The propagation of uncertainty shocks: Rotemberg versus Calvo

This article studies the effects of uncertainty shocks on economic activity, focusing on inflation. Using a vector autoregression, I show that increased uncertainty has negative demand effects, reducing GDP and prices. I then consider standard New Keynesian models with Rotemberg‐type and Calvo‐type price rigidities. Despite the belief that the two schemes are equivalent, I show that they generate different dynamics in response to uncertainty shocks. In the Rotemberg model, uncertainty shocks decrease output and inflation, in line with the empirical results. By contrast, in the Calvo model, uncertainty shocks decrease output but raise inflation because of firms' precautionary pricing motive

Monanchocidin A From Subarctic Sponges of the Genus Monanchora and Their Promising Selectivity Against Melanoma in vitro

© Copyright © 2020 Gogineni, Oh, Waters, Kelly, Stone and Hamann. Marine sources have long been known for their potential to produce unique skeletons and various biological activities. Fractionation of the ethanol extracts of an undescribed species of Monanchora Carter, 1883 and a specimen closely comparable to Monanchora pulchra (Lambe, 1894/1895) (Class Demospongiae, Order Poecilosclerida, Family Crambeidae), yielded a known compound, monanchocidin A. Monanchocidin A, a secondary metabolite, showed very modest antibacterial, antifungal, and antiprotozoal activities with IC50 values ranging between 255.75 and 7288.92 μM. Monanchocidin A also exhibited potent selective activity for the melanoma panel in the NCI cancer cell screening panel

The macroeconomics of uncertainty

Defence date: 25 September 2019Examining Board: Prof. Evi Pappa, Universidad Carlos III Madrid (Supervisor); Prof. Axelle Ferrière, Paris School of Economics; Prof. Guido Ascari, University of Oxford; Prof. Johannes Pfeifer, University of CologneThis thesis comprises three essays that analyze how uncertainty affects the macroeconomy. Each essay investigates a particular feature of uncertainty propagation. The first essay studies the effects of uncertainty shocks on economic activity, focusing on inflation. I consider standard New Keynesian models with Rotemberg-type and Calvo-type price rigidities. Despite the belief that the two schemes are equivalent, I show that they generate different dynamics in response to uncertainty shocks. In the Rotemberg model, uncertainty shocks decrease output and inflation, in line with the empirical results. By contrast, in the Calvo model, uncertainty shocks decrease output but raise inflation because of firms’ precautionary pricing motive. The second essay, written with Dario Bonciani, shows that uncertainty shocks negatively affect economic activity not only in the short, but also in the long run. We build a New Keynesian model with endogenous growth and Epstein-Zin preferences. A decline in R&D by higher uncertainty determines a fall in productivity, which causes a long-term decrease in the macroeconomic aggregates. This long-term risk affects households’ consumption process, which exacerbates the overall negative effects of uncertainty shocks. The third essay, prepared with Anna Rogantini Picco, illustrates how economic agents’ heterogeneity is crucial for the propagation of uncertainty shocks. We build a heterogeneous agent New Keynesian model with search and matching frictions and Calvo pricing. Unemployment risk for imperfectly insured households amplifies their precautionary savings through increased uncertainty, thus further depressing consumption. Therefore, uncertainty shocks have considerably adverse effects and lead to a decrease in inflation.-- 1 The Propagation of Uncertainty Shocks: Rotemberg vs. Calvo -- 2 The Long-Run Effects of Uncertainty Shocks -- 3 Macro Uncertainty and Unemployment Risk -- Bibliography -- Appendix A Appendix to Chapter 1 -- Appendix B Appendix to Chapter 2Chapter 1 'The Propagation of Uncertainty Shocks: Rotemberg vs. Calvo' of the PhD thesis draws upon an earlier version published as EUI ECO WP 2019/01Chapter 2 'The Long-Run Effects of Uncertainty Shocks' of the PhD thesis draws upon an earlier version published as Bank of England Staff WP 2019/80

