Monetary Policy in a Currency Union with Heterogeneous Limited Asset Markets Participation

This paper examines monetary policy in a currency union whose member countries exhibit heterogeneous rates of limited asset markets participation (LAMP). As a result risk sharing among member countries is imperfect and the monetary transmission mechanism can differ across countries. In the limit the elasticity of output to the union-wide nominal interest rate can be of opposite sign in different countries. I develop a tractable model in which the dispersion of asset markets participation (AMP) becomes a key parameter. While monetary policy can guarantee determinacy by following an active or passive rule depending on the sign of the interest-elasticity of output, ignoring dispersion can lead to incorrect computation of the sign and the size of the latter. Taking the heterogeneity into account is thus central for sound policy Furthermore, due to the failure of risk sharing, determinacy for union-aggregates does not guarantee determinacy in every member country. However, the more open a country is in trade terms, the greater the rate of LAMP for which the country still displays equilibrium determinacy. For complete openness, determinacy is guaranteed. This underlines the importance of risk sharing and trade integration for the functioning of a currency union. Considering the optimal union-wide targeting rule, a higher mean and dispersion of LAMP increase the desired inflation volatility and decrease the desired output volatility. The implied optimal Taylor rule shows that subject to the Taylor principle, the higher are mean and dispersion of LAMP, the softer should be the response of the nominal interest rate to expected inflation.Monetary Union, Limited Asset Markets Participation, Heterogeneity, (Optimal) Monetary Policy, Real (In)determinacy, Sticky Prices

When is monetary policy all we need?

We consider optimal monetary and fiscal policies in a New Keynesian model of a small open economy with sticky prices and wages. In this benchmark setting monetary policy is all we need - analytical results demonstrate that variations in government spending should play no role in the stabilization of shocks. In extensions we show, firstly, that this is even when true when allowing for inflation inertia through backward-looking rule-of-thumb price and wage-setting, as long as there is no discrepancy between the private and social evaluation of the marginal rate of substitution between consumption and leisure. Secondly, the optimal neutrality of government spending is robust to the issuance of public debt. In the presence of debt government spending will deviate from the optimal steady-state but only to the extent required to cover the deficit, not to provide any additional macroeconomic stabilization. However, unlike government spending variations in tax rates can play a complementary role to monetary policy, as they change relative prices rather than demand.Monetary Policy, Fiscal Policy, Macroeconomic Stabilization, Dynamic General Equilibrium, Sticky Prices, Sticky wages, Rule-of-Thumb Behaviour, Debt, Countercyclical Policy

When is Monetary Policy All we Need?

We consider optimal monetary and scal policies in a New Keynesian model of a small open economy with sticky prices and wages. In this benchmark setting monetary policy is all we need - analytical results demonstrate that variations in government spending should play no role in the stabilization of shocks. In extensions we show, rstly, that this is even when true when allowing for in ation inertia through backward-looking rule-of-thumb price and wage-setting, as long as there is no discrepancy between the private and social evaluation of the marginal rate of substitution between consumption and leisure. Secondly, the optimal neutrality of government spending is robust to the issuance of public debt. In the presence of debt government spending will deviate from the optimal steady-state but only to the extent required to cover the deficit, not to provide any additional macroeconomic stabilization. However, unlike government spending variations in tax rates can play a complementary role to monetary policy, as they change relative prices rather than demand

Neuroactive steroids in depression and anxiety disorders: Clinical studies

Certain neuroactive steroids modulate ligand-gated ion channels via non-genomic mechanisms. Especially 3 alpha-reduced pregnane steroids are potent positive allosteric modulators of the gamma-aminobutyric acid type A (GABA(A)) receptor. During major depression, there is a disequilibrium of 3 alpha-reduced neuroactive steroids, which is corrected by clinically effective pharmacological treatment. To investigate whether these alterations are a general principle of successful antidepressant treatment, we studied the impact of nonpharmacological treatment options on neuroactive steroid concentrations during major depression. Neither partial sleep deprivation, transcranial magnetic stimulation, nor electroconvulsive therapy affected neuroactive steroid levels irrespectively of the response to these treatments. These studies suggest that the changes in neuroactive steroid concentrations observed after antidepressant pharmacotherapy more likely reflect distinct pharmacological properties of antidepressants rather than the clinical response. In patients with panic disorder, changes in neuroactive steroid composition have been observed opposite to those seen in depression. However, during experimentally induced panic induction either with cholecystokinine-tetrapeptide or sodium lactate, there was a pronounced decline in the concentrations of 3 alpha-reduced neuroactive steroids in patients with panic disorder, which might result in a decreased GABAergic tone. In contrast, no changes in neuroactive steroid concentrations could be observed in healthy controls with the exception of 3 alpha,5 alpha-tetrahydrodeoxycorticosterone. The modulation of GABA(A) receptors by neuroactive steroids might contribute to the pathophysiology of depression and anxiety disorders and might offer new targets for the development of novel anxiolytic compounds. Copyright (c) 2006 S. Karger AG, Basel

Monetary Policy in a Currency Union with Heterogeneous Limited Asset Markets Participation.

This paper examines monetary policy in a currency union whose member countries exhibit heterogeneous rates of limited asset markets participation (LAMP). As a result risk sharing among member countries is imperfect and the monetary transmission mechanism can differ across countries. In the limit the elasticity of output to the union-wide nominal interest rate can be of opposite sign in different countries. I develop a tractable model in which the dispersion of asset markets participation (AMP) becomes a key parameter. While monetary policy can gaurantee determinacy by following an active or passive rule depending on the sign of the interest-elasticity of output, ignoring dispersion can lead to incorrect computation of the sign and the size of the latter. Taking the heterogeneity into account is thus central for sound policy. Furthermore, due to the failure of risk sharing, determinacy for union-aggregates does not guarantee determinacy in every member country. However, the more open a country is in trade terms, the greater the rate of LAMP for which the country still displays equilibrium determinacy. For complete openness, determinacy is guaranteed. This underlines the importance of risk sharing and trade integration for the functioning of a currency union. Considering the optimal union-wide targeting rule, a higher mean and dispersion of LAMP increase the desired inflation volatility. The implied optimal Taylor rule shows that subject to the Taylor principle, the higher are mean and dispersion of LAMP, the softer should be the response of the nominal interest rate to expected inflation

Monetary Policy in a Currency Union with Heterogeneous Limited Asset Markets Participation

This paper examines monetary policy in a currency union whose member countries exhibit heterogeneous rates of limited asset markets participation (LAMP).� As a result risk sharing among member countries is imperfect and the monetary transmission mechanism can differ across countries.� In the limit the elasticity of output to the union-wide nominal interest rate can be of opposite sign in different countries.� I develop a tractable model in which the dispersion of asset markets participation (AMP) becomes a key parameter.� While monetary policy can gaurantee determinacy by following an active or passive rule depending on the sign of the interest-elasticity of output, ignoring dispersion can lead to incorrect computation of the sign and the size of the latter.� Taking the heterogeneity into account is thus central for sound policy.� Furthermore, due to the failure of risk sharing, determinacy for union-aggregates does not guarantee determinacy in every member country.� However, the more open a country is in trade terms, the greater the rate of LAMP for which the country still displays equilibrium determinacy.� For complete openness, determinacy is guaranteed.� This underlines the importance of risk sharing and trade integration for the functioning of a currency union.� Considering the optimal union-wide targeting rule, a higher mean and dispersion of LAMP increase the desired inflation volatility.� The implied optimal Taylor rule shows that subject to the Taylor principle, the higher are mean and dispersion of LAMP, the softer should be the response of the nominal interest rate to expected inflation.Monetary union, Limited asset markets participatin, Heterogeneity, (Optimal) monetary policy, Real (in)determinacy, Sticky prices