Unconventional Policies in State-Contingent Liquidity Traps

We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary

Modulation of the myogenic mechanism: concordant effects of NO synthesis inhibition and O 2 − dismutation on renal autoregulation in the time and frequency domains

Renal blood flow autoregulation was investigated in anesthetized C57Bl6 mice using time- and frequency-domain analyses. Autoregulation was reestablished by 15 s in two stages after a 25-mmHg step increase in renal perfusion pressure (RPP). The renal vascular resistance (RVR) response did not include a contribution from the macula densa tubuloglomerular feedback mechanism. Inhibition of nitric oxide (NO) synthase [NG-nitro-l-arginine methyl ester (l-NAME)] reduced the time for complete autoregulation to 2 s and induced 0.25-Hz oscillations in RVR. Quenching of superoxide (SOD mimetic tempol) during l-NAME normalized the speed and strength of stage 1 of the RVR increase and abolished oscillations. The slope of stage 2 was unaffected by l-NAME or tempol. These effects of l-NAME and tempol were evaluated in the frequency domain during random fluctuations in RPP. NO synthase inhibition amplified the resonance peak in admittance gain at 0.25 Hz and markedly increased the gain slope at the upper myogenic frequency range (0.06–0.25 Hz, identified as stage 1), with reversal by tempol. The slope of admittance gain in the lower half of the myogenic frequency range (equated with stage 2) was not affected by l-NAME or tempol. Our data show that the myogenic mechanism alone can achieve complete renal blood flow autoregulation in the mouse kidney following a step increase in RPP. They suggest also that the principal inhibitory action of NO is quenching of superoxide, which otherwise potentiates dynamic components of the myogenic constriction in vivo. This primarily involves the first stage of a two-stage myogenic response

Macroprudential Regulation and the Role of Monetary Policy

This paper examines the macroprudential roles of bank capital regulation and monetary policy in a Dynamic Stochastic General Equilibrium model with endogenous financial frictions and a borrowing cost channel. We identify various transmission channels through which credit risk, commercial bank losses, monetary policy and bank capital requirements affect the real economy. These mechanisms generate significant financial accelerator effects, thus providing a rationale for a macroprudential toolkit. Following credit shocks, countercyclical bank capital regulation is more effective than monetary policy in promoting financial, price and overall macroeconomic stability. For supply shocks, macroprudential regulation combined with a strong response to inflation in the central bank policy rule yield the lowest welfare losses. The findings emphasize the importance of the Basel III regulatory accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress

Real Estate and Construction Sector Dynamics Over the Business Cycle

This paper explores the property prices and investment dynamics over the business cycle when there is competition between households and firms for real estate. We introduce a construction sector into an RBC framework, which uses land, capital and labour to produce both commercial and residential real estate. This market structure activates a real estate substitution channel, where an increase in demand for residential real estate also increases the cost of producing commercial structures, which crowds out commercial real estate investment. In general, we find that the residential/commercial land allocation acts as an anchor for the allocation of its real estate investment counterpart; however, there are notable separations, particularly following the financial crisis where there was a simultaneous fall in residential and commercial investment. Our results indicate that whilst residential real estate prices were predominately driven by increases in its demand in the buildup to the financial crisis, the fall in demand for commercial real estate played a significant role in generating price falls for both types of real estate in the aftermath. Furthermore, falls in the overall supply of real estate played an important role in reducing real estate investment which put upward pressure on prices throughout the past two decades

Macroprudential Regulation and the Role of Monetary Policy

This paper examines the macroprudential roles of bank capital regulation and monetary policy in a Dynamic Stochastic General Equilibrium model with endogenous financial frictions and a borrowing cost channel. We identify various transmission channels through which credit risk, commercial bank losses, monetary policy and bank capital requirements affect the real economy. These mechanisms generate significant financial accelerator effects, thus providing a rationale for a macroprudential toolkit. Following credit shocks, countercyclical bank capital regulation is more effective than monetary policy in promoting financial, price and overall macroeconomic stability. For supply shocks, macroprudential regulation combined with a strong response to inflation in the central bank policy rule yield the lowest welfare losses. The findings emphasize the importance of the Basel III regulatory accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress

Macroprudential regulation, credit spreads and the role of monetary policy

We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords in alleviating the output-inflation trade-off faced by central banks, and cast doubt on the desirability of conventional (and unconventional) Taylor rules during periods of financial distres

Taxation, Credit Spreads and Liquidity Traps

We argue that optimal state-contingent variations in asset taxation increase welfare, alter the monetary policy transmission mechanism and insure against liquidity traps. These findings are explained by an endogenous relationship between taxation, the effective rate of return on assets, the inflationary output gap and credit spreads. Such unique link operates via a working-capital cost channel, and affords the policy maker an additional degree of freedom in stabilizing the economy. Optimal policy calls for lowering (increasing) asset taxation following adverse financial (demand) shocks. Severe financial contractions, nonetheless, warrant a more limited tax cut to minimize the occurrence of unintended liquidity traps induced by (otherwise optimal) large fiscal subsidies

Correlates of low academic attainment in three countries: England, France and Japan

Inexistent