The propagation of uncertainty shocks : Rotemberg vs. Calvo

This paper studies the effects of uncertainty shocks on economic activity, focusing on inflation. Using a VAR, I show that increased uncertainty has negative demand effects, reducing GDP and prices. I then consider standard New Keynesian models with Rotemberg-type and Calvo-type price rigidities. Despite the belief that the two schemes are equivalent, I show that they generate different dynamics in response to uncertainty shocks. In the Rotemberg model, uncertainty shocks decrease output and inflation, in line with the empirical results. By contrast, in the Calvo model, uncertainty shocks decrease output but raise inflation because of firms' precautionary pricing motive

Revisiting the New Keynesian policy paradoxes under QE

Standard New Keynesian models deliver puzzling results at the effective lower bound of short-term interest rates: greater price flexibility amplifies the fall in the output gap in response to adverse demand shocks; labour tax cuts are contractionary; the multiplier of wasteful government spending is large. These outcomes stem from a failure to characterise monetary policy correctly. Both analytically and numerically, we show that allowing the central bank to respond to inflation with quantitative easing can resolve all these paradoxes. In quantitative terms, mild adjustments to the central bank’s balance sheet are sufficient to obtain results more in line with conventional wisdom

The Source of Uncertainty and Optimal Monetary Policy

We study optimal monetary policy in response to the cost-push uncertainty shock, which is a second-moment shock, in a textbook New Keynesian model. Following a cost-push uncertainty shock, optimal monetary policy faces a trade-off between output gap and inflation stabilization. This is because, even in the absence of first-moment cost-push shocks, cost-push uncertainty generates a time-varying gap between natural output and efficient output. These results contrast with those under a conventional productivity uncertainty shock, which leads to complete stabilization of the output gap and inflation

Uncertainty shocks, innovation, and productivity

In this paper, we argue that macroeconomic uncertainty shocks cause a persistent decline in economic activity, investment in R&D, and total factor productivity. After providing empirical evidence, we build a DSGE model with sticky prices and endogenous growth through investment in R&D. In this framework, uncertainty shocks lead to a short-term fall in demand because of precautionary savings and rising markups. The reduction in the utilised aggregate stock of R&D determines a fall in productivity, which causes a long-term reduction in the main macroeconomic aggregates. When households feature Epstein–Zin preferences, they become averse to these long-term risks affecting their consumption process (long-run risk channel), which severely exacerbates the precautionary savings motive and the overall adverse effects of uncertainty shocks

The long-run effects of uncertainty shocks

This paper argues that shocks increasing macroeconomic uncertainty negatively affect economic activity not only in the short but also in the long run. In a sticky-price DSGE model with endogenous growth through investment in R&D, uncertainty shocks lead to a short-term fall in demand because of precautionary savings and rising markups. The decline in the utilised aggregate stock of R&D determines a fall in productivity, which causes a long-term decline in the main macroeconomic aggregates. When households feature Epstein-Zin preferences, they become averse to these long-term risks affecting their consumption process (long-run risk channel), which strongly exacerbates the precautionary savings motive and the overall negative effects of uncertainty shocks

Monetary policy inertia and the paradox of flexibility

This paper revisits the paradox of flexibility, i.e., the result that, in a liquidity trap, greater price flexibility amplifies output volatility in response to negative demand shocks. We argue this paradox is the consequence of a failure of standard models to correctly characterise monetary policy at the zero lower bound. We show that allowing for a smooth adjustment of the shadow policy rate eliminates the paradox and produces output responses to a negative demand shock that are in line with those under optimal monetary policy. The reason is that, under an inertial policy, a decline in the shadow rate implies that the future actual policy rate will remain relatively low, which increases expectations about the economic outlook and inflation. The rise in inflation expectations reduces the real rate, thereby sustaining real activity. As we raise the degree of price flexibility, a negative demand shock causes a sharper fall in the shadow rate and increase in inflation expectations, which leads to a more significant drop in the real rate and, hence, a milder decline in the output gap