Pub Date : 2024-05-01DOI: 10.1016/j.jmoneco.2023.12.003
Martin Kuncl, Alexander Ueberfeldt
Monetary easing redistributes from savers, some of whom are retired and not adjusting labor supply, to borrowers who reduce their labor supply. This results in persistently lower aggregate labor and output. Hence the interaction of labor supply heterogeneity with heterogeneity in net nominal positions of households creates a monetary policy trade-off whereby short-term economic stimulus is followed by lower output over the medium term. The policy trade-off is stronger in economies with more nominal household debt and a larger wealth share of retired households but weakened by a more aggressive monetary policy stance and under price-level targeting.
{"title":"Monetary policy and the persistent aggregate effects of wealth redistribution","authors":"Martin Kuncl, Alexander Ueberfeldt","doi":"10.1016/j.jmoneco.2023.12.003","DOIUrl":"10.1016/j.jmoneco.2023.12.003","url":null,"abstract":"<div><p><span>Monetary easing redistributes from savers, some of whom are retired and not adjusting labor supply, to borrowers who reduce their labor supply. This results in persistently lower aggregate labor and output. Hence the interaction of labor supply heterogeneity with heterogeneity in net nominal positions of households creates a monetary policy trade-off whereby short-term economic stimulus is followed by lower output over the medium term. The policy trade-off is stronger in economies with more nominal household debt and a larger </span>wealth share of retired households but weakened by a more aggressive monetary policy stance and under price-level targeting.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.1,"publicationDate":"2024-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138820803","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 : 2024-05-01DOI: 10.1016/j.jmoneco.2024.01.001
Marek Jarociński
Financial market responses to Fed monetary policy announcements are often very small, but sometimes very large and the mix of news contained in these announcements varies over time. I exploit these features of the data to estimate different types of Fed policy shocks. The resulting shocks can be naturally labeled as standard monetary policy, Odyssean forward guidance, large scale asset purchases and Delphic forward guidance. They affect risk-free interest rates, stock prices and the dollar on impact and have delayed but pronounced effects on corporate bond spreads and breakeven inflation rates.
{"title":"Estimating the Fed’s unconventional policy shocks","authors":"Marek Jarociński","doi":"10.1016/j.jmoneco.2024.01.001","DOIUrl":"10.1016/j.jmoneco.2024.01.001","url":null,"abstract":"<div><p>Financial market responses to Fed monetary policy announcements are often very small, but sometimes very large and the mix of news contained in these announcements varies over time. I exploit these features of the data to estimate different types of Fed policy shocks. The resulting shocks can be naturally labeled as standard monetary policy, Odyssean forward guidance, large scale asset purchases and Delphic forward guidance. They affect risk-free interest rates, stock prices and the dollar on impact and have delayed but pronounced effects on corporate bond spreads and breakeven inflation rates.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.1,"publicationDate":"2024-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139408903","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 : 2024-05-01DOI: 10.1016/j.jmoneco.2024.103610
M. Boldrin, David K. Levine, Yong Wang, Lijun Zhu
{"title":"A theory of the dynamics of factor shares","authors":"M. Boldrin, David K. Levine, Yong Wang, Lijun Zhu","doi":"10.1016/j.jmoneco.2024.103610","DOIUrl":"https://doi.org/10.1016/j.jmoneco.2024.103610","url":null,"abstract":"","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.1,"publicationDate":"2024-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141135426","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 : 2024-04-29DOI: 10.1016/j.jmoneco.2024.103592
By introducing an information friction to a heterogeneous agent model, we are able to explain two patterns of small economies experiencing large income changes: (1) excess volatility in consumption and (2) household consumption elasticities that have low correlation with income. With a standard dispersed information structure, households cannot distinguish aggregate income shocks from idiosyncratic ones. Their consumption responds excessively to aggregate shocks, which they incorrectly forecast to be too persistent. This effect occurs homogeneously across the income distribution, lowering the correlation of the consumption elasticity with income. We corroborate our central mechanism using survey data on household expectations of their future earnings.
{"title":"Household Consumption and Dispersed Information","authors":"","doi":"10.1016/j.jmoneco.2024.103592","DOIUrl":"10.1016/j.jmoneco.2024.103592","url":null,"abstract":"<div><p>By introducing an information friction to a heterogeneous agent model, we are able to explain two patterns of small economies experiencing large income changes: (1) excess volatility in consumption and (2) household consumption elasticities that have low correlation with income. With a standard dispersed information structure, households cannot distinguish aggregate income shocks from idiosyncratic ones. Their consumption responds excessively to aggregate shocks, which they incorrectly forecast to be too persistent. This effect occurs homogeneously across the income distribution, lowering the correlation of the consumption elasticity with income. We corroborate our central mechanism using survey data on household expectations of their future earnings.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140883851","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 : 2024-04-27DOI: 10.1016/j.jmoneco.2024.103596
This paper explores the signaling effect of central bank announcements clarifying the reaction function of policy interventions. We exploit the unique setting provided by ECB asset purchase programs. We find that the same action – purchases of identical assets – undertaken under different titles generates different responses. PSPP affects inflation swaps whereas PEPP impacts sovereign spreads, so that only the variables associated with the communicated rationale of each program react. We highlight the importance of clarifying the conditional path of policy instruments for the transmission of monetary policy. We also provide evidence of this signaling channel from other ECB and BoE announcements.
