Monetary policy shocks, inventory dynamics, and price-setting behavior

In this paper, we estimate a VAR model to present an empirical finding that an unexpected rise in the federal funds rate decreases the ratio of sales to stocks available for sales, while it increases finished goods inventories. In addition, dynamic responses of these variables reach their peaks several quarters after a monetary shock. In order to understand the observed relationship between monetary policy and finished goods inventories, we allow for the accumulation of finished goods inventories in an optimizing sticky price model, where prices are set in a staggered fashion. In our model, holding finished inventories helps firms to generate more sales at given their prices. We then show that the model can generate the observed relationship between monetary shocks and finished goods inventories. Furthermore, we find that allowing for inventory holdings leads to a Phillips curve equation, which makes the inflation rate depend on the expected present-value of future marginal cost as well as the current periodicals marginal cost and the expected rate of future inflation.Business cycles ; Monetary policy ; Phillips curve

Implications of Quasi-Geometric Discounting on the Observable Sharpe Ratio

In this paper, we study implications of quasi-geometric discounting for stochastic properties of asset returns that can be observed in the financial market data. In particular, we emphasize that the dividend income from an asset measured in a unit of account may not reflect the whole dividend that consumers expect to obtain from the asset in models with quasi-geometric discounting. We then show that allowing for such a possibility in a stochastic growth model with quasi-geometric discounting requires a small departure towards time inconsistent preferences to match the Sharpe ratio observed in the U.S. dataQuasi-Geometric Discounting, Observable and Unobservable Asset Returns, the Sharpe Ratio

Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond

The paper presents the fiscal theory of the price level in a variety of models, including endowment economies with lump-sum taxes and production economies with proportional income taxes. We offer a microeconomic perspective on the fiscal theory by computing a Slutsky-Hicks decomposition of the effects of tax changes into substitution, wealth, and revaluation effects. Revaluation effects arise whenever tax changes alter the value of outstanding nominal government liabilities by changing the price level. Under certain assumptions on monetary and fiscal behavior, the revaluation effect reflects the fiscal theory mechanism. When taxes distort, two Laffer curves arise, implying that a tax increase can lower or raise the price level and the revaluation effect can be positive or negative, depending on which side of a particular Laffer curve the economy resides.

Relative Price Distortion and Optimal Monetary Policy in Open Economies

This paper addresses three issues on the conduct of monetary policy in open economies on the basis of a two-country model with Calvo-type sticky prices. Is the isomorphism of the optimal policy problems between closed and open economies robust to whether the foreign country is buffeted by cost-push shocks? How can we obtain a linear quadratic approximation that replicates the key results of the original optimal policy problem, especially when there is an analytical solution to the original problem in the presence of initial price dispersion? What are optimal policy recommendations for the central banks in open economies when both cost-push shock and initial price dispersion exist?Cost-Push Shocks, Relative Price Distortion, Interdependence, Open Economy, Optimal Policy

Macroeconometric equivalence, microeconomic dissonance, and the design of monetary policy

Many recent studies in macroeconomics have focused on the estimation of DSGE models using a system of loglinear approximations to the models' nonlinear equilibrium conditions. The term macroeconometric equivalence encapsulates the idea that estimates using aggregate data based on first-order approximations to the equilibrium conditions of a DSGE model will not be able to distinguish between alternative underlying preferences and technologies. The concept of microeconomic dissonance refers to the fact that the underlying microeconomic differences become important when optimal monetary policy is analyzed in a nonlinear setting. The relevance of these concepts is established by analysis of optimal steady-state inflation and optimal policy in the stochastic economy using a small-scale New Keynesian model. Microeconomic and financial datasets are promising tools with which to overcome the equivalence problem.Monetary policy ; Macroeconomics ; Microeconomics

Forward Guidance and Financial Stability in a Model of Optimal Central Bank Swap Lines

The main goal of this study is to develop a dynamic equilibrium model of central bank swap lines that helps understand the recent observed behaviors of foreign reserves and to analyze the potential effect of the Federal Reserves foreign exchange swap lines on the determination of international reserves and exchange rates. The model focuses on the issue of moral hazard that can arise with the liquidity provision of the Federal Reserve through its swap lines with other central banks. This study argues that a standard debt contract under asymmetric information between lenders and borrowers may not work to model actual swap lines between the Federal Reserve and foreign central banks because lenders tend to accept credit risks in debt contract models. This study shows that debt contracts between the Federal Reserve and foreign central banks are inferior to swap contracts in the presence of the informational advantage of foreign central banks for local financial institutions in their jurisdictions. Although the proposed model is primarily intended to understand the contractual relation between the Federal Reserve and foreign central banks, it can also serve as a determination model for the nominal exchange rate. A policy implication of this model is that short-run and longrun channels are available through which the expectation formation of agents is affected by the behavior of international reserves and the credible long-term stance of the monetary policy

The Role of Bounded Rationality in Macro-Finance Affine Term-Structure Models

Our goal in this paper is two-fold. First, we develop a class of term structure models that allow for the role of bounded rationality by incorporating either information-processing constraint or fear for mis-specification into affine term structure models. We indentify a set of sufficient conditions to generate the observational equivalence between affine term-structure models with rational inattention and a fear for model misspecification. The presence of bounded rationality creates a new additional factor that is not spanned by conventional factors such as level, slope, and curvature factors. Second, our empirical results indicate that substantial amounts of information capacity constraint and robustness preference for model misspecification are needed to explain the observed behavior of yields

Clinical characteristics of Kawasaki disease with sterile pyuria

PurposeKawasaki disease (KD) is a systemic vasculitis and affects many organ systems. It often presents sterile pyuria, microscopic hematuria, and proteinuria due to renal involvement. The aims of this study were to define clinical characteristics of acute KD patients with pyuria and to analyze meaning of pyuria in KD.MethodsThe medical records and laboratory findings including serum and urine test of 133 patients with KD admitted to Yeungnam University Hospital from March 2006 to December 2010 were reviewed retrospectively.ResultsForty patients had sterile pyuria and their clinical characteristics including age, gender and body weight were not significantly different with those who did not have pyuria. Fever duration after treatment was significantly longer in KD patients with pyuria. Erythrocyte sedimentation rate, C-reactive protein and serum concentration of alanine aminotransferase were significantly higher in patients with pyuria. Hyponatremia and coronary artery lesion were seen more often in patients with pyuria but there was no significant difference. Also serum blood urea nitrogen was significantly higher in KD patients with pyuria. Urine β2-microglobulin was elevated in both patients groups and showed no difference between two groups.ConclusionWe found more severe inflammatory reaction in KD patients with pyuria. We also found elevation of some useful parameters like β2-microglobulin that indicate renal involvement of KD through the urine test. Careful management and follow up will need for KD patients with pyuria and it is necessary in the future to study the specific parameters for renal involvement of KD