Incomplete Markets And Monetary Policy

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Incomplete Markets And Monetary Policy

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Author : Centre national de la recherche scientifique (France). Centre de recherche de mathématiques, statistique et économie mathématique
language : en
Publisher:
Release Date : 2005

Incomplete Markets And Monetary Policy written by Centre national de la recherche scientifique (France). Centre de recherche de mathématiques, statistique et économie mathématique and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.

Monetary Policy Bounded Rationality And Incomplete Markets

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Author : Emmanuel Farhi
language : en
Publisher:
Release Date : 2017

Monetary Policy Bounded Rationality And Incomplete Markets written by Emmanuel Farhi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Keynesian economics categories.

This paper extends the benchmark New-Keynesian model with a representative agent and rational expectations by introducing two key frictions: (1) agent heterogeneity with incomplete markets, uninsurable idiosyncratic risk, and occasionally-binding borrowing constraints; and (2) bounded rationality in the form of level-k thinking. Compared to the benchmark model, we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy, which is much more pronounced at long horizons, and offers a potential rationalization of the "forward guidance puzzle". Each of these frictions, in isolation, would lead to no or much smaller departures from the benchmark model. We conclude that the interaction of bounded rationality and market frictions improves the ability of the model to account for the effects of monetary policy.

Theory Of Incomplete Markets

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Author : Michael Magill
language : en
Publisher: MIT Press
Release Date : 2002

Theory Of Incomplete Markets written by Michael Magill and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Business & Economics categories.

Theory of incompl. markets/M. Magill, M. Quinzii. - V.1.

Optimal Monetary Policy Exchange Rate Misalignments And Incomplete Financial Markets

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Author : Özge Senay
language : en
Publisher:
Release Date : 2016

Optimal Monetary Policy Exchange Rate Misalignments And Incomplete Financial Markets written by Özge Senay and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with Bonds categories.

Recent literature on monetary policy shows that, when international financial trade is restricted to a single non-contingent bond, there are significant trade-offs that prevent optimal policy from simultaneously closing all internal and external welfare gaps. Optimal policy therefore deviates from inflation targeting in order to offset real exchange rate misalignments. These simple models are, however, not good representations of modern financial markets. This paper develops a more realistic two-country model of incomplete markets, where there is international trade in nominal bonds denominated in the currencies of the two countries and equity claims on profit streams in the two countries. The analysis shows that the welfare benefits of optimal policy relative to inflation targeting are quantitatively smaller than found in simpler models of financial incompleteness. It is nevertheless found that optimal policy implies quantitatively significant stabilisation of the real exchange rate gap and trade balance gap compared to inflation targeting.

Optimal Price Indices For Targeting Inflation Under Incomplete Markets

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Author : Rahul Anand
language : en
Publisher:
Release Date : 2006-05-13

Optimal Price Indices For Targeting Inflation Under Incomplete Markets written by Rahul Anand and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-05-13 with Economics categories.

In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We develop a two-sector two-good new-Keynesian model to study the optimal choice of price index in markets with financial frictions. We find that, in the presence of financial frictions, a welfare-maximizing central bank should adopt flexible headline inflation targeting a target for headline CPI inflation 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.

Money Theory And Practice

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Author : Jin Cao
language : en
Publisher: Springer Nature
Release Date : 2019-12-07

Money Theory And Practice written by Jin Cao and has been published by Springer Nature this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-12-07 with Business & Economics categories.

This textbook provides an introduction to modern monetary economics for advanced undergraduates, highlighting the lessons learned from the recent financial crisis. The book presents both the core New Keynesian model and recent advances, taking into account financial frictions, and discusses recent research on an intuitive level based on simple static and two-period models, but also prepares readers for an extension to a truly dynamic analysis. Further, it offers a systematic perspective on monetary policy, covering a wide range of models to help readers gain a better understanding of controversial issues. Part I examines the long-run perspective, addressing classical monetary policy issues such as determination of the price level and interaction between monetary and fiscal policy. Part II introduces the core New Keynesian model, characterizing optimal monetary policy to stabilize short-term shocks. It discusses rules vs. discretion and the challenges arising from control errors, imperfect information and robustness issues. It also analyzes optimal control in the presence of an effective lower bound. Part III focuses on modelling financial frictions. It identifies the transmission mechanisms of monetary policy via banking and introduces models with incomplete markets, principal-agent problems, maturity mismatch and leverage cycles, to show why investors’ and intermediaries’ own stakes play a key role in lending with pro-cyclical features. In addition, it presents a tractable model for handling liquidity management and demonstrates that the need to sell assets in crisis amplifies the volatility of the real economy. Lastly, the book discusses the relation between monetary policy and financial stability, addressing systemic risk and the role of macro-prudential regulation.

Incomplete Markets And Households Exposure To Interest Rate And Inflation Risk

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Author : Andrea Pescatori
language : en
Publisher:
Release Date : 2007

Incomplete Markets And Households Exposure To Interest Rate And Inflation Risk written by Andrea Pescatori and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Inflation (Finance) categories.

"The present paper studies optimal monetary policy when the representative agent assumption is abandoned and financial wealth heterogeneity across households is introduced. Incomplete markets make households incapable of perfectly insuring against interest rate and inflation risk, creating a trade-off between price level and debt-servicing stabilization. We derive a welfare-based loss function for the policymaker, which includes an additional target related to the cross-sectional distribution of household debt. The extent of the deviation from price stability depends on the initial level of debt dispersion. Using U.S. microdata to calibrate the model, we find an optimal inflation volatility equal to almost 20 percent of the actual volatility of the last 15 years. Finally, the paper studies the design of optimal simple implementable rules. Superinertial rules, which imply a hump-shaped interest rate response to shocks, significantly outperform standard rules."--Federal Reserve Bank of Cleveland web site.

Essays On Incomplete Markets

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Author : Jung-moh Chang
language : en
Publisher:
Release Date : 2007

Essays On Incomplete Markets written by Jung-moh Chang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.

Pareto Improving Monetary Policy In Incomplete Markets

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Author : Sergio Turner
language : en
Publisher:
Release Date : 2006

Pareto Improving Monetary Policy In Incomplete Markets written by Sergio Turner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.

We show that for generic economies, every equilibrium admits Pareto improving monetary policy, even with multiple commodities per state.The main assumption is that asset incompleteness be intermediate, in that household heterogeneity does not exceed the number of assets present and absent.We argue this as a special case of the general framework in Turner (2003b) for proving the generic existence of Pareto improving taxes.

Uncertain Inflation And The Role Of Monetary Policy In Models With Rational Expectations And Incomplete Markets

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Author : Roland Robert Portait
language : en
Publisher:
Release Date : 1982

Uncertain Inflation And The Role Of Monetary Policy In Models With Rational Expectations And Incomplete Markets written by Roland Robert Portait and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1982 with categories.