Sacrifice ratio or welfare gain ratio? Disinflation in a DSGE monetary model

When taken to examine disinflation monetary policies, the current workhorse DSGE model of business cycle fluctuations successfully accounts for the main stylized facts in terms of recessionary effects and sacrifice ratio. We complement the transitional analysis of the short-run costs with a rigorous welfare evaluation and show that, despite the long-lasting economic downturn, disinflation entails non-zero overall welfare gains.disinflation, sacrifice ratio, non-linearities

Implementing Disinflations in a Medium-Scale Dynamic General Equilibrium Model: Money Supply vis-à-vis Interest Rate Rules

Successful disinflation episodes have been shown to involve a sustained period of output contraction. We revisit the largely debated issue on the costs of different speed and timing of disinflations when monetary policy is implemented either via a money supply rule (MSR) or an interest rate rule (IRR). In terms of transitional costs, cold-turkey IRR disinflations are less expensive than those under MSR, with theoretical sacrifice ratios averaging 1.0 and 2.8 respectively, and are accomplished more rapidly. Gradual and anticipated disinflations deliver further lower sacrifice ratios. From a welfare perspective, despite the temporary economic contraction, disinflations are welfare improving. More interestingly, the overall welfare gain from disinflation is not affected by the actual policy implementation: what really matters is the achievement of a permanent lower inflation rather than how this is practically accomplished.Disinflation, Sacrifice ratio, Nonlinearities

Macroeconomic determinants of bad loans: evidence from Italian banks

In this paper we use a single-equation time series approach to examine the macroeconomic determinants of banks’ loan quality in Italy in the past twenty years, as measured by the ratio of new bad loans to the outstanding amount of loans in the previous period. We analyse the quality of loans to households and firms separately on the grounds that macroeconomic variables may affect these two classes of borrowers differently. According to our estimated models: i) the quality of lending to households and firms can be explained by a small number of macroeconomic variables mainly relating to the general state of the economy, the cost of borrowing and the burden of debt; ii) changes in macroeconomic conditions generally affect loan quality with a lag; and iii) the out-of-sample prediction accuracy of the models is quite satisfactory and proved to be robust to the recent financial crisis.bad loans, macroeconomic determinants, Italian banking system

Trend Inflation, Taylor Principle and Indeterminacy

Even low levels of trend inflation substantially affect the dynamics of a basic new Keynesian DSGE model when monetary policy is conducted by a contemporaneous Taylor rule. Positive trend inflation shrinks the determinacy region. Neither the Taylor principle, which requires the inflation coefficient to be greater than one, nor the generalized Taylor principle, which requires that in the long run the nominal interest rate should be raised by more than the increase in inflation, is a sufficient condition for local determinacy of equilibrium. This finding holds for different types of Taylor rules, inertial policy rules and price indexation schemes. Therefore, re- gardless of the theoretical set up, the monetary literature on Taylor rules cannot disregard average inflation in both theoretical and empirical analysis.Sticky Prices, Taylor Rules and Trend Inflation

Optimal monetary policy under low trend inflation

In the monetary policy literature it is commonly assumed that trend inflation is zero, despite overwhelming evidence that zero inflation is neither empirically relevant nor a practical objective for central bank policy. We therefore extend the standard New Keynesian model to allow for positive trend inflation, showing that even low trend inflation has strong effects on optimal monetary policy and the dynamics of inflation, output, and interest rates. Under discretion, the efficient policy deteriorates and there is no guarantee of determinacy. Even with commitment, targeting non-zero trend inflation leads to substantial welfare losses. Our results serve as a warning against indiscriminate use of models assuming zero trend inflation.Optimal monetary policy, trend inflation

Disinflation in a DSGE Perspective: Sacrifice Ratio or Welfare Gain Ratio?

