Developments in Macroeconomics and Finance
Sunday, Jan. 8, 2023 10:15 AM - 12:15 PM (CST)
- Chair: Tatevik Sekhposyan, Texas A&M University
The Unattractiveness of Indeterminate Dynamic Equilibria
AbstractMacroeconomic forces that generate multiple equilibria often support locally-indeterminate dynamic equilibria in which a continuum of perfect foresight paths converge towards the same steady state. The set of rational expectations equilibria (REE) in such environments can be very large, although the relevance of many of them has been questioned on the basis that they may not be learnable. In this paper we document the existence of a learnable REE in such situations. However, we show that the dynamics of this learnable REE do not resemble perturbations around any of the convergent perfect foresight paths. Instead, the learnable REE treats the locally-indeterminate steady state as unstable, in contrast to it resembling a stable attractor under perfect foresight.
Talking Over Time: Dynamic Central Bank Communication
AbstractThis paper studies the optimal dynamic communication strategy of central banks using a Bayesian persuasion game framework. In a dynamic environment, financial market participants and the general public have misaligned interests because the present and future have different relevance in their optimization problems, leading to a novel tradeoff for the monetary authority. Compared to the static benchmark, I show that the central bank’s optimal dynamic communication policy should put a higher weight on talking about the present state than the future. In addition, the central bank should strategically send more noisy signals than in the static benchmark.
A Bewley Model of Asset Pricing
AbstractCapital adjustment costs and stochastic capital depreciation exist as additional frictions. Our model quantitatively accounts for economic data, including consumption and income distributions, and excels at producing the key properties of asset prices. Limited risk-sharing with costly capital adjustment lies at the center of explaining the cross-section of stock returns. Our model supports empirical asset pricing models employing firm-specific investment and profitability as factors. Relaxing the assumption of an incomplete market weakens or reverses quantitative results.
Federal Reserve Board
Federal Reserve Bank of Richmond
Bank of Canada
University of British Columbia
- E1 - General Aggregative Models
- G1 - Asset Markets and Pricing