{"title":"Same actions, different effects: The conditionality of monetary policy instruments","authors":"","doi":"10.1016/j.jmoneco.2024.103596","DOIUrl":"10.1016/j.jmoneco.2024.103596","url":null,"abstract":"<div><p>This paper explores the signaling effect of central bank announcements clarifying the reaction function of policy interventions. We exploit the unique setting provided by ECB asset purchase programs. We find that the same action – purchases of identical assets – undertaken under different titles generates different responses. PSPP affects inflation swaps whereas PEPP impacts sovereign spreads, so that only the variables associated with the communicated rationale of each program react. We highlight the importance of clarifying the conditional path of policy instruments for the transmission of monetary policy. We also provide evidence of this signaling channel from other ECB and BoE announcements.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140883856","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 : 2024-04-27DOI: 10.1016/j.jmoneco.2024.103594
What inflation measure should central banks target? This paper highlights a mechanism where monetary policy optimally targets headline inflation if households pay limited attention to different consumption categories when forming inflation expectations. This result stands in contrast to standard rational expectations models, where optimal policy targets core inflation. The core inflation rate excludes volatile energy and food prices (non-core) from headline inflation. Using novel survey data on inflation expectations for disaggregated consumption categories, I find household expectations are disproportionately driven by beliefs about future non-core prices. A model of bounded rationality accounts for the empirical evidence. While forming inflation expectations, households pay more attention to the volatile non-core components. Embedding this framework into a multi-sector New Keynesian model, I show that targeting headline rather than core inflation provides welfare gains.
{"title":"Consumption categories, household attention, and inflation expectations: Implications for optimal monetary policy","authors":"","doi":"10.1016/j.jmoneco.2024.103594","DOIUrl":"10.1016/j.jmoneco.2024.103594","url":null,"abstract":"<div><p><span><span>What inflation measure should central banks target? This paper highlights a mechanism where </span>monetary policy optimally targets </span><em>headline</em><span><span> inflation if households pay limited attention to different consumption categories when forming </span>inflation expectations<span>. This result stands in contrast to standard rational expectations models, where optimal policy targets </span></span><em>core</em><span> inflation. The core inflation rate excludes volatile energy and food prices (non-core) from headline inflation. Using novel survey data on inflation expectations for disaggregated consumption categories, I find household expectations are disproportionately driven by beliefs about future non-core prices. A model of bounded rationality accounts for the empirical evidence. While forming inflation expectations, households pay more attention to the volatile non-core components. Embedding this framework into a multi-sector New Keynesian model, I show that targeting headline rather than core inflation provides welfare gains.</span></p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140835789","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 : 2024-04-27DOI: 10.1016/j.jmoneco.2024.103593
We study how firms’ price expectations and decisions are affected by carbon pricing, using a survey of French manufacturing firms. Exogenous variations in the price of carbon are obtained by high-frequency identification. A change in carbon price increases firms’ inflation expectations as well as their own expected and realized price growth. Initially, positive forecast errors emerge, but over time, the impact on price expectations proves to be more enduring than on actual price growth, leading to negative forecast errors in the medium- to long-run. Furthermore, our analysis reveals that firms’ responses to these carbon pricing shocks exhibit considerable heterogeneity. Low energy-intensive firms are worse at forecasting the effects of the shock on the evolution of their own prices and firms with narrower profit margins are less able to pass through the increase in energy costs to the prices of their final products. These findings align with models of information rigidities, shedding new light on how firms navigate and adapt to carbon pricing policies.
{"title":"Carbon pricing and inflation expectations: Evidence from France","authors":"","doi":"10.1016/j.jmoneco.2024.103593","DOIUrl":"10.1016/j.jmoneco.2024.103593","url":null,"abstract":"<div><p>We study how firms’ price expectations and decisions are affected by carbon pricing, using a survey of French manufacturing firms. Exogenous variations in the price of carbon are obtained by high-frequency identification. A change in carbon price increases firms’ inflation expectations as well as their own expected and realized price growth. Initially, positive forecast errors emerge, but over time, the impact on price expectations proves to be more enduring than on actual price growth, leading to negative forecast errors in the medium- to long-run. Furthermore, our analysis reveals that firms’ responses to these carbon pricing shocks exhibit considerable heterogeneity. Low energy-intensive firms are worse at forecasting the effects of the shock on the evolution of their own prices and firms with narrower profit margins are less able to pass through the increase in energy costs to the prices of their final products. These findings align with models of information rigidities, shedding new light on how firms navigate and adapt to carbon pricing policies.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000461/pdfft?md5=0c4c7fac096b3eb0cb795918b7ac1acf&pid=1-s2.0-S0304393224000461-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140835747","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 : 2024-04-18DOI: 10.1016/j.jmoneco.2024.103591
In OECD countries, the labor market features a coexistence of open-ended, permanent jobs subject to strict employment protection and fixed-term, temporary jobs. This paper studies a search-and-matching model with risk-averse workers and dynamic employment contracts subject to limited commitment. In equilibrium, permanent and temporary jobs coexist when the match quality is sufficiently dispersed: firing costs generate insurance gains implying that permanent contracts are optimal for high-quality matches. Consistent with recent empirical evidence, quantitative analysis of the model shows that temporary contracts crowd out permanent jobs and do not generate employment gains.
