Business Cycles, Monetary Policy and Oil Prices
Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PST)
- Chair: Hilde C. Bjørnland, BI Norwegian Business School
State Dependence of Monetary Policy Across Business, Credit and Interest Rate Cycles
AbstractWe investigate how the business, credit and interest rate cycles affect the monetary transmission
mechanism in advanced economies, using state-dependent local projection methods. In particular, we explore whether the impact of monetary policy shocks on output, bank credit and other macroeconomic and financial variables are less pronounced during periods of economic slumps, high household debt, and interest rate tightening cycles. We exploit the time-series variation within countries, as well as the cross-sectional variation across countries to investigate this issue. We then build a small-scale theoretical model, where households face collateral and debtservice constraints and are subject to income shocks, to rationalize these facts. The model points to the weakening of the home equity loan channel and refinancing, as possible reasons for the decline in monetary policy effectiveness during economic downturns, high debt periods, and tightening cycles.
Distributional Consequences of Conventional and Unconventional Monetary Policy
AbstractThis paper uses a life-cycle model with a rich asset structure, and standard nominal and real rigidities, to investigate the distributional consequences of traditional monetary policy and communication about its future course (forward guidance). The model is calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profiles of income and asset accumulation decisions are important determinants of redistributive effects of both anticipated and unanticipated monetary shocks. Even though house prices respond strongly to monetary policy easing, hurting young households, their distributional effects are dwarfed by changes in returns on nominal assets and labor market revival that work in the opposite direction. Both anticipated and unanticipated policy easing hence redistribute welfare from older to younger generations. The scale of this redistribution is larger for forward guidance if it is announced in the period when nominal interest rates are expected to remain fixed.
A New Approach to Dating the Reference Cycle
AbstractThis paper proposes a new approach to the analysis of the reference cycle turning points, defined on the basis of the specific turning points of a broad set of coincident economic indicators. Each individual pair of specific peaks and troughs from these indicators is viewed as a realization of a mixture of an unspecied number of separate bivariate Gaussian distributions whose different means are the reference turning points. These dates break the sample into separate reference cycle phases, whose shifts are modeled by a hidden Markov chain. The transition probability matrix is constrained so that the specication is equivalent to a multiple change-point model. Bayesian estimation of finite Markov mixture modeling techniques is suggested to estimate the model. Several Monte Carlo experiments are used to show the accuracy of the model to date reference cycles that suffer from short phases, uncertain turning points, small samples and asymmetric cycles. In the empirical section, we show the high performance of our approach to identifying the US reference cycle, with little difference from the timing of the turning point dates established by the NBER. In a pseudo real-time analysis, we also show the good performance of this methodology in terms of accuracy and speed of detention of turning point dates.
James D. Hamilton,
University of California-San Diego
Federal Reserve Bank of San Francisco
University of California-Riverside
- E3 - Prices, Business Fluctuations, and Cycles
- C5 - Econometric Modeling