Monetary Policy Lag, Zero Lower Bound, and Inflation Targeting

Although the concept of monetary policy lag has historical roots deep in the monetary economics literature, relatively little attention has been paid to the idea. In this paper, we build on Svensson’s (1997) inflation targeting framework by explicitly taking into account the lagged effect of monetary policy and characterize the optimal monetary policy reaction function both in the absence and in the presence of the zero lower bound on the nominal interest rate. We numerically show the function to be more aggressive and more pre-emptive with the lagged effect than without it. We also characterize the long-run stabilization cost to the central bank by explicitly taking into account the lagged effect of monetary policy. It turns out that, in the presence of the zero lower bound constraint, the long-run stabilization cost is higher with the lagged effect than the case without it. This result suggests that the central bank and/or the government should set a relatively high inflation target when confronted with a relatively long monetary policy lag. This can be interpreted as another justification for targeting a positive inflation rate in the long-run.Inflation targets; Monetary policy framework; Monetary policy implementation

Consumption, Housing Collateral, and the Canadian Business Cycle

Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle. Our findings show that the presence of borrowing constraints improves the performance of the model in terms of overall goodness of fit. In particular, the presence of housing collateral generates a positive correlation between consumption and house prices. Finally we find that housing collateral induced spillovers account for a large share of consumption growth during the housing market boom-bust cycle of the late 1980s.Business fluctuations and cycles; Credit and credit aggregates; Transmission of monetary policy

Critical fluctuations of time-dependent magnetization in a random-field Ising model

Cooperative behaviors near the disorder-induced critical point in a random field Ising model are numerically investigated by analyzing time-dependent magnetization in ordering processes from a special initial condition. We find that the intensity of fluctuations of time-dependent magnetization, $\chi(t)$, attains a maximum value at a time $t=\tau$ in a normal phase and that $\chi(\tau)$ and $\tau$ exhibit divergences near the disorder-induced critical point. Furthermore, spin configurations around the time $\tau$ are characterized by a length scale, which also exhibits a divergence near the critical point. We estimate the critical exponents that characterize these power-law divergences by using a finite-size scaling method.Comment: 5 pages, 7 figure

Geomorphological features of landslides distributed in upper stream of Naka-river, Tokushima, Japan

In this study, Geomorphological features of landslide distributed in the upper stream of Naka-river, Tokushima, are studied with air-photograph interpretation and map reading. The number of landslide in investigation area is 0.29 number/km2 in Chichibu belt, 0.34 number/km2 in Kurosegawa belt, 0.17 number/km2 in Sambosan belt and 0.09 number/km2 in Shimanto belt. The most number of landslide is Kurosegawa belt and the least number of landslide is Shimanto belt. Landslides show tendency to become smaller in equivalent coefficient of friction as a large scale landslide. Direction of landslide in Kurosegawa belt has a lot of trend of NNE to NE and in Chichibu belt has a lot of trend of ENE to E. Some 63% is in under 50 meters of height from river bed to end of landslide body, but some 23% is in over 100 meters. Deepening of river beds proceeds in transverse valley at the Sakasyukito-river in Kurosegawa belt, while ingrown meander grows in the Naka-river that flows in Sambosan belt and Shimanto belt. Distribution of landslides in these areas is related to the effect of deepening and lateral erosion of river

Source of the Great Recession

We incorporate two structural shocks associated with balance sheets of both the financial and nonfinancial firms in a medium scale New Keynesian dynamic stochastic general equilibrium (DSGE) model. The structural shocks in the model are assumed to possess stochastic volatilities with a leverage effect. Then, we estimated the model using a data-rich estimation method and utilized up to 40 macroeconomic time series. We found the following three pieces of empirical evidence in the Great Recession (Dec. 2007–Jun. 2009) worsened further by the collapse of Lehman Brothers in September 2008. First, the net-worth shock of financial firms had gradually declined prior to a huge decrease of net-worth of nonfinancial firms. Second, the net worth shock of nonfinancial firms accounted for large weight of the business cycles after the Great Recession, in terms of the data-rich approach with the SV of structural shocks, unlike the standard DSGE model. Third, the Troubled Asset Relief Program would have immediately worked to improve balance sheets of financial institutions, although it would not have stopped worsening those of the corporate sector for a while