shocks to the fluctuations of activity, inflation and interest rate, depending on the key underlying parameters of the economy.
We analyze the efiects of flscal policy in a currency area. We de- velop a two-region model having sticky prices, a common monetary authority and regional flscal policies. We break the ricardian equiva- lence and allow for keynesian... more
We analyze the efiects of flscal policy in a currency area. We de- velop a two-region model having sticky prices, a common monetary authority and regional flscal policies. We break the ricardian equiva- lence and allow for keynesian efiects of public expenditure introducing rule-of-thumb agents in each region. Main results are the following. First, consistently with the empirical evidence, after a public spend- ing shock in one region private agents demand for imports increases and the terms of trade appreciates. Second, a countercyclical flscal rule can restore the Taylor principle and the uniqueness of the equi- librium. Finally, a countercyclical flscal rule contributes to reduce macroeconomic volatility.
The aim of the present research is to use a model economy built for Brazil, based on an optimizing dynamic general equilibrium model, in order to perform numerical simulations to derive the ability of the artificial economy to explain the... more
The aim of the present research is to use a model economy built for Brazil, based on an optimizing dynamic general equilibrium model, in order to perform numerical simulations to derive the ability of the artificial economy to explain the impact of monetary policy interventions on Brazilian short run economic performance in terms of the inflation rate, output gap, interest
Over the past twenty years, the federal funds rate has evolved from being an intermediate target or indicator variable in discussions of monetary policy to the Federal Reserve’s (exogenous) policy instrument. How the funds rate is... more
Over the past twenty years, the federal funds rate has evolved from being an intermediate target or indicator variable in discussions of monetary policy to the Federal Reserve’s (exogenous) policy instrument. How the funds rate is characterized has important implications for modeling, particularly in settings such as the popular Taylor Rule. Crucially, however, little investigation has been done to examine whether the funds rate meets the conditions one would require for an instrument of policy. This paper offers empirical evidence on the relationships among the federal funds rate, variables that might influence its behavior and variables of interest to monetary policy.
The preliminary results suggest that the introduction of habit persistence into the consumption hypothesis does not make much difference. However the introduction of different monetary reaction functions does alter the impulse response of... more
The preliminary results suggest that the introduction of habit persistence into the consumption hypothesis does not make much difference. However the introduction of different monetary reaction functions does alter the impulse response of output, inflation ...
In this paper I add to the evidence on possible nonlinearities in the conduct of ECB monetary policy. For this purpose a nonlinear Taylor rule (threshold regression) was estimated and compared to a linear benchmark model. The estimation... more
In this paper I add to the evidence on possible nonlinearities in the conduct of ECB monetary policy. For this purpose a nonlinear Taylor rule (threshold regression) was estimated and compared to a linear benchmark model. The estimation was carried out with output gap data computed from quarterly GDP time series. The results show that a nonlinear Taylor rule fits the data better than a linear one.
We analyse the effect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modeled by adding Markov-switching shocks to a DSGE model with capital accumulation.... more
We analyse the effect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modeled by adding Markov-switching shocks to a DSGE model with capital accumulation. In our analysis we consider both Taylor-type rules and optimal policy. Taylor rules have been shown to provide a good description of US monetary
In a variety of recent papers, researchers have found that interest rate behaviour approximately follows a Taylor rule. We show that such interest rate behaviour results when the central bank may be following quite different monetary... more
In a variety of recent papers, researchers have found that interest rate behaviour approximately follows a Taylor rule. We show that such interest rate behaviour results when the central bank may be following quite different monetary policy rules from the one ...