Search Results
Showing results 1 to 10 of approximately 16.
(refine search)
Discussion Paper
test anna templatetype feb 14 Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition
How does competition among banks affect credit growth and real economic growth? In addition, how does it affect financial stability? In this blog post, we derive insights into this important set of questions from novel data on the U.S. banking system during the nineteenth century.
Working Paper
Organizational Equilibrium with Capital
This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the ...
Working Paper
Reliably Computing Nonlinear Dynamic Stochastic Model Solutions: An Algorithm with Error Formulas
This paper provides a new technique for representing discrete time nonlinear dynamic stochastic time invariant maps. Using this new series representation, the paper augments the usual solution strategy with an additional set of constraints thereby enhancing algorithm reliability. The paper also provides general formulas for evaluating the accuracy of proposed solutions. The technique can readily accommodate models with occasionally binding constraints and regime switching. The algorithm uses Smolyak polynomial function approximation in a way which makes it possible to exploit a high degree of ...
Working Paper
Monetary Policy and Macroeconomic Stability Revisited
A large literature has established that the Fed? change from a passive to an active policy response to inflation led to US macroeconomic stability after the Great Inflation of the 1970s. This paper revisits the literature?s view by estimating a generalized New Keynesian model using a full-information Bayesian method that allows for equilibrium indeterminacy and adopts a sequential Monte Carlo algorithm. The model empirically outperforms canonical New Keynesian models that confirm the literature?s view. Our estimated model shows an active policy response to inflation even during the Great ...
Working Paper
Equilibrium with Mutual Organizations in Adverse Selection Economies
An equilibrium concept in the Debreu (1954) theory-of-value tradition is developed for a class of adverse selection economies and applied to the Spence signaling and Rothschild-Stiglitz (1976) adverse selection environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.
Working Paper
Monetary Policy and Macroeconomic Stability Revisited
A large literature with canonical New Keynesian models has established that the Fed's policy change from a passive to an active response to inflation led to U.S. macroeconomic stability after the Great Inflation of the 1970s. We revisit this view by estimating a staggered price model with trend inflation using a Bayesian method that allows for equilibrium indeterminacy and adopts a sequential Monte Carlo algorithm. {{p}} The model empirically outperforms a canonical New Keynesian model and demonstrates an active response to inflation even in the Great Inflation era, during which the U.S. ...
Working Paper
Solving asset pricing models with stochastic volatility
This paper provides a closed-form solution for the price-dividend ratio in a standard asset pricing model with stochastic volatility. The solution is useful in allowing comparisons among numerical methods used to approximate the non-trivial closed-form.
Working Paper
Inflation Gap Persistence, Indeterminacy, and Monetary Policy
Empirical studies have documented that the persistence of the gap between inflation and its trend declined after the Volcker disinflation. Previous research into the source of the decline has offered competing views while sidestepping the possibility of equilibrium indeterminacy. This paper examines the source by estimating a medium-scale DSGE model using a Bayesian method that allows for indeterminacy. The estimated model shows that the Fed's change from a passive to an active policy response to the inflation gap or a decrease in firms' probability of price change can fully account for the ...
Working Paper
Global Dynamics in a Search and Matching Model of the Labor Market
We study global and local dynamics of a simple search and matching model of the labor market. We show that the model can be locally indeterminate or have no equilibrium at all, but only for parameterizations that are empirically implausible. In contrast to the local results, we show that the model exhibits chaotic and periodic dynamics for reasonable parameter values both in backward and forward time. In contrast to earlier work, we establish these results analytically without placing numerical restrictions on the parameters.
Working Paper
A Generalized Approach to Indeterminacy in Linear Rational Expectations Models
We propose a novel approach to deal with the problem of indeterminacy in Linear Rational Expectations models. The method consists of augmenting the original state space with a set of auxiliary exogenous equations to provide the adequate number of explosive roots in presence of indeterminacy. The solution in this expanded state space, if it exists, is always determinate, and is identical to the indeterminate solution of the original model. The proposed approach accommodates determinacy and any degree of indeterminacy, and it can be implemented even when the boundaries of the determinacy region ...