Investment and Interest Rate Policy

The paper's theorems reverse two standard results of New Keynesian economics simply by appending endogenous investment to a benchmark imperfect competition-sticky price model. Our results are: (a) a passive interest rate rule, where the monetary authority responds to inflation by lowering the real interest rate, implies local equilibrium uniqueness, whereas an active rule generates either indeterminacy or no equilibria locally; (b) a temporary, exogenous increase in the nominal interest rate causes a temporary increase in output and investment.

Determinacy of Equilibrium Under Various Phillips Curves

Determinacy of equilibrium under the original, the backward-looking, the forward-looking and the hybrid Phillips curves is examined. If the monetary authority keeps the nominal money stock to be constant, the equilibrium path is always determinate under the original Phillips curve and the forward-looking one. Under the backward-looking one and the hybrid one, however, the path can be non-existent. The case of a Taylor rule is also examined. Under any of the four curves the path is always determinate if the monetary policy is active but is never determinate if it is passive

Income Redistribution, Consumer Credit, and Keeping Up with the Riches

In this study, the relation between consumer credit and real economic activity during the Great Moderation is studied in a dynamic stochastic general equilibrium model. Our model economy is populated by two different household types. Investors, who hold the economy's capital stock, own the firms and supply credit, and workers, who supply labor and demand credit to finance consumption. Furthermore, workers seek to minimize the difference between investors' and their own consumption level. Qualitatively, an income redistribution from labor to capital leads to consumer credit dynamics that are in line with the data. As a validation exercise, we simulate a three-shock version of the model and find that our theoretical set-up is able to reproduce important business cycle correlations

Measurement of Social Preference from Utility-Based Choice Experiments

Ever since the classical works of Smith and Veblen, economists have recognized that individuals care about their relative positions and status in addition to their own consumption. This paper addresses a new framework of choice experiments in order to specify the shape of utility function with preference externalities. Theoretical studies on social preference, which are conducted without estimating or calibrating important parameters of social preference and put forward various propositions in accordance with the parameters assumed, can refer to the parameters estimated in this paper. Our findings complement those of happiness studies which support the view of social preference. We show that preference externality is, on average, characterized by jealousy among Japanese respondents, and also that heterogeneity in social preference parameters is driven by differences in income levels, age, and gender