Pub Date : 2024-07-14DOI: 10.1016/j.jmoneco.2024.103630
Motivated by the surge in debt levels through the pandemic crisis, we revisit the issue of the optimal financing of public debt. In contrast to existing results, we find that the optimal response of inflation to a large increase in public spending is a gradual, significant and long-lasting rise in inflation. Our conclusion is due to a different assumption on the source of nominal rigidities. While the literature has focused on sticky prices, of either the Calvo (1983) or Rotemberg (1982) type, we consider sticky plans as in the sticky information set up of Mankiw and Reis (2002). A crucial feature of our results is that a significant inflation response is desirable if the maturity of public debt is (realistically) long.
{"title":"The monetary financing of a large fiscal shock","authors":"","doi":"10.1016/j.jmoneco.2024.103630","DOIUrl":"10.1016/j.jmoneco.2024.103630","url":null,"abstract":"<div><p>Motivated by the surge in debt levels through the pandemic crisis, we revisit the issue of the optimal financing of public debt. In contrast to existing results, we find that the optimal response of inflation to a large increase in public spending is a gradual, significant and long-lasting rise in inflation. Our conclusion is due to a different assumption on the source of nominal rigidities. While the literature has focused on sticky prices, of either the Calvo (1983) or Rotemberg (1982) type, we consider sticky plans as in the sticky information set up of Mankiw and Reis (2002). A crucial feature of our results is that a significant inflation response is desirable if the maturity of public debt is (realistically) long.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000837/pdfft?md5=3c09b6e0c5d118e98068e9f6c6bd59cc&pid=1-s2.0-S0304393224000837-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141693690","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-09DOI: 10.1016/j.jmoneco.2024.103623
Stabilization and redistribution are intertwined in a model with heterogeneity, imperfect insurance, and nominal rigidity—making fiscal and monetary policy inextricably linked for aggregate-demand management. Movements in inequality induced by fiscal transfers make the flexible-price equilibrium suboptimal, thus triggering a stabilization vs redistribution tradeoff. Likewise, changes in government spending that are associated with changes in the distribution of taxes (progressive vs. regressive) induce a tradeoff for monetary policy: the central bank cannot stabilize real activity at its efficient level (including insurance) and simultaneously avoid inflation. Fiscal policy can be used in conjunction to monetary policy to strike the optimal balance between stabilization and insurance (redistribution) motives.
{"title":"Stabilization vs. Redistribution: The optimal monetary–fiscal mix","authors":"","doi":"10.1016/j.jmoneco.2024.103623","DOIUrl":"10.1016/j.jmoneco.2024.103623","url":null,"abstract":"<div><p>Stabilization and redistribution are intertwined in a model with heterogeneity, imperfect insurance, and nominal rigidity—making fiscal and monetary policy inextricably linked for aggregate-demand management. Movements in inequality induced by fiscal transfers make the flexible-price equilibrium suboptimal, thus triggering a stabilization vs redistribution tradeoff. Likewise, changes in government spending that are associated with changes in the distribution of taxes (progressive vs. regressive) induce a tradeoff for monetary policy: the central bank cannot stabilize real activity at its efficient level (including insurance) and simultaneously avoid inflation. Fiscal policy can be used in conjunction to monetary policy to strike the optimal balance between stabilization and insurance (redistribution) motives.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S030439322400076X/pdfft?md5=4450e0c55fae6e61ecf1ff41905a331a&pid=1-s2.0-S030439322400076X-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141706519","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-09DOI: 10.1016/j.jmoneco.2024.103622
A prerequisite for an optimum currency area are limited divergent developments. In this paper, we assess analytically whether an international transfer mechanism can enhance consumption risk sharing and efficiency of the international division of production in a monetary union. We also derive quantitative results for a potential European unemployment benefit scheme (EUBS). A EUBS can provide risk sharing by stabilizing relative consumption and unemployment differentials. Following supply and government-spending shocks, however, a EUBS would additionally reduce allocative efficiency. The welfare effects of a EUBS hence depend on the underlying cause for cross-country differentials. A EUBS that is only active after specific shocks would maximize overall welfare. Even without such a selective activation, a EUBS would raise welfare in European Core countries in the quantitative model, leaving welfare in the Periphery almost unchanged. During the euro crisis, the Periphery would have benefited from substantial transfers from the Core.
