Optimal sticky prices under rational inattention

This paper presents a model in which price setting firms decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than to aggregate conditions. When we calibrate the model to match the large average absolute size of price changes observed in micro data, prices react fast and by large amounts to idiosyncratic shocks, but prices react only slowly and by small amounts to nominal shocks. Nominal shocks have strong and persistent real effects. We use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms’ environment. JEL Classification: E3, E5, D8rational inattention, real effects of nominal shocks, sticky prices

Business cycle dynamics under rational inattention

We develop a dynamic stochastic general equilibrium model with rational inattention by households and firms. Consumption responds slowly to interest rate changes because households decide to pay little attention to the real interest rate. Prices respond quickly to some shocks and slowly to other shocks. The mix of fast and slow responses of prices to shocks matches the pattern found in the empirical literature. Changes in the conduct of monetary policy yield very different outcomes than in models currently used at central banks because systematic changes in policy cause reallocation of attention by decision-makers in households and firms. JEL Classification: D83, E31, E32, E52business cycles, information choice, monetary policy, rational inattention

External Shocks, U.S. Monetary Policy and Macroeconomic Fluctuations in Emerging Markets

Using structural VARs, I find that external shocks are an important source of macroeconomic fluctuations in emerging markets. Furthermore, U.S. monetary policy shocks affect quickly and strongly interest rates and the exchange rate in a typical emerging market. The price level and real output in a typical emerging market respond to U.S. monetary policy shocks by more than the price level and real output in the U.S. itself. These findings are consistent with the idea that “when the U.S. sneezes, emerging markets catch a cold.” At the same time, U.S. monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

What does the Bank of Japan do to East Asia?

In recent policy debates some have argued that expansionary monetary policy in Japan can increase real output in Japan and in Japan´s neighbors, while others have warned that it is a beggar-thy-neighbor policy. In this paper we estimate structural vector autoregressions to assess the effects of Japanese monetary policy shocks. We find that the effects of Japanese monetary policy shocks on macroeconomic variation in East Asia have been modest and difficult to reconcile with the beggar-thy-neighbor view. We estimate that the Asian crisis was preceded by expansionary monetary policy shocks in Japan, but we fail to find support for the view that these shocks contributed to the crisis

Gambling to preserve price (and fiscal) stability

We study a model in which policy aims at aggregate price stability. A fiscal imbalance materializes that, if uncorrected, must cause inflation, but the imbalance may get corrected in the future with some probability. By maintaining price stability in the near term, monetary policy can buy time for a correction to take place. The policy gamble may succeed, with price stability preserved indefinitely, or fail, leading to a delayed, possibly large jump in the price level. The resulting dynamics resemble the models of a currency crisis following Krugman (1979) and Obstfeld (1986). Like in Obstfeld’s work, multiple equilibria arise naturally: whether or not price stability is preserved may depend on private agents’ expectations. The model can be reinterpreted as a model of partial default on public debt, in which case it is reminiscent of Calvo (1988)

Priors about Observables in Vector Autoregressions *

Abstract We formulate a prior about observables in a vector autoregression (VAR) and then solve the deconvolution problem for the implied prior about VAR parameters. Formulating a prior about observables is more intuitive than formulating a prior about VAR parameters directly, because VAR parameters are hard to interpret. Our numerical algorithm for approximating the implied prior about parameters works well even in high-dimensional problems and can be applied also for models other than VARs. In the empirical application we formulate a prior about growth rates of the observables in a VAR model of the United States economy. We find that this prior makes a big difference for the estimated persistence of output responses to monetary policy shocks, compared with the results of standard priors for VARs

NA61/SHINE measurements of anisotropic flow relative to the spectator plane in Pb+Pb collisions at 30A GeV/c

We present an analysis of the anisotropic flow harmonics in Pb+Pb collisions at beam momenta of 30A GeV/c collected by the NA61/SHINE experiment in the year 2016. Directed and elliptic flow coefficients are measured relative to the spectator plane estimated with the Projectile Spectators Detector (PSD). The flow coefficients are reported as a function of transverse momentum in different classes of collision centrality. The results are compared with a new analysis of the NA49 data for Pb+Pb collisions at 40A GeV using forward calorimeters (VCal and RCal) for event plane estimation

Hidden strangeness shines in NA61/SHINE

Preliminary results on the ϕ (1020) meson production in inelastic proton-proton collisions measured by the NA61/SHINE experiment at the CERN SPS are presented in these proceedings. The results include the first ever differential pT and y measurements at beam momenta of 40 and 80 GeV and the most ever detailed experimental data at 158GeV. The comparison of p + p to Pb + Pb results shows a non-trivial system size dependence of the widths of the rapidity distributions for ϕ mesons, contrasting with that of other hadrons. The results are furthermore compared to the world data on ϕ meson production, demonstrating the better accuracy achieved by the NA61/SHINE experiment, and to several models. None of the models is found to be able to describe simultaneously the shape of transverse momentum spectra, the shape of rapidity distribution and the total yield

Two-particle correlations in azimuthal angle and pseudorapidity in inelastic p + p interactions at the CERN Super Proton Synchrotron

Results on two-particle ΔηΔϕ correlations in inelastic p + p interactions at 20, 31, 40, 80, and 158 GeV/c are presented. The measurements were performed using the large acceptance NA61/SHINE hadron spectrometer at the CERN Super Proton Synchrotron. The data show structures which can be attributed mainly to effects of resonance decays, momentum conservation, and quantum statistics. The results are compared with the Epos and UrQMD models.ISSN:1434-6044ISSN:1434-605

How much of the Macroeconomic Variation in Eastern Europe is Attributable to External Shocks?

We decompose by origin the sources of the variation in real aggregate output and aggregate price level in the Czech Republic, Hungary and Poland. We find that a sizable fraction of the variation is attributable to external shocks, especially so for aggregate price level. We show that euroarea interest rate shocks can account for a significant fraction of the external spillover effects. We conclude that theoretical models of advanced transition economies and policy rules for these economies should feature a prominent role for external shocks