The Optimal Euro Conversion Rate in a Stochastic Dynamic General Equilibrium Model

This paper, using a stochastic dynamic general equilibrium framework, considers how a small open EMU accession country should choose its Euro conversion rate. In this model a monetary union is interpreted as a perfectly credible infinite nominal exchange rate peg, and an algorithm is provided which maps the vector of accession date values of the state and the exogenous variables to a certain size of nominal exchange rate devaluation or revaluation. It is shown that it is not enough to base the decision on exclusively one factor, namely, the real exchange rate misalignment, although this has a primary role in the determination of the optimal conversion rate. Beyond the real exchange rate, the inflation rate, the real and the nominal wage level, the state of the foreign business cycle, as well as foreign price levels and productivity are the most important additional factors necessary for finding the optimal solution.Optimal monetary policy, small open economy, equilibrium real exchange rate.

Dual inflation and real exchange rate in new open economy macroeconomics

This paper studies how the models of the new open economy macroeconomics, which usually focuses on the relationship between the nominal exchange rate and the external real exchange rate, can explain the coexistence of permanent dual inflation, i.e. diverging inflation rates for tradable and non-tradable goods, and real appreciation in emerging market economies. It is shown that the impact of asymmetric sectoral productivity growth on the real exchange rate heavily depends on the market structure, and that the models of new open economy macroeconomics can be reconciled with the Balassa - Samuelson effect only if pricing to market is added to models. It is demonstrated that in the presence of nominal rigidities and investments adjustment costs firms’ marginal cost is influenced by demand factors even if technology exhibits constant returns to scale. As a consequence, the effect of asymmetric productivity growth becomes weaker. Furthermore, in this case alternative factors can influence dual inflation as well. But according to the numerical simulations, these factors hardly explain the empirically observable dual inflation and real appreciation by themselves without asymmetric productivity growth. Keywords: dual inflation, real exchange rate, new open economy macroeconomics, Balassa - Samuelson effect.dual inflation, real exchange rate, new open economy macroeconomics, Balassa - Samuelson effect.

An estimated DSGE model of the Hungarian economy

This paper presents and estimates a dynamic stochastic general equilibrium (DSGE) small-open-economy model for the Hungarian economy. The model features different types of frictions, real and nominal rigidities which are necessary to replicate the empirical persistence of Hungarian data. Bayesian methods are applied, and the structural break due to changing monetary regime over the studied period is explicitly taken into account in the estimation procedure. A real-time adaptive learning mechanism describes agents’ perception on underlying inflation. This creates an additional inertia in inflation. We describe the properties of the estimated model by impulse-response analysis, variance decomposition and the analysis of identified structural shocks. Our results are compared with that of estimated euro-area DSGE models, and estimated non-DSGE models of the Hungarian economy. As a robustness check, a model without real time adaptive learning is also estimated and it’s results are also compared to those of the original model.New Keynesian models, DSGE models, small open economy, Bayesian econometrics.

A bankválságok okai és reálgazdasági hatásai : A 2022. évi közgazdasági Nobel-díjasok munkássága

2022-ben a közgazdasági Nobel-díjat Ben S. Bernanke, Douglas W. Diamond és Philip H. Dybvig kapta megosztva, azokért a pénzügyi rendszerre vonatkozó kutatásokért, amelyekkel elősegítették a bankpánikok okainak és következményeinek a megértését. Diamond és Dybvig megmutatta, hogy a bankrendszer a lejárati transzformáció, illetve a delegált ellenőrzés segítségével társadalmilag hasznos szolgáltatásokat nyújt, ugyanakkor arra is felhívták a figyelmet, hogy a lejárati transzformáció miatt a bankrendszer alapvetően sérülékeny, és ha nem szabályozzák megfelelően, akkor bekövetkezhetnek bankpánikok. Bernanke pedig a bankrendszer makroökonómiai jelentőségét bizonyította, illetve a bankpánikok káros makroökonómiai hatásait elemezte. Kutatásaikkal hozzájárultak egy olyan szabályozási környezet elméleti megalapozásához, amely elősegíti a pénzügyi rendszer hatékony és pánikmentes működését

Optimal simple monetary policy rules and welfare in a DSGE Model for Hungary

We explore the properties of welfare-maximizing monetary policy in a medium-scale DSGE model for Hungary. In order to make our results operational from a policymaker’s perspective, we approximate the optimal policy rule with a set of simple rules reacting only to observable variables. Our results suggest that “science of monetary policy” that is found robust in simple models, holds in this medium-scaled setting as well. That is, the welfare-maximizing policy that aims to eliminate distortions associated with nominal rigidities can be approximated by a simple inflation targeting rule. Adding exchange rate into the feedback rule only marginally improves the stabilization properties of the policy rule. However, a rule reacting to wage inflation can be significantly welfare-improving. These results may suggest that in our medium-sized model the distortions associated with sticky wage setting have at least as important welfare implications as those related to the price stickiness in product markets.monetary policy, central banking, policy design

The Reasons Behind Banking Crises and their Real Economy Impact : Achievements of the 2022 Nobel Laureates in Economics

In 2022, the Nobel Prize in economics was awarded jointly to Ben S. Bernanke, Douglas W. Diamond and Philip H. Dybvig, for their research on the financial system that shed light on the reasons for, and the consequences of, bank panics. Diamond and Dybvig showed that the banking system provides socially useful services through maturity transformation and delegated monitoring, and they also pointed out that maturity transformation made the banking system fundamentally vulnerable, which, if left unregulated, may experience bank panics. Bernanke demonstrated the macroeconomic significance of the banking system and analysed the negative macroeconomic impact of bank panics. Their research helped lay the foundations of a regulatory environment that fosters the efficient functioning of the financial system without bank panics

