Sustek, Roman (2009): Monetary Business Cycle Accounting.
Download (322Kb) | Preview
This paper investigates the quantitative importance of various types of frictions for inflation and nominal interest rate dynamics by extending business cycle accounting to monetary models. Representing a variety of real and nominal frictions as `wedges' to standard equilibrium conditions allows a quantitative assessment of those frictions. Decomposing the data into movements due to these wedges shows that frictions that are equivalent to wedges in TFP and equilibrium conditions for asset markets are essential. In contrast, wedges in equilibrium conditions for capital accumulation and the resource constraint, and wedges capturing distortionary effects of sticky prices, play only a secondary role.
|Item Type:||MPRA Paper|
|Original Title:||Monetary Business Cycle Accounting|
|Keywords:||Business cycle accounting, inflation, nominal interest rate|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Roman Sustek|
|Date Deposited:||26. Sep 2009 06:48|
|Last Modified:||12. Feb 2013 12:26|
Ahearne, A., F. E. Kydland and M. A. Wynne, Ireland's Great Depression," Work- ing Paper No. 0510, Federal Reserve Bank of Dallas, 2005.
Atkeson, A. and P. J. