Optimal monetary policy under commitment with a zero bound on nominal interest rates : [Version: May 7, 2004]

We determine optimal monetary policy under commitment in a forwardlooking New Keynesian model when nominal interest rates are bounded below by zero. The lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear. A calibration to the U.S. economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound. Rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached. While the empirical magnitude of U.S. mark-up shocks seems too small to entail zero nominal interest rates, shocks affecting the natural real interest rate plausibly lead to a binding lower bound. Under optimal policy, however, this occurs quite infrequently and does not require targeting a positive average rate of inflation. Interestingly, the presence of binding real rate shocks alters the policy response to (non-binding) mark-up shocks. JEL Klassifikation: C63, E31, E52

Output gaps and monetary policy at low interest rates

Policymakers use various indicators of economic activity to assess economic conditions and set an appropriate stance for monetary policy. A key challenge for policymakers is finding indicators that give a clear and accurate signal of the state of the economy in real time—that is, at the time policy is actually made. Unfortunately, most indicators are initially estimated based on incomplete information and subsequently revised as more information becomes available. Moreover, some indicators are based on economic concepts that are not directly observable. ; Two indicators of economic activity often used to guide monetary policy are the output gap and the growth rate of real GDP. The output gap measures how far the economy is from its full employment or “potential” level. The output gap is a noisy signal of economic activity, however, because it depends on potential GDP, which is unobservable, and because it depends on estimates of GDP that are subject to revision. In contrast, estimates of GDP growth have the advantage of being observable—albeit with a lag. But these estimates are also subject to revision as more and better underlying information becomes available. Given the possibility that either of the indicators could give an inaccurate signal in real time, should one indicator be favored over the other as a guide for policy? ; Billi uses a standard model to compare economic performance under a policy that focuses on the output gap with one that focuses on GDP growth. He concludes that policymakers should usually focus on the output gap as an indicator of economic activity when policy rates are constrained by the ZLB. A policy that focuses on GDP growth can lead to more frequent encounters with the ZLB, which, in turn, lead to more volatility in output and inflation. In failing to account for the ZLB, previous research overstated the effectiveness of a policy that focuses on GDP growth.

Phase equilibrium of liquid water and hexagonal ice from enhanced sampling molecular dynamics simulations

We study the phase equilibrium between liquid water and ice Ih modeled by the TIP4P/Ice interatomic potential using enhanced sampling molecular dynamics simulations. Our approach is based on the calculation of ice Ih-liquid free energy differences from simulations that visit reversibly both phases. The reversible interconversion is achieved by introducing a static bias potential as a function of an order parameter. The order parameter was tailored to crystallize the hexagonal diamond structure of oxygen in ice Ih. We analyze the effect of the system size on the ice Ih-liquid free energy differences and we obtain a melting temperature of 270 K in the thermodynamic limit. This result is in agreement with estimates from thermodynamic integration (272 K) and coexistence simulations (270 K). Since the order parameter does not include information about the coordinates of the protons, the spontaneously formed solid configurations contain proton disorder as expected for ice Ih.Comment: 9 pages, 6 figure

Role of quantum coherence in the thermodynamics of energy transfer

Recent research on the thermodynamic arrow of time, at the microscopic scale, has questioned the universality of its direction. Theoretical studies showed that quantum correlations can be used to revert the natural heat flow (from the hot body to the cold one), posing an apparent challenge to the second law of thermodynamics. Such an "anomalous" heat current was observed in a recent experiment (arXiv:1711.03323), by employing two spin systems initially quantum correlated. Nevertheless, the precise relationship between this intriguing phenomenon and the initial conditions that allow it is not fully evident. Here, we address energy transfer in a wider perspective, identifying a nonclassical contribution that applies to the reversion of the heat flow as well as to more general forms of energy exchange. We derive three theorems that describe the energy transfer between two microscopic systems, for arbitrary initial bipartite states. Using these theorems, we obtain an analytical bound showing that certain type of quantum coherence can optimize such a process, outperforming incoherent states. This genuine quantum advantage is corroborated through a characterization of the energy transfer between two qubits. For this system, it is shown that a large enough amount of coherence is necessary and sufficient to revert the thermodynamic arrow of time. As a second crucial consequence of the presented theorems, we introduce a class of nonequilibrium states that only allow unidirectional energy flow. In this way, we broaden the set where the standard Clausius statement of the second law applies

Individual and Neighborhood Impacts of Neighborhood Reinvestment's Homeownership Pilot Program

The benefits of owning versus renting a home have been extolled by policy makers for many years, and there is substantial recent research to support those views. Yet the research supporting these claims largely has been conducted on general samples of homeowners. Low- and moderate-income homeowners may have a different experience due to difficulties in keeping up with housing-related payments or a difference in the quality of the homes being purchased. A major objective of this report is to assess the impacts of home ownership on a sample of low- and moderate-income homebuyers.We also know very little about the experience of lower-income homebuyers after they purchase their homes. To what extent do low-income homebuyers experience unexpected costs associated with maintenance or repairs? What proportion of low-income buyers take out home equity loans and what do they use the funds for? What proportion of low-income homebuyers default on their loans? What do buyers feel are the greatest advantages and challenges to owning a home? Answers to these questions may provide insight into how prospective lower-income homebuyers can be better prepared for home ownership.The research described in this report involved a sample of persons who graduated from home-ownership classes taught by eight NeighborWorks organizations that participated in the Neighborhood Reinvestment Homeownership Pilot program. Neighborhood Reinvestment has encouraged its affiliated NeighborWorks organizations to offer services designed to increase access to home ownership among low- and moderate-income families. Building on Neighborhood Reinvestment's Campaign for Home Ownership, the Homeownership Pilot program was designed to assist low- and moderate-income households to obtain home ownership by providing them with counseling, down-payment assistance and affordable loans.This report is the third of three reports on the implementation, outcomes and impacts of the Homeownership Pilot program. The first report, entitled An Assessment of Neighborhood Reinvestment's Homeownership Pilot Program: A Preliminary Report (2000), covered the early implementation of the Pilot. The second report, entitled Supporting the American Dream of Home Ownership: An Assessment of Neighborhood Reinvestment's Homeownership Pilot Program (2002), covers the outcomes of the Homeownership Pilot, including the number of persons counseled and new homebuyers assisted. This final report was designed to:1. Assess the proportion of customers trained by NeighborWorks organizations who go on to buy homes, as well as the factors that predict who among those graduating from the homeownership training go on to buy homes and who do not.2. Assess both the social and financial impacts of buying a home on the program participants.3. Assess the postpurchase experience of low-income homebuyers.4. Assess the loan repayment experience of a sample of the affordable loans held by Neighborhood Housing Services of America (NHSA).5. Assess changes in the Pilot program target areas before, during and after the Pilot program was in effect