Frameworks for the theoretical and empirical analysis of monetary policy [Elektronische Ressource] / vorgelegt von Stephan Sauer

Stephan Sauer

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2007
• Nombre de lectures: 7
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Frameworks for the Theoretical
and Empirical Analysis of
Monetary Policy
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit˜at Munc˜ hen
2007
vorgelegt von
Stephan Sauer
Referent: Prof. Dr. Gerhard Illing
Korreferent: Prof. Dr. Jan-Egbert Sturm
Promotionsabschlussberatung: 18. Juli 2007Acknowledgements
Many people have helped me in a number of ways and at various stages in the
creation of this thesis. First and foremost, I would like to thank my supervisor
Gerhard Illing for his encouragement and support to pursue my research agenda
andtopresentmypapersatdifierentconferences. Hisdoorwasalwaysopenforany
questions I had. The conversations with him on a large variety of current economic
policy issues helped me to strengthen my economic intuition and argumentation.
They were highly appreciated.
Furthermore, I am indebted to Jan-Egbert Sturm as he introduced me into the
fleld of economic research during an internship with the ifo institute at the end of
my diploma studies. I learnt a lot from him in the course of our collaboration and
this experience provided an excellent basis for my further research.
The faculty of the Economics department at the University of Munich hosts a
number of excellent researchers and teachers. I would like to point out Andreas
Hau er, whom I thank for instantly agreeing to complete my PhD committee, and
KlausSchmidt,whointroducedmeto(Micro-)Economicsinmyflrstsemesteratuni-
versityandcontinuedtoaccompanymyuniversitycareerasanoutstandingteacher.
The Monetary Policy Strategy Division of the European Central Bank, in par-
ticular Boris Hofmann, Rolf Strauch and Leopold von Thadden, welcomed me with
great hospitality and stimulating discussions during the summer of 2006.
My current and former colleagues at the Seminar for Macroeconomics, Julia
Bersch, Josef Forster, Frank Heinemann, Desi Ivanova, Florian Kajuth, Uli Kluh,˜
Katri Mikkonen, Sebastian Watzka and several student assistants helped me in var-
ious ways and created a very pleasant and supportive atmosphere that contributed
tothesuccessfulcompletionofthisthesis. Furthermore,Agnes? Bierprigl,whofulfllls
anexcellentjobintheadministrationofourchair,andDirkR˜osing,whoprovidesan
absolutelyreliable computer network, deservespecial mention. Besides, I wouldlike
to thank Sascha Becker, Agostino Consolo, Stefien Henzel, Robert J˜ackle, Christian
Jensen, Bennett McCallum, Rudiger˜ Pohl, Sven Rady, Markus Reisinger, Ludwig
Re…ner, Marco Sahm, Elmer Sterken and John Williams for their comments on my
work as well as the stafi of the Juristen-Cafeteria for excellent Italian cofiee.
I am very grateful to my parents for giving me a solid background for my life.
Last,butcertainlynotleast,IwouldliketoexpressmydeepthankstoSarahforher
support, encouragement, reliability and, most of all, the love we have been sharing
for more than ten years.
