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Monetary Policy Strategies for the Euro Area: Optimal Rules in the Presence of the ELB
In: ECB Working Paper No. 2023/2797
SSRN
Asset Purchase Programmes and Financial Markets: Lessons from the Euro Area
In: ECB Working Paper No. 1864
SSRN
Financial factors in economic fluctuations
We augment a standard monetary DSGE model to include a banking sector and financial markets. We fit the model to Euro Area and US data. We find that agency problems in financial contracts, liquidity constraints facing banks and shocks that alter the perception of market risk and hit financial intermediation — 'financial factors' in short — are prime determinants of economic fluctuations. They have been critical triggers and propagators in the recent financial crisis. Financial intermediation turns an otherwise diversifiable source of idiosyncratic economic uncertainty, the 'risk shock', into a systemic force.
BASE
Shocks, structures or monetary policies? The Euro Area and US after 2001
In: Journal of economic dynamics & control, Band 32, Heft 8, S. 2476-2506
ISSN: 0165-1889
Shocks, structures or monetary policies? The euro area and US after 2001
The US Federal Reserve cut interest rates more vigorously in the recent recession than the European Central Bank did. By comparison with the Fed, the ECB followed a more measured course of action. We use an estimated dynamic general equilibrium model with financial frictions to show that comparisons based on such simple metrics as the variance of policy rates are misleading. We find that - because there is greater inertia in the ECB's policy rule - the ECB's policy actions actually had a greater stabilizing effect than did those of the Fed. As a consequence, a potentially severe recession turned out to be only a slowdown, and inflation never departed from levels consistent with the ECB's quantitative definition of price stability. Other factors that account for the different economic outcomes in the Euro Area and US include differences in shocks and differences in the degree of wage and price flexibility.
BASE
Risk Shocks
In: American economic review, Band 104, Heft 1, S. 27-65
ISSN: 1944-7981
We augment a standard monetary dynamic general equilibrium model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as risk. We find that fluctuations in risk are the most important shock driving the business cycle. (JEL D81, D82, E32, E44, L26)
SSRN
SSRN
Two Reasons Why Money and Credit May Be Useful in Monetary Policy
In: NBER Working Paper No. w13502
SSRN
Shocks, Structures or Monetary Policies? The Euro Area and US After 2001
In: ECB Working Paper No. 774
SSRN
Shocks, Structures or Monetary Policies? The Euro Area and Us after 2001
In: NBER Working Paper No. w13521
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Asymmetric Monetary Policy Rules for the Euro Area and the Us
In: ECB Working Paper No. 20212587
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A Toolkit for Computing Constrained Optimal Policy Projections (COPPs)
In: ECB Working Paper No. 2021/2555
SSRN
Monetary policy and stock market boom-bust cycles
We explore the dynamic effects of news about a future technology improvement which turns out ex post to be overoptimistic. We find that it is difficult to generate a boom-bust cycle (a period in which stock prices, consumption, investment and employment all rise and then crash) in response to such a news shock, in a standard real business cycle model. However, a monetized version of the model which stresses sticky wages and a Taylorrule based monetary policy naturally generates a welfare-reducing boom-bust cycle in response to a news shock. We explore the possibility that integrating credit growth into monetary policy may result in improved performance. We discuss the robustness of our analysis to alternative specifications of the labor market, in which wage-setting frictions do not distort on going firm/worker relations.
BASE