When used to examine disinflation monetary policies, the current workhorse dynamic stochastic general equilibrium model of business cycle fluctuations is able to quantitatively account for the main stylized facts in terms of recessionary effects and sacrifice ratio. We complement the transitional analysis of the short-run costs with a rigorous welfare evaluation and show that, despite the long-lasting economic downturn, disinflation entails non-zero overall welfare gains.Disinflation, Sacrifice ratio, Non-linearities

Trend Inflation, Taylor Principle and Indeterminacy

In this paper, we show that low trend inflation strongly affects the dynamics of a standard Neo-keynesian model where monetary policy is described by a standard Taylor rule. In particular, we show that trend inflation: (i) enlarges the indeterminacy region in the parameter space, substantially altering the so-called Taylor principle; (ii) changes the dynamic responses of the economy. Furthermore, we generalize the basic analysis to different types of Taylor rules, inertial policy rules and indexation schemes. The key point is that, whatever the set up, the literature on Taylor rules cannot disregard average inflation in both theoretical and empirical analysis.Sticky Prices, Taylor Rules and Trend Inflation

Fiscal and Monetary Policy Interactions in a New Keynesian Model with Liquidity Constraints

This paper derives a New Keynesian dynamic general equilibrium model with liquidity constrained consumers and sticky prices. The model allows a role for both government spending and taxation in the DGE model. The model is then estimated using Euro area data. We demonstrate that there seems to be a significant role for rule-of-thumb consumer behaviour. Our model is then used to analyse the interaction between fiscal and monetary policies. We examine the extent to which fiscal policy (automatic stabilisers) assist or hinder monetary policy when the latter takes a standard forward-looking inflation targeting form. We also examine the extent to which inertia in fiscal policy and the presence of rule-of-thumb consumers affects output and inflation variability in the presence of such a monetary policy rule.

Susceptibility induced gray–white matter MRI contrast in the human brain

AbstractMR phase images have shown significantly improved contrast between cortical gray and white matter regions compared to magnitude images obtained with gradient echo sequences. A variety of underlying biophysical mechanisms (including iron, blood, myelin content, macromolecular chemical exchange, and fiber orientation) have been suggested to account for this observation but assessing the individual contribution of these factors is limited in vivo.For a closer investigation of iron and myelin induced susceptibility changes, postmortem MRI of six human corpses (age range at death: 56–80years) was acquired in situ. Following autopsy, the iron concentrations in the frontal and occipital cortex as well as in white matter regions were chemically determined. The magnetization transfer ratio (MTR) was used as an indirect measure for myelin content. Susceptibility effects were assessed separately by determining R2* relaxation rates and quantitative phase shifts. Contributions of myelin and iron to local variations of the susceptibility were assessed by univariate and multivariate linear regression analysis.Mean iron concentration was lower in the frontal cortex than in frontal white matter (26±6 vs. 45±6mg/kg wet tissue) while an inverse relation was found in the occipital lobe (cortical gray matter: 41±10 vs. white matter: 34±10mg/kg wet tissue). Multiple regression analysis revealed iron and MTR as independent predictors of the effective transverse relaxation rate R2* but solely MTR was identified as source of MR phase contrast. R2* was correlated with iron concentrations in cortical gray matter only (r=0.42, p<0.05).In conclusion, MR phase contrast between cortical gray and white matter can be mainly attributed to variations in myelin content, but not to iron concentration. Both, myelin and iron impact the effective transverse relaxation rate R2* significantly. Magnitude contrast is limited because it only reflects the extent but not the direction of the susceptibility shift

QCD Evolution Equations: Numerical Algorithms from the Laguerre Expansion

A complete numerical implementation, in both singlet and non-singlet sectors, of a very elegant method to solve the QCD Evolution equations, due to Furmanski and Petronzio, is presented. The algorithm is directly implemented in x-space by a Laguerre expansion of the parton distributions. All the leading-twist distributions are evolved: longitudinally polarized, transversely polarized and unpolarized, to NLO accuracy. The expansion is optimal at finite x, up to reasonably small x-values ($x\approx 10^{-3}$), below which the convergence of the expansion slows down. The polarized evolution is smoother, due to the less singular structure of the anomalous dimensions at small-x. In the region of fast convergence, which covers most of the usual perturbative applications, high numerical accuracy is achieved by expanding over a set of approximately 30 polynomials, with a very modest running time.Comment: 30 pages, 13 figure