An economic model for the interpretation of business cycles and the efficiency of monetary policy (original) (raw)

ABSTRACT Title of dissertation: ESSAYS IN MONETARY ECONOMICS AND BUSINESS CYCLES

2016

This dissertation investigates non-linear macroeconomic dynamics within the New Keynesian model during periods with zero short-term nominal interest rates. I implement modern quantitative tools to solve and analyze Dynamic Stochastic General Equilibrium (DSGE) models where the feedback rule that defines monetary policy is subject to the Zero Lower Bound (ZLB) constraint. The revived attention about the importance of the ZLB constraint followed the extreme events that took place in the United States after the financial crisis of 2008. The first chapter studies aggregate dynamics near the ZLB of nominal interest rates in a medium-scale New Keynesian model with capital. I use Sequential Monte Carlo methods to uncover the shocks that pushed the U.S. economy to the ZLB during the Great Recession and investigate the interaction between shocks and fric-tions in generating the contraction of output, consumption and investment during 2008:Q3-2013:Q4. I find that a combination of shocks to th...

On the Effect of Cournot and Stackelberg Competition in the Banking Sector on the Investment Cycle

International Journal of Monetary Economics and Finance, 2018

Following the industrial organization approach to banking, we investigate the effects of banking conduct on the investment cycle. To achieve this, we extend the second order accelerator (SOA) model in discrete time, introducing the interest rate on loans. To the extent that the banking sector is concerned, we consider two different types of banking conduct: a Cournot game where the banks make their decision on the quantities of loans and deposits simultaneously, and a Stackelberg game in which they decide over these amounts sequentially. In addition, we follow a simulation process to confirm the dynamic properties of our theoretical findings and examine the effects of monetary policy on capital over time.

Business Cycle and Monetary Policy Analysis with Market Rigidities and Financial Frictions

SSRN Electronic Journal, 2000

We examine business cycle fluctuations in a dynamic macroeconomic model that incorporates firm-level borrowing constraints, competitive loan production, and rigidities on both setting prices and wages. The external finance premium (interest-rate spread) is countercyclical with technology and financial shocks, and procyclical with consumption spending shocks. The real effects of financial shocks are significantly amplified when either considering greater rigidities for price/wage setting or a low elasticity of substitution in loan production (real rigidities in the financial sector). In the monetary policy analysis, a stabilizing Taylor (1983)-style rule performs slightly better when incorporating a positive and small response coefficient to the external finance premium.

The Financial Accelerator in a Quantitative Business Cycle Framework

1999

Keywords 1. Introduction 2. The model: overview and basic assumptions 3. The demand for capital and the role o f net worth 3.1. Contract terms when there is no aggregate risk 3.2. Contract terms when there is aggregate risk 3.3. Net worth and the optimal choice of capital 4. General equilibrium 4.1. The entrepreneurial sector 4.2. The complete log-linearized model 4.2.1. Two extensions of the baseline model 4.

MONETARY POLICY RULES AND BUSINESS CYCLE CONDITIONS*

The Manchester School, 2011

This paper estimates a threshold monetary policy rule model for the USA, UK and Japan to investigate if monetary policy changes depend on business cycle conditions, i.e. recessions and expansions of the economy. Then, the paper evaluates the policy implications of this monetary policy rule. Using a long span of data, the paper provides clear‐cut evidence that, while during expansions

Fiscal and Monetary Policy Interaction in a Simple Accelerator Model

International Advances in Economic Research, 2012

In this paper, a simple Keynesian and discrete time multiplieraccelerator model is developed, which results after the inclusion of the money market and a balanced government budget constraint in Samuelson's (1939) business cycle model. The resulted model is proved to be less stable and the evolution of income around its equilibrium is more likely to exhibit a sinusoidal way of movement. The magnitude of the main tools of fiscal and monetary policy is assumed to be determined solely by the government and the Central Bank respectively, so that income's constant amplitude around its intertemporal equilibrium value is minimized.

Financial Factors in Business Cycles

2007

We augment a standard monetary DSGE model to include financial markets, and fit the model to EA and US data. The empirical results draw attention to a new shock and to an important new nominal rigidity. The new shock originates in the financial sector and accounts for a significant portion of business cycle fluctuations. We do a detailed study of the role of this shock in the boom-bust of the late 1990s and early 2000s. The new nominal friction corresponds to the fact that lending contracts are typically denominated in nominal terms. Consistent with Fisher (1933), we show that the distributional consequences of this nominal rigidity play an important role in the propagation of shocks. Finally, we exploit the existence of financial variables in our model to investigate the consequences of adopting a monetary policy which reacts to the stock market or to a broad monetary aggregate.