Exchange rate and welfare in small open economies

Consultable des del TDXTítol obtingut de la portada digitalitzadaLa tesis adapta modelos macroeconómicos recientes de economías abiertas para analizar los problemas que caracterizan los países emergentes de Europa del Este. En particular, se estudia los efectos que el crecimeinto asimétrico de la productividad tiene sobre el tipo de cambio real, el tipo de cambio real interno, esto es, el precio relativo de los bienes comerciables respecto a los no comerciables y el tipo de cambio real externo, esto es, el precio relativo entre los bienes comerciables nacionales y extranjeros. Se demuestra que la discriminación de precios es una condición necesaria para explicar la correlación entre los tipos de cambio nominales y reales, y la apreciación del tipo de cambio real observadas en estas economías emergentes. También se demuestra como los supuestos de inversiones específicas y de costes de ajuste en la inversión ayudan a reproducir el ajuste lento de los precios relativos en respuesta a diferenciales de productividad así como la apreciación del tipo de cambio real externo. En tercer lugar, la tesis estudia como determinar óptimamente el tipo de cambio de estas monedas con respecto al Euro cuando estos países entren en la Union Monetaria Europea. En vez de utilizar criterios exógenos para determinar este tipo de cambio, este trabajo emplea una función de bienestar social derivada del modelo teórico. Asimismo, se propone un algoritmo para determinar el tipo de cambio óptimo en función de las variables exógenas y de estado en el momento de la unión. Se demuestra que aunque las desviaciones del tipo de cambio real sobre su nivel de equilibrio tienen un papel principal en la determinación del tipo de cambio óptimo, no es la única variable a considerar. Otras variables como la inflación pasada o los salarios reales también influencian la elección de la paridad óptima. Además, la fase del ciclo exterior, la demanda de exportaciones y las perturbaciones de productividad son importantes variables exógenas a tener en cuenta para una adecuada decisión política. Se muestra la importancia de este tipo de evaluaciones basadas en modelos y como decisiones basadas en criterios exógenos pueden llevar a resultados subóptimos. Por último, la tesis considera las implicaciones sobre el bienestar de introducir explícitamente el desempleo en los modelos macroeconómicos de economías abiertas. En particular, se comparan los efectos de una devaluación inesperada en economías con y sin desempleo. En modelos con mercados laborales Walrasianos las devaluaciones disminuyen el bienestar si el deteriore de los términos de intercambio compensa el aumento del consumo doméstico. Sin embargo, cuando existe desempleo, una devaluación puede aumentar el bienestar social ya que se mejora la distribución del consumo en la población.The thesis adapts the models of new open economy macroeconomics to the special problems of a certain group of emerging market economies, namely the economies of European post-communist countries. It studies the effects of asymmetric productivity growth for the CPI-based real exchange rate, the internal real exchange rate, i.e. the relative price of non-tradables to tradables, and the external real exchange rate, i.e. the relative price of domestic and foreign tradables. It is demonstrated that pricing to market is necessary to reproduce the empirically observable correlation of the nominal and real exchange rates, and the appreciation of the real exchange rate. It is also shown that the assumption of firm specific investments and investments adjustment costs helps explaining the slow adjustment of domestic relative prices to productivity differentials and the appreciation of the external real exchange rate. The thesis studies how to set optimally the Euro conversion rate of the new Member States of the European Union. Instead of ad-hoc objective functions it uses a model based social welfare function for the analysis. The thesis provides an algorithm to determine how to peg the nominal exchange rate optimally if the accession date values of state and exogenous variables are known. It is shown that the deviation from the equilibrium real exchange rate has a principal but not exclusive role in determining the optimal conversion rate. It is demonstrated that the past inflation rate and the level of real wages also influence the optimal choice. Furthermore, the foreign-business-cycle, exports demand and productivity shocks are the most important exogenous factors necessary for a proper policy decision. The thesis demonstrates the importance of a utility-based and that evaluations based on ad-hoc welfare criteria may result in misleading results. The thesis also considers the welfare implications of introducing unemployment in models of new open economy macroeconomics. The effects of an unexpected devaluation of the nominal exchange rate in a model with and without unemployment is compared. In models with Walrasian labor markets a devaluation decreases social welfare if the deterioration of the terms of trade offsets the rise in domestic consumption. However, in the presence of unemployment even such a situation can enhance social welfare, since the distribution of consumption becomes more even

A költségvetési politika és a gazdaság ciklikus pozíciójának kapcsolata

A 2007–2008-as pénzügyi válság és az azt követő mély és elhúzódó recesszió során előtérbe került az a kérdés, hogy a költségvetési politika alkalmazható-e a gazdaság élénkítésére, mivel a monetáris politika hagyományos eszköztára hatástalanná vált. Ebből adódóan a kapcsolódó kutatások is új lendületet kaptak. Írásunk célja az új kutatási eredmények ismertetése, amelyek főként arra fókuszálnak, hogy alkalmazható-e a költségvetési politika a gazdasági ciklusok befolyásolására. Bár továbbra is sok a vita, egyre több elméleti modell és empirikus eredmény támasztja alá azt a véleményt, miszerint a költségvetési politika hatásai nem állandók, hanem a gazdaság ciklikus pozíciójától függenek: elhúzódó mély recessziókban, különösen likviditási csapda esetén a költségvetési kiadások multiplikátora nagy, míg fellendülések idején relatíve kicsi