iTABLE OF CONTENTS
List of Figures v
List of Tables vii
1 Introduction and summary 1
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2 Discretion rather than rules? When is discretionary policy-making
better than the timeless perspective? 10
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 New Keynesian Model . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2.1 Model Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2.2 Minimal state variable (MSV) solutions . . . . . . . . . . . . . 15
2.3 Policy Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3.1 Welfare criteria . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3.2 Analytical solution . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3.3 Simulation results . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3.4 Efiects of initial conditions . . . . . . . . . . . . . . . . . . . . 26
2.4 Optimal timeless policy rule . . . . . . . . . . . . . . . . . . . . . . . 29
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix 2.A Derivation of L . . . . . . . . . . . . . . . . . . . . . . . 34TP
fAppendix 2.B In uence of parameters on RL . . . . . . . . . . . . . . . . 35
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3 Using Taylor rules to understand ECB monetary policy 41
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
iiTable of contents iii
3.2 The Taylor rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3 An overview of the empirical literature . . . . . . . . . . . . . . . . . 47
3.4 Contemporaneous rules for the ECB . . . . . . . . . . . . . . . . . . 50
3.4.1 Using ex-post data . . . . . . . . . . . . . . . . . . . . . . . . 50
3.4.2 Using real-time data . . . . . . . . . . . . . . . . . . . . . . . 54
3.5 Forward-looking rules for the ECB . . . . . . . . . . . . . . . . . . . 57
3.5.1 Using survey data . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.5.2 Using HP-flltered industrial production . . . . . . . . . . . . . 60
3.6 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Appendix 3.A Theoretical foundations of the Taylor principle . . . . . . 65
3.A.1 Backward-looking model . . . . . . . . . . . . . . . . . . . . . 65
3.A.2 New Keynesian model . . . . . . . . . . . . . . . . . . . . . . 66
Appendix 3.B Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.B.1 Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.B.2 In ation rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.B.3 Output gap measures . . . . . . . . . . . . . . . . . . . . . . . 68
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4 Liquidity risk and monetary policy 76
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.1.1 Empirical evidence for the role of liquidity on asset prices . . . 77
4.1.2 Historical liquidity crises and central banks’ reactions . . . . . 78
4.1.3 The model in a nutshell . . . . . . . . . . . . . . . . . . . . . 83
4.2 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.2.1 Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.2.2 Under certainty . . . . . . . . . . . . . . . . . . . . . . . . . . 86
4.2.3 Aggregate risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
4.3 Central bank intervention . . . . . . . . . . . . . . . . . . . . . . . . 98
4.3.1 Welfare function . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.3.2 Asset market . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
4.3.3 Goods market . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4.3.4 Optimal central bank intervention . . . . . . . . . . . . . . . . 101
4.3.5 Welfare implications and the moral hazard efiect . . . . . . . . 103
4.3.6 Monetarypolicyundercommitmentand furthermodelexten-
sions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
4.4 Idiosyncratic risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
4.4.1 Standard model . . . . . . . . . . . . . . . . . . . . . . . . . . 109
4.4.2 Model with transaction costs. . . . . . . . . . . . . . . . . . . 111Table of contents iv
4.4.3 From small shocks to large impacts: Propagation mechanisms 113
4.5 Related theoretical literature . . . . . . . . . . . . . . . . . . . . . . . 115
4.5.1 Greenspan put option . . . . . . . . . . . . . . . . . . . . . . 115
4.5.2 Market segmentation . . . . . . . . . . . . . . . . . . . . . . . 117
4.5.3 Market microstructure theory . . . . . . . . . . . . . . . . . . 118
4.5.4 Public supply of liquidity. . . . . . . . . . . . . . . . . . . . . 118
4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Appendix 4.A Solution to investors’ problem under aggregate risk . . . . 121
Appendix 4.B Optimal central bank intervention with a quadratic loss
function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125LIST OF FIGURES
2.1 Variation of discount factor fl, TP vs. DIS. . . . . . . . . . . . . . . . 21
2.2 V oft factor fl using conditional expectations of loss
function, TP vs. DIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3 Variation of weight on the output gap !, TP vs. DIS. . . . . . . . . . 23
2.4 V of degree of price rigidity ‡, TP vs. DIS. . . . . . . . . . . . 24
2.5 Variation of degree of price rigidity ‡ for ‡ >0:9, TP vs. DIS. . . . . 24
2.6 V of degree of serial correlation ‰ in the benchmark model,
TP vs. DIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.7 Variation of degree of serial correlation ‰ with ! =10, TP vs. DIS. . 26
c2.8 RL depending on y and u . . . . . . . . . . . . . . . . . . . . . . . 27¡1 0
2.9 AS-AD-Diagram in t=0 for two symmetric cost-push shocks u . . . . 280
2.10 Discounted per-period loss values L forjy j=0:02 andju j=0:01. 29TP;t ¡1 0
LOPc2.11 RL= depending on y and u . . . . . . . . . . . . . . . . . . . 32¡1 0LDIS
2.12 Variation of discount factor fl, OP vs. DIS. . . . . . . . . . . . . . . . 35
2.13 V of weight on the output gap !, OP vs. DIS