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Working Paper
Rising indebtedness and temptation: a welfare analysis
Nakajima, Makoto (2011)
Is the observed large increase in consumer indebtedness since 1970 beneficial for U.S. consumers? This paper quantitatively investigates the macroeconomic and welfare implications of relaxing borrowing constraints using a model with preferences featuring temptation and self-control. The model can capture two contrasting views: the positive view, which links increased indebtedness to financial innovation and thus better consumption smoothing, and the negative view, which is associated with consumers' over-borrowing. The author finds that the latter is sizable: the calibrated model implies a ...
Working Papers , Paper 11-39

Working Paper
Learning and monetary policy shifts
Schorfheide, Frank (2003)
This paper estimates a dynamic stochastic equilibrium model in which agents use a Bayesian rule to learn about the state of monetary policy. Monetary policy follows a nominal interest rate rule that is subject to regime shifts. The following results are obtained. First, the author's policy regime estimates are consistent with the popular view that policy was marked by a shift to a high-inflation regime in the early 1970s, which ended with Volcker's stabilization policy at the beginning of the 1980s. Second, while Bayesian posterior odds favor the "full-information" version of the model in ...
FRB Atlanta Working Paper , Paper 2003-23

Report
Nonconvex factor adjustments in equilibrium business cycle models: Do nonlinearities matter?
Thomas, Julia K.; Khan, Aubhik (2002)
Recent empirical analysis has found nonlinearities to be important in understanding aggregated investment. Using an equilibrium business cycle model, we search for aggregate nonlinearities arising from the introduction of nonconvex capital adjustment costs. We find that, while such costs lead to nontrivial nonlinearities in aggregate investment demand, equilibrium investment is effectively unchanged. Our finding, based on a model in which aggregate fluctuations arise through exogenous changes in total factor productivity, is robust to the introduction of shocks to the relative price of ...
Staff Report , Paper 306

Report
Samuelson's pure consumption loans model with constant returns-to-scale storage
Wallace, Neil (1977)
Staff Report , Paper 23

Working Paper
Temporary partial expensing in a general-equilibrium model
Edge, Rochelle M.; Rudd, Jeremy B. (2005)
This paper uses a dynamic general-equilibrium model with a nominal tax system to consider the effects of temporary partial expensing allowances on investment and other macroeconomic aggregates.
Finance and Economics Discussion Series , Paper 2005-19

Report
Does the time inconsistency problem make flexible exchange rates look worse than you think?
Bodenstein, Martin; Armenter, Roc (2005)
Lack of commitment in monetary policy leads to the well known Barro-Gordon inflation bias. In this paper, we argue that two phenomena associated with the time inconsistency problem have been overlooked in the exchange rate debate. We show that, absent commitment, independent monetary policy can also induce expectation traps-that is, welfare-ranked multiple equilibria-and perverse policy responses to real shocks-that is, an equilibrium policy response that is welfare inferior to policy inaction. Both possibilities imply higher macroeconomic volatility under flexible exchange rates than under ...
Staff Reports , Paper 230

Report
Equilibrium: how the U.S. economy recovers from a crisis
anonymous (2001)
Essay from the 2001 Annual Report.
Annual Report

Working Paper
Can the U.S. monetary policy fall (again) in an expectation trap?
Armenter, Roc; Bodenstein, Martin (2006)
We provide a tractable model to study monetary policy under discretion. We focus on Markov equilibria. For all parametrizations with an equilibrium inflation rate around 2%, there is a second equilibrium with an inflation rate just above 10%. Thus the model can simultaneously account for the low and high inflation episodes in the U.S. We carefully characterize the set of Markov equilibria along the parameter space and find our results to be robust.
International Finance Discussion Papers , Paper 860

Working Paper
An inquiry into the existence and uniqueness of equilibrium with state-dependent pricing
John, A. Andrew; Wolman, Alexander L. (2004)
State-dependent pricing models are now an operational framework for quantitative business cycle analysis. The analysis in Ball and Romer [1991], however, suggests that such models may be rife with multiple equilibria: in their static model price adjustment is always characterized by complementarity, a necessary condition for multiplicity. We study existence and uniqueness of equilibrium in a discrete-time state-dependent pricing model. In steady states of our model, we find only weak complementarity and no evidence of multiplicity. We likewise find no evidence of multiplicity in the presence ...
Working Paper , Paper 04-04

Working Paper
General equilibrium with nonconvexities, sunspots, and money
Rupert, Peter; Shell, Karl; Rocheteau, Guillaume; Wright, Randall (2005)
We study general equilibrium with nonconvexities. In these economies there exist sunspot equilibria without the usual assumptions needed in convex economies, and they have good welfare properties. Moreover, in these equilibria, agents act as if they have quasi-linear utility. Hence wealth effects vanish. We use this to construct a new model of monetary exchange. As in Lagos-Wright, trade occurs in both centralized and decentralized markets, but while that model requires quasilinearity, we have general preferences. Given our specification looks much like the textbook Arrow-Debreu model, we ...
Working Papers (Old Series) , Paper 0513

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