{"title":"Cross-country unemployment insurance, transfers, and trade-offs in international risk sharing","authors":"","doi":"10.1016/j.jmoneco.2024.103622","DOIUrl":"10.1016/j.jmoneco.2024.103622","url":null,"abstract":"<div><p>A prerequisite for an optimum currency area are limited divergent developments. In this paper, we assess analytically whether an international transfer mechanism can enhance consumption risk sharing and efficiency of the international division of production in a monetary union. We also derive quantitative results for a potential European unemployment benefit scheme (EUBS). A EUBS can provide risk sharing by stabilizing relative consumption and unemployment differentials. Following supply and government-spending shocks, however, a EUBS would additionally reduce allocative efficiency. The welfare effects of a EUBS hence depend on the underlying cause for cross-country differentials. A EUBS that is only active after specific shocks would maximize overall welfare. Even without such a selective activation, a EUBS would raise welfare in European Core countries in the quantitative model, leaving welfare in the Periphery almost unchanged. During the euro crisis, the Periphery would have benefited from substantial transfers from the Core.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000758/pdfft?md5=53e27e26939d3a0e1633bcbde495f73f&pid=1-s2.0-S0304393224000758-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141710163","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-02DOI: 10.1016/j.jmoneco.2024.103620
How does household heterogeneity affect the transmission of an energy price shock? What are the implications for monetary policy? We develop a small, open-economy TANK model that features labor and an energy import good as complementary production inputs (Gas-TANK). Given such complementarities, higher energy prices reduce the labor share of total income. Due to borrowing constraints, this translates into a drop in aggregate demand. Higher price flexibility insures firm profits from energy price shocks, further depressing labor income and demand. We illustrate how the transmission of shocks in a RANK versus a TANK depends on the degree of complementarity between energy and labor in production and the extent of price rigidities. Optimal monetary policy is less contractionary in a TANK and can even be expansionary when credit constraints are severe. Finally, we show that the contractionary effect of energy price shocks on demand cannot be generalized to alternate supply shocks.
家庭异质性如何影响能源价格冲击的传导?对货币政策有何影响?我们建立了一个小型开放经济 TANK 模型,该模型将劳动力和能源进口品作为互补的生产投入(Gas-TANK)。鉴于这种互补性,能源价格的上涨会降低劳动力在总收入中的比重。由于借贷限制,这将导致总需求下降。更高的价格灵活性确保了企业从能源价格冲击中获利,从而进一步抑制了劳动收入和需求。我们说明了在 RANK 与 TANK 中,冲击的传导如何取决于能源与劳动力在生产中的互补程度以及价格刚性的程度。在 TANK 中,最优货币政策的收缩性较小,当信贷限制严重时,货币政策甚至可以是扩张性的。最后,我们表明,能源价格冲击对需求的收缩效应不能推广到替代性供给冲击。
{"title":"Energy prices and household heterogeneity: Monetary policy in a Gas-TANK","authors":"","doi":"10.1016/j.jmoneco.2024.103620","DOIUrl":"10.1016/j.jmoneco.2024.103620","url":null,"abstract":"<div><p>How does household heterogeneity affect the transmission of an energy price shock? What are the implications for monetary policy? We develop a small, open-economy TANK model that features labor and an energy import good as complementary production inputs (Gas-TANK). Given such complementarities, higher energy prices reduce the labor share of total income. Due to borrowing constraints, this translates into a drop in aggregate demand. Higher price flexibility insures firm profits from energy price shocks, further depressing labor income and demand. We illustrate how the transmission of shocks in a RANK versus a TANK depends on the degree of complementarity between energy and labor in production and the extent of price rigidities. Optimal monetary policy is less contractionary in a TANK and can even be expansionary when credit constraints are severe. Finally, we show that the contractionary effect of energy price shocks on demand cannot be generalized to alternate supply shocks.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141871463","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jmoneco.2024.103556
Sangyup Choi , Tim Willems , Seung Yong Yoo
Combining industry-level data on output and prices with novel monetary policy shock estimates for 102 countries, we analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralize or consisting of smaller firms, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, and only limited support for a channel running via exports. Our database (containing monetary policy shock estimates for 176 countries) may be of independent interest to researchers.
