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1 – 10 of over 8000Richardson Kojo Edeme, Chinedu Uche Erobu and Aduku Ebikabowei Biedomo
Shapoor Zarei, Hussain Marzban, Ali H. Samadi and Ahmad Sadraei Javaheri
The purpose of this paper is to investigate the effects of news shocks on monetary policies using the dynamic stochastic general equilibrium (DSGE) model. To this end, two kinds…
Abstract
Purpose
The purpose of this paper is to investigate the effects of news shocks on monetary policies using the dynamic stochastic general equilibrium (DSGE) model. To this end, two kinds of news shocks (known as technology and consumer preferences) are defined according to Khan and Tsoukalas’ (2012) approach.
Design/methodology/approach
In order to construct and simulate the DSGE model to approaching the real conditions in a case study, consumption habits in the utility function were concerned based on the assumption of the zero-value obtained from multiplying the inflation by the real interest rate in the Fisher’s equation, whereas the real interest rates in the long run were appointed as negative remark in simulating the monetary policy models. The estimation and simulation results for the research models indicated that monetary policies using the interest rate instrument identified the news shocks less frequently than monetary policies using the monetary base instrument.
Findings
The approximate value of the social loss function in the optimal commitment and discretionary monetary policies suggests that the optimal commitment policy is estimated to be lower in both cases. Due to value of the social loss function in optimal monetary policies with nominal interest rate instrument in the presence of news shocks, this could be claimed that monetary policy with interest rate instrument is more appropriate than the monetary policy with a monetary base instrument.
Originality/value
The approximate value of the social loss function in the optimal commitment and discretionary monetary policies suggests that the optimal commitment policy is estimated to be lower in both cases.
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The paper includes characterizing Ramsey policy in a cash-in-advance monetary model, under flexible and sticky prices, and with different fiscal instruments.
Abstract
Purpose
The paper includes characterizing Ramsey policy in a cash-in-advance monetary model, under flexible and sticky prices, and with different fiscal instruments.
Design/methodology/approach
The paper analytically and numerically characterizes the dynamic properties of Ramsey allocations. The author computes dynamics by solving second-order approximations to the Ramsey planner’s policy functions around a non-stochastic Ramsey steady state.
Findings
The Friedman rule is not mainly optimal in a cash-in-advance model with distorting taxes. The Ramsey-optimal policy with both taxes on income and consumption calls for a high inflation rate that is extremely volatile, despite the fact that changing prices is costly.
Practical implications
The optimality of zero nominal interest rate under flexible prices in monetary models is not mainly the case and quite depends on the preferences. The optimality of a zero inflation rate under sticky prices also very much depends on the assumed set of fiscal instruments.
Originality/value
The non-optimality of the Friedman rule under flexible prices is quite new. Moreover, studying the optimal fiscal and monetary policy in a New Keynesian model with a rich set of fiscal instruments is also quite original.
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Sufficiently persistent rise in nominal interest increases inflation rate in short-run. This short-run comovement of nominal interest rate and inflation rate is known as…
Abstract
Sufficiently persistent rise in nominal interest increases inflation rate in short-run. This short-run comovement of nominal interest rate and inflation rate is known as Neo-Fisherianism. This chapter proposes a policy based on Neo-Fisherianism to escape Zero Lower Bound (ZLB) using a textbook Forward Looking New Keynesian Model. I have shown that proposed policy with properly chosen inflation target and persistence can stimulate economy and escape ZLB by raising nominal interest rate. I have also shown that the proposed policy is robust to varying degrees of price stickiness.
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Questionnaire surveys made at currency markets around the world reveal that currency trade to a large extent not only is determined by an economy's performance or expected…
Abstract
Purpose
Questionnaire surveys made at currency markets around the world reveal that currency trade to a large extent not only is determined by an economy's performance or expected performance. Indeed, a fraction is guided by technical trading, which means that past exchange rates are assumed to provide information about future exchange rate movements. The purpose of this paper is to ask how a successful monetary policy should be designed when technical trading in the form of trend following is used in currency trading.
Design/methodology/approach
The paper embeds an optimal policy rule into Galí and Monacelli's dynamic stochastic general equilibrium (DSGE) model for a small open economy, which is augmented with trend following in currency trading, to examine the prerequisites for a successful monetary policy. Specifically, the conditions for a determinate rational expectations equilibrium (REE) that also is stable under least squares learning are in focus. The paper also computes impulse‐response functions for key variables to study how the economy returns to steady state after being hit by a shock.
Findings
The paper finds that a determinate REE that also is stable under least squares learning often is the outcome when there is a limited amount of trend following in currency trading, but that a more flexible inflation rate targeting in monetary policy sometimes cause an indeterminate REE in the economy. Thus, strict, or almost strict, inflation rate targeting in monetary policy is recommended also when there is technical trading in currency trading and not only when all currency trading is guided by fundamental analysis (in the form of rational expectations). This result is a new result in the literature.
Originality/value
There are already models in the literature on monetary policy design that incorporate technical trading in currency trading into an otherwise standard DSGE model. There is also a huge amount of DSGE models in the literature in which monetary policy is optimal. However, the model in this paper is the first model, to the best of the author's knowledge, where technical trading in currency trading and optimal monetary policy are combined in the same DSGE model.
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Eiji Okano, Masataka Eguchi, Hiroshi Gunji and Tomomi Miyazaki
We analyze fluctuations in inflation and the nominal exchange rate under optimal monetary policy with local currency pricing by developing two-country DSGE local currency pricing…
Abstract
We analyze fluctuations in inflation and the nominal exchange rate under optimal monetary policy with local currency pricing by developing two-country DSGE local currency pricing and producer currency pricing models. We estimate our models using Bayesian techniques with Japanese and US data, and calculate impulse response functions. Our estimation results show that local currency pricing is strongly supported against producer currency pricing. From the estimated parameters, we show that completely stabilizing consumer price index inflation is optimal from the viewpoint of minimizing welfare costs and that completely stabilizing consumer price index inflation is consistent with completely stabilizing the nominal exchange rate.
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