A Prudent Central Banker

This paper studies the role of prudence in modern central banking. To that end, it relaxes the usual assumption of quadratic preferences and adopts instead an asymmetric preference specification whereby positive deviations from a target can be weighted more, or less, severely than negative deviations. It is shown that prudence with respect to inflation (unemployment) reduces (increases) equilibrium inflation. The overall effect depends on the relative magnitude of the preference parameters and the conditional variances of inflation and unemployment. The implications of the model are examined using cross-section data from OECD countries. . Copyright 2002, International Monetary Fund

Dissent in Monetary Policy Decisions

Voting records indicate that dissents in monetary policy committees are frequent and predictability regressions show that they help forecast future policy decisions. In order to study whether the latter relation is causal, we construct a model of committee decision making and dissent where members' decisions are not a function of past dissents. The model is estimated using voting data from the Bank of England and the Riksbank. Stochastic simulations show that the decision-making frictions in our model help account for the predictive power of current dissents. The eect of institutional characteristics and structural parameters on dissent rates is examined using simulations as well.Committees, voting models, political economy of central banking

Factor Analysis of a Large DSGE Model

We study the workings of the factor analysis of high-dimensional data using arti…cial series generated from a large, multi-sector dynamic stochastic general equilibrium (DSGE) model. The objective is to use the DSGE model as a laboratory that allow us to shed some light on the practical bene…ts and limitations of using factor analysis techniques on economic data. We explain in what sense the arti…cial data can be thought of having a factor structure, study the theoretical and fi…nite sample properties of the principal components estimates of the factor space, investigate the substantive reason(s) for the good performance of diffusion index forecasts, and assess the quality of the factor analysis of highly dissagregated data. In all our exercises, we explain the precise relationship between the factors and the basic macroeconomic shocks postulated by the model.Multisector economies, principal components, forecasting, pervasiveness, FAVAR

NONLINEAR MONETARY POLICY RULES: SOME NEW EVIDENCE FOR THE US

This paper dreives optimal monetary policy rules in setups where certainty equivalence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size aymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that US monetary policy can be characterized by a nonlinear policy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed`s inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime.

Sectoral Price Rigidity and Aggregate Dynamics

In this paper, we study the macroeconomic implications of sectoral heterogeneity and, in particular, heterogeneity in price setting, through the lens of a highly disaggregated multi-sector model. The model incorporates several realistic features and is estimated using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are remarkably consistent with those reported in micro-based studies, especially for non-sale prices. The model is used to study (i) the contribution of sectoral characteristics to the observed cross sectional heterogeneity in sectoral output and inflation responses to a monetary policy shock, (ii) the implications of sectoral price rigidity for aggregate output and inflation dynamics and for cost pass-through, and (iii) the role of sectoral shocks in explaining secotral prices and quantities.Multi-sector models, price stickiness, simulated method of moments, sectoral shocks, monetary policy

Nonlinear monetary policy rules: some new evidence for the US

This paper dreives optimal monetary policy rules in setups where certainty equivalence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size aymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that US monetary policy can be characterized by a nonlinear policy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed`s inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime

Durable Goods, Inter-Sectoral Linkages and Monetary Policy

Barsky, House and Kimball (2007) show that introducing durable goods into a sticky-price model leads to negative sectoral comovement of production following a monetary policy shock and, under certain conditions, to aggregate neutrality. These results appear to undermine sticky-price models. In this paper, we show that these results are not robust to two prominent and realistic features of the data, namely input-output interactions and limited mobility of productive inputs. When extended to allow for both features, the sticky-price model with durable goods delivers implications in line with VAR evidence on the effects of monetary policy shocks.Durability, input-output interactions, roundabout production, sectoral comovement, monetary policy

Inflation targeting under asymmetric preferences

El autor desarrolla y estima un modelo de teoria de juegos sobre objetivos de inflacion en el que las preferencias de los bancos centrales son asimetricas en torno a la tasa que se ha establecido como objetivo. En concreto, en la funcion de perdida de los bancos centrales, las desviaciones positivas del objetivo pueden ponderarse con mayor o menor severidad que las desviaciones negativas. Se muestra que algunos de los resultados anteriores derivados del supuesto de simetria no varian con la generalizacion de las preferencias. Las estimaciones de los parametros de preferencia de los bancos centrales para Canada, Suecia y el Reino Unido son estadisticamente diferentes de las implicitas en la funcion de perdida cuadratica utilizada habitualment. Los resultados econometricos no varian cuando se consideran distintos modelos de prediccion de la tasa de desempleo, pero si para la utilizacion de medidas de inflacion mas amplias que la establecida como objetivo. (fjrm) (ad

Gaps, Rings, and Non-Axisymmetric Structures in Protoplanetary Disks - From Simulations to ALMA Observations

Recent observations by the Atacama Large Millimeter/submillimeter Array (ALMA) of disks around young stars revealed distinct asymmetries in the dust continuum emission. In this work we want to study axisymmetric and non-axisymmetric structures, evocated by the magneto-rotational instability in the outer regions of protoplanetary disks. We combine the results of state-of-the-art numerical simulations with post-processing radiative transfer (RT) to generate synthetic maps and predictions for ALMA. We performed non-ideal global 3D MHD stratified simulations of the dead-zone outer edge using the FARGO MHD code PLUTO. The stellar and disk parameters are taken from a parameterized disk model applied for fitting high-angular resolution multi-wavelength observations of circumstellar disks. The 2D temperature and density profiles are calculated consistently from a given surface density profile and Monte-Carlo radiative transfer. The 2D Ohmic resistivity profile is calculated using a dust chemistry model. The magnetic field is a vertical net flux field. The resulting dust reemission provides the basis for the simulation of observations with ALMA. The fiducial model develops a large gap followed by a jump in surface density located at the dead-zone outer edge. The jump in density and pressure is strong enough to stop the radial drift of particles. In addition, we observe the generation of vortices by the Rossby wave instability (RWI) at the jumps location close to 60 AU. The vortices are steadily generated and destroyed at a cycle of 40 local orbits. The RT results and simulated ALMA observations predict the feasibility to observe such large scale structures appearing in magnetized disks without having a planet.Comment: Language update, added comments, added citations, in press. (A&A

Estimating Nonlinear DSGE Models by the Simulated Method of Moments

This paper studies the application of the simulated method of moments (SMM) for the estimation of nonlinear dynamic stochastic general equilibrium (DSGE) models. Monte Carlo analysis is employed to examine the small-sample properties of SMM in specifications with different curvature. Results show that SMM is computationally efficient and delivers accurate estimates, even when the simulated series are relatively short. However, asymptotic standard errors tend to overstate the actual variability of the estimates and, consequently, statistical inference is conservative. A simple strategy to incorporate priors in a method of moments context is proposed. An empirical application to the macroeconomic effects of rare events indicates that negatively skewed productivity shocks induce agents to accumulate additional capital and can endogenously generate asymmetric business cycles.Monte-Carlo analysis; priors; perturbation methods, rare events, skewness