Showing posts from January, 2016

Does the more accommodative monetary policy lead to stronger fiscal policy effects?

Why is it interesting? This comparison highlights the importance of monetary policy accommodation for fiscal policy effects. It compares the impact of government spending by looking at different central bank reaction functions - model-specific estimated rule from Cogan et al. (2010) and the much more accommodative user-specified rule (as in Bernanke et al. (1999)) that responds only to lagged values of inflation and the interest rate and does not react to GDP. What to do on the MMB? Models: US_CCTW10 Policy Rules: User specified rule (set 0.9 for interest_t-1 and 0.11 for infation_t-1), Model specific rule Shocks: Fiscal Policy Shock Variables: Inflation, Interest, Output What is interesting? The increase in government purchases induces much stronger effects on aggregate GDP under the user-specified rule. Even in the absence of rule-of-thumb consumers, the GDP upshot exceeds unity in the first 4 quarters. The much more accommodative monetary policy regime allows for a

Does the population share of rule-of-thumb consumers matter for the size of the fiscal multiplier?

Why is it interesting? This comparison evaluates the sensitivity of fiscal policy effects to the parameters governing household consumption choices. It compares the effects of government spending depending on the share of Keynesian-style rule-of-thumb households (w) – those that simply consume all current disposable income. Three cases are considered – share of 0 percent (all consumers are forward-looking and base their decision on expected life-time income), 26.5 percent (estimated value within the model) and 50 percent (an upper limit of estimates found in the literature on the U.S. economy). What to do on the MMB? Go to "Menu" > "Edit Rules/Models" and click the plus icon to add two additional models (in this example, US_CCTW100 and US_CCTW100265). Then copy the json and the mod file from US_CCTW10 and paste them in the two new models. Change model names in the json and mod files of the two new models. Set "omega" to 0 and 0.265 in the mod file o

Does a different implementation of financial frictions influence monetary policy decisions?

Why is it interesting? The comparison shows the effect of an unanticipated increase in the nominal interest rate of one percentage point for the commonly defined macroeconomic aggregates between different financial frictions. What to do on the MMB? Models: US_CD08, US_CMR14, US_DG08, US_SW07, NK_BGG99 Policy Rules: Smets and Wouters (2007) Shocks: Monetary Policy Shock Variables: Inflation, Interest, Output, Output gap, Consumption, Investment What is interesting? The magnitude, timing and dynamic pattern of responses differ substantially across models. It is particularly striking that the smaller New Keynesian models NK_BGG99 and US_CD08 display much stronger responses of output and inflation and a much smaller response of the nominal interest rate than the medium-size DSGE models US_SW07, US_DG08 and US_CMR14. This diversity of responses to a monetary policy shock stands in contrast to the findings of Taylor and Wieland (2012). The reason is that in these two models moneta