{"title":"A model of risk sharing in a dual labor market","authors":"","doi":"10.1016/j.jmoneco.2024.103591","DOIUrl":"10.1016/j.jmoneco.2024.103591","url":null,"abstract":"<div><p>In OECD countries, the labor market features a coexistence of open-ended, permanent jobs subject to strict employment protection and fixed-term, temporary jobs. This paper studies a search-and-matching model with risk-averse workers and dynamic employment contracts subject to limited commitment. In equilibrium, permanent and temporary jobs coexist when the match quality is sufficiently dispersed: firing costs generate insurance gains implying that permanent contracts are optimal for high-quality matches. Consistent with recent empirical evidence, quantitative analysis of the model shows that temporary contracts crowd out permanent jobs and do not generate employment gains.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000448/pdfft?md5=33e0a3aafb25c75485340411756d9354&pid=1-s2.0-S0304393224000448-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140786475","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 : 2024-04-10DOI: 10.1016/j.jmoneco.2024.103582
We develop a core–periphery model with financial frictions and cross-border banking to assess the magnitude of regulatory spillovers and the gains from macroprudential policy coordination. A core global bank lends to its affiliates in the periphery and banks in both regions are subject to risk-sensitive capital regulation. Following an expansionary monetary policy in the core, a countercyclical response in capital requirements in that region induces the global bank to increase cross-border lending. We calculate welfare gains associated with countercyclical capital buffers under a range of policy regimes, including independent policymaking, full coordination, and reciprocity—a regime in which capital ratios set in the core are imposed on the global bank’s affiliates abroad. One of our key results is that, even when regulatory spillovers are strong, reciprocity can make all parties better off if regulators attach a sufficient weight to financial stability considerations. With a standard, utility-based welfare criterion, reciprocity may also perform better than independent policymaking when regulatory spillovers are weak.
{"title":"Cross-border regulatory spillovers and macroprudential policy coordination","authors":"","doi":"10.1016/j.jmoneco.2024.103582","DOIUrl":"10.1016/j.jmoneco.2024.103582","url":null,"abstract":"<div><p>We develop a core–periphery model with financial frictions and cross-border banking to assess the magnitude of regulatory spillovers and the gains from macroprudential policy coordination. A core global bank lends to its affiliates in the periphery and banks in both regions are subject to risk-sensitive capital regulation. Following an expansionary monetary policy in the core, a countercyclical response in capital requirements in that region induces the global bank to increase cross-border lending. We calculate welfare gains associated with countercyclical capital buffers under a range of policy regimes, including independent policymaking, full coordination, and reciprocity—a regime in which capital ratios set in the core are imposed on the global bank’s affiliates abroad. One of our key results is that, even when regulatory spillovers are strong, reciprocity can make all parties better off if regulators attach a sufficient weight to financial stability considerations. With a standard, utility-based welfare criterion, reciprocity may also perform better than independent policymaking when regulatory spillovers are weak.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0304393224000357/pdfft?md5=1d108487f7d64854bf0286f70e886fde&pid=1-s2.0-S0304393224000357-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140590234","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 : 2024-04-09DOI: 10.1016/j.jmoneco.2024.103581
The proposed blended approach combines identification via heteroskedasticity with sign/narrative restrictions, and instrumental variables. Since heteroskedasticity can point identify shocks, its use results in a sharp reduction of the potentially large identified sets stemming from other approaches. Conversely, sign/narrative restrictions or instrumental variables offer natural solutions to the labeling problem and can help when conditions for point identification through heteroskedasticity are not met. Blending these methods together resolves their respective key issues and leverages their advantages. We illustrate the benefits of the approach in Monte Carlo experiments, and apply it to several examples taken from the literature.
{"title":"Blended identification in structural VARs","authors":"","doi":"10.1016/j.jmoneco.2024.103581","DOIUrl":"10.1016/j.jmoneco.2024.103581","url":null,"abstract":"<div><p>The proposed blended approach combines identification via heteroskedasticity<span> with sign/narrative restrictions, and instrumental variables<span>. Since heteroskedasticity can point identify shocks, its use results in a sharp reduction of the potentially large identified sets stemming from other approaches. Conversely, sign/narrative restrictions or instrumental variables offer natural solutions to the labeling problem and can help when conditions for point identification through heteroskedasticity are not met. Blending these methods together resolves their respective key issues and leverages their advantages. We illustrate the benefits of the approach in Monte Carlo experiments, and apply it to several examples taken from the literature.</span></span></p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3,"publicationDate":"2024-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140767006","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}