Money, Wealth and Overlapping Generations

In this paper, we use Weil's (1989) overlapping dynasties framework to analyse a microfounded version of the real balance effect envisaged by Pigou (1944). The effect is absent from representative agent models as then net monetary wealth is always zero. With population growth, however, net monetary wealth is positive and a real balance effect emerges much as Pigou predicted. Our main conclusion, however, is a Keynesian one: rather than eliminating the possibility of a trap, the framework generating the real balance effect if anything makes a trap more likely due to the heightened constraints it imposes on the monetary authority.liquidity trap, real balance effect, Pigou effect, monetary policy, Japan

Financial Stress and Liquidity Traps

Motivated by the bubble-collapse cycle witnessed in Japanese asset prices since the late 1980s, this paper examines how a financial crisis influences the power of monetary policy. We construct a simple macroeconomic model based on the microfoundations of Holmstrom and Tirole (1997) to analyse the effect of three types of financial stress on the nature of the equilibrium: a credit crunch; an adverse collateral shock; and a monitoring cost shock. Perhaps surprisingly, we find that the power of monetary policy is, if anything, heightened in a credit crunch; higher monitoring costs however work in the opposite direction, suggesting a need for more aggressive stabilisation policy in the face of financial shocks.

Monetary versus macroprudential policies:causal impacts of interest rates andcredit controls in the era of the UKradcliffe report

We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lendin

Operationalising a macroprudential regime: goals, tools and open issues

Artículo de revist

Financial Vulnerabilities, Macroeconomic Dynamics, and Monetary Policy *

Abstract We define a measure to be a financial vulnerability if, in a VAR framework that allows for nonlinearities, an impulse to the measure leads to an economic contraction. We evaluate alternative macrofinancial imbalances as vulnerabilities: nonfinancial sector credit, risk appetite of financial market participants, and the leverage and short-term funding of financial firms. We find that nonfinancial credit is a vulnerability: impulses to the credit-to-GDP gap when it is high leads to a recession. Risk appetite leads to an economic expansion in the near-term, but also higher credit and a recession in later years, suggesting an intertemporal tradeoff. Monetary policy is generally ineffective at slowing the economy once the credit-to-GDP gap is high, suggesting important benefits from avoiding excessive credit growth. Financial sector leverage and short-term funding do not lead directly to contractions and thus are not vulnerabilities by our definition

Funding Liquidity Risk in a Quantitative Model of Systemic Stability

We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The preliminary version of the model, which is still in its development phase, is based on detailed balance sheets for UK banks and encompasses macro-credit risk, interest and non-interest income risk, network interactions, and feedback effects. Funding liquidity risk is introduced by allowing for rating downgrades and incorporating a simple framework in which concerns over solvency, funding profile and confidence may trigger the outright closure of funding markets. In presenting results, we focus on how policymakers could use the model with reference to both aggregate distributions and analysis of a scenario in which large losses at some banks can be exacerbated by liability-side feedbacks, leading to system-wide instability.

X-ray Variability in the Young Massive Triple theta2 Ori A

Massive stars rarely show intrinsic X-ray variability. The only O-stars credited to be intrinsically variable are theta1 Ori C due to effects from magnetic confinement of its wind, and theta2 Ori A suspected of similar activity. Early Chandra observations have shown that the most massive star system in the Orion Trapezium Cluster, theta2 Ori A, shows rapid variability on time scales of hours. We determine X-ray fluxes and find that the star shows very strong variability over the last 5 years. We observed a second large X-ray outburst in November 2004 with the high resolution transmission grating spectrometer on-board Chandra. In the low state X-ray emissivities indicate temperatures well above 25 MK. In the high state we find an extended emissivity distribution with high emissivities in the range from 3 MK to over 100 MK. The outburst event in stellar terms is one of the most powerful ever observed and the most energetic one in the ONC with a lower total energy limit of 1.5x10^37 ergs. The line diagnostics show that under the assumption that the line emitting regions in the low states are as close as within 1 -- 2 stellar radii from the O-star's photosphere, whereas the hard states suggest a distance of 3 -- 5 stellar radii. The two outbursts are very close to the periastron passage of the stars. We argue that the high X-ray states are possibly the result of reconnection events from magnetic interactions of the primary and secondary stars of the spectroscopic binary. Effects from wind collisions seem unlikely for this system. The low state emissivity and R-ratios strengthen the predicament that the X-ray emission is enhanced by magnetic confinement of the primary wind. We also detect Fe fluorescence indicative of the existence of substantial amounts of neutral Fe in the vicinity of the X-ray emission.Comment: 11 pages, 8 figures, accepted for publication in The Astrophysical Main Journa

Quality-of-life assessment in dementia: the use of DEMQOL and DEMQOL-Proxy total scores

Purpose There is a need to determine whether health-related quality-of-life (HRQL) assessments in dementia capture what is important, to form a coherent basis for guiding research and clinical and policy decisions. This study investigated structural validity of HRQL assessments made using the DEMQOL system, with particular interest in studying domains that might be central to HRQL, and the external validity of these HRQL measurements. Methods HRQL of people with dementia was evaluated by 868 self-reports (DEMQOL) and 909 proxy reports (DEMQOL-Proxy) at a community memory service. Exploratory and confirmatory factor analyses (EFA and CFA) were conducted using bifactor models to investigate domains that might be central to general HRQL. Reliability of the general and specific factors measured by the bifactor models was examined using omega (?) and omega hierarchical (? h) coefficients. Multiple-indicators multiple-causes models were used to explore the external validity of these HRQL measurements in terms of their associations with other clinical assessments. Results Bifactor models showed adequate goodness of fit, supporting HRQL in dementia as a general construct that underlies a diverse range of health indicators. At the same time, additional factors were necessary to explain residual covariation of items within specific health domains identified from the literature. Based on these models, DEMQOL and DEMQOL-Proxy overall total scores showed excellent reliability (? h > 0.8). After accounting for common variance due to a general factor, subscale scores were less reliable (? h < 0.7) for informing on individual differences in specific HRQL domains. Depression was more strongly associated with general HRQL based on DEMQOL than on DEMQOL-Proxy (?0.55 vs ?0.22). Cognitive impairment had no reliable association with general HRQL based on DEMQOL or DEMQOL-Proxy. Conclusions The tenability of a bifactor model of HRQL in dementia suggests that it is possible to retain theoretical focus on the assessment of a general phenomenon, while exploring variation in specific HRQL domains for insights on what may lie at the ‘heart’ of HRQL for people with dementia. These data suggest that DEMQOL and DEMQOL-Proxy total scores are likely to be accurate measures of individual differences in HRQL, but that subscale scores should not be used. No specific domain was solely responsible for general HRQL at dementia diagnosis. Better HRQL was moderately associated with less depressive symptoms, but this was less apparent based on informant reports. HRQL was not associated with severity of cognitive impairment