{"title":"Revisiting the monetary transmission mechanism through an industry-level differential approach","authors":"Sangyup Choi , Tim Willems , Seung Yong Yoo","doi":"10.1016/j.jmoneco.2024.103556","DOIUrl":"10.1016/j.jmoneco.2024.103556","url":null,"abstract":"<div><p>Combining industry-level data on output and prices with novel monetary policy shock estimates for 102 countries, we analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralize or consisting of smaller firms, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, and only limited support for a channel running via exports. Our database (containing monetary policy shock estimates for 176 countries) may be of independent interest to researchers.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139764563","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jmoneco.2024.103576
Inflation expectations can quickly become unanchored if the central bank undermines its commitment to the inflation target. This paper exploits an abrupt change in monetary policy by the Brazilian Central Bank in 2011 and microdata from a daily survey of professional forecasters to establish support for this claim. Reanchoring came only years later, after a regime shift that included a change of government. A simple model with a well-defined concept of (un)anchored inflation expectations provides a coherent explanation and structural interpretation of our empirical findings.
{"title":"Abrupt monetary policy change and unanchoring of inflation expectations","authors":"","doi":"10.1016/j.jmoneco.2024.103576","DOIUrl":"10.1016/j.jmoneco.2024.103576","url":null,"abstract":"<div><p>Inflation expectations can quickly become unanchored if the central bank undermines its commitment to the inflation target. This paper exploits an abrupt change in monetary policy by the Brazilian Central Bank in 2011 and microdata from a daily survey of professional forecasters to establish support for this claim. Reanchoring came only years later, after a regime shift that included a change of government. A simple model with a well-defined concept of (un)anchored inflation expectations provides a coherent explanation and structural interpretation of our empirical findings.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140801884","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jmoneco.2024.103560
Mark Kerssenfischer , Maik Schmeling
What share of asset price movements is driven by news? We build a large, time-stamped event database covering scheduled macro news as well as unscheduled events and find that news account for up to 35% of bond and stock price movements in the United States and euro area since 2002. This suggests that a much larger share of return variation can be traced back to observable news than previously thought. Moreover, we provide stylized facts about the type of news that matter most for asset prices, spillover effects between the US and euro area, and the predictability of monetary policy shocks.
{"title":"What moves markets?","authors":"Mark Kerssenfischer , Maik Schmeling","doi":"10.1016/j.jmoneco.2024.103560","DOIUrl":"10.1016/j.jmoneco.2024.103560","url":null,"abstract":"<div><p>What share of asset price movements is driven by news? We build a large, time-stamped event database covering scheduled macro news as well as unscheduled events and find that news account for up to 35% of bond and stock price movements in the United States and euro area since 2002. This suggests that a much larger share of return variation can be traced back to observable news than previously thought. Moreover, we provide stylized facts about the <em>type</em> of news that matter most for asset prices, spillover effects between the US and euro area, and the predictability of monetary policy shocks.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000138/pdfft?md5=acea5354f8681d4b4944d639105a9fd8&pid=1-s2.0-S0304393224000138-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140036618","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jmoneco.2024.103568
Based on indirect utility theory, we ask consumers about the change in their incomes that would be required to offset expected price changes and buy the same amounts of goods and services one year ahead in a large-scale, high-frequency survey of consumers in the US and 14 other countries. Aggregating responses across consumers provides an alternative, indirect measure of inflation expectations compared with conventional, direct measures, but with theoretically lower ex-post forecast errors. The survey responses show that indirect consumer inflation expectations vary based on age, gender, individual inflation experiences, and local shocks. Exploiting rich cross-sectional variation, inflation expectations increase by slightly more in response to gasoline price changes than implied by their expenditure share.
