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Business Cycles, Monetary Policy and Oil Prices

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PST)

Manchester Grand Hyatt San Diego, Promenade B
Hosted By: Society for Nonlinear Dynamics and Econometrics
  • Chair: Hilde C. Bjørnland, BI Norwegian Business School

The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements

Diego R. Kanzig
,
London Business School

Abstract

This paper proposes a novel approach to study the macroeconomic effects of oil prices, exploiting institutional features of OPEC and high-frequency data. Using variation in futures prices around OPEC announcements as an instrument, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production and an increase in inventories. This has consequences for the U.S. economy: activity falls, prices and inflation expectations rise, and the dollar depreciates – providing evidence for a strong channel operating through supply expectations.

State Dependence of Monetary Policy Across Business, Credit and Interest Rate Cycles

Sami Alpanda
,
University of Central Florida
Eleonora Granziera
,
Norges Bank
Sarah Zubairy
,
Texas A&M University

Abstract

We 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

Marcin Bielecki
,
Narodowy Bank Polski and University of Warsaw
Michal Brzoza-Brzezina
,
Narodowy Bank Polski and SGH Warsaw School of Economics
Marcin Pawel Kolasa
,
Narodowy Bank Polski and SGH Warsaw School of Economics

Abstract

More and more is known about the distributional consequences of traditional monetary policy. We understand much less about the effects of unconventional policy measures, including communication about future policy actions (forward guidance). This paper uses a life-cycle model with a rich asset structure, and standard nominal and real rigidities, to investigate this topic. 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 pro les 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 adjustments, their distributional effects are of relatively minor importance, and are dwarfed by changes in labor income flows and financial asset returns. Both anticipated and unanticipated policy easing redistribute welfare from older to younger generations. However, the scale of this redistribution is larger for conventional monetary policy.

A New Approach to Dating the Reference Cycle

Maximo Camacho
,
University of Murcia
Maria Dolores Gadea
,
University of Zaragoza
Ana Gomez Loscos
,
Bank of Spain

Abstract

This paper proposes a new approach to the analysis of the reference cycle turning points, de fined on the basis of the specifi c turning points of a broad set of coincident economic indicators. Each individual pair of specifi c peaks and troughs from these indicators is viewed as a realization of a mixture of an unspeci ed 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 speci cation is equivalent to a multiple change-point model. Bayesian estimation of fi nite 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.
Discussant(s)
James D. Hamilton
,
University of California-San Diego
Oscar Jorda
,
Federal Reserve Bank of San Francisco
Francesco Furlanetto
,
Norges Bank
Marcelle Chauvet
,
University of California-Riverside
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • C5 - Econometric Modeling