{"title":"Indirect consumer inflation expectations: Theory and evidence","authors":"","doi":"10.1016/j.jmoneco.2024.103568","DOIUrl":"10.1016/j.jmoneco.2024.103568","url":null,"abstract":"<div><p>Based on indirect utility theory, we ask consumers about the change in their incomes that would be required to offset expected price changes and buy the same amounts of goods and services one year ahead in a large-scale, high-frequency survey of consumers in the US and 14 other countries. Aggregating responses across consumers provides an alternative, indirect measure of inflation<span> expectations compared with conventional, direct measures, but with theoretically lower ex-post forecast errors. The survey responses show that indirect consumer inflation expectations<span> vary based on age, gender, individual inflation experiences, and local shocks. Exploiting rich cross-sectional variation, inflation expectations increase by slightly more in response to gasoline price changes than implied by their expenditure share.</span></span></p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139951846","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jmoneco.2024.103558
Frederic Malherbe , Michael McMahon
Government guarantees of bank liabilities have a long-standing history and are now ubiquitous. We study a model where financial sophistication enhances banks’ ability to exploit government guarantees and fuels inefficient economic booms. Driven by financial engineering, bank rent extraction creates a disconnect between lending decisions and borrower repayment prospects: In equilibrium, banks over-lend and only break-even courtesy of trading book profit. Exploitability is affected not only by financial sophistication but also by regulation. Given the pattern for regulatory changes in the last few decades, we posit that the Great Recession, partly, reversed a Great Distortion.
{"title":"Beyond Pangloss: Financial sector origins of inefficient economic booms","authors":"Frederic Malherbe , Michael McMahon","doi":"10.1016/j.jmoneco.2024.103558","DOIUrl":"10.1016/j.jmoneco.2024.103558","url":null,"abstract":"<div><p>Government guarantees of bank liabilities have a long-standing history and are now ubiquitous. We study a model where financial sophistication enhances banks’ ability to exploit government guarantees and fuels inefficient economic booms. Driven by financial engineering, bank rent extraction creates a disconnect between lending decisions and borrower repayment prospects: In equilibrium, banks over-lend and only break-even courtesy of trading book profit. Exploitability is affected not only by financial sophistication but also by regulation. Given the pattern for regulatory changes in the last few decades, we posit that the Great Recession, partly, reversed a Great Distortion.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000114/pdfft?md5=8f47ae7427497eba467b3e3e466e566c&pid=1-s2.0-S0304393224000114-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139920585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jmoneco.2024.103613
We use high frequency identification methods to study the response of consumer inflation expectations to many different types of events using data from the Federal Reserve Bank of New York’s Survey of Consumer Expectations. We identify the response of expectations to a large set of shocks, including FOMC meetings and macroeconomic data releases. We find that macroeconomic news and FOMC meetings with a press conference or rate cuts jointly move expectations.
{"title":"Consumer inflation expectations: Daily dynamics","authors":"","doi":"10.1016/j.jmoneco.2024.103613","DOIUrl":"10.1016/j.jmoneco.2024.103613","url":null,"abstract":"<div><p>We use high frequency identification methods to study the response of consumer inflation expectations to many different types of events using data from the Federal Reserve Bank of New York’s Survey of Consumer Expectations. We identify the response of expectations to a large set of shocks, including FOMC meetings and macroeconomic data releases. We find that macroeconomic news and FOMC meetings with a press conference or rate cuts jointly move expectations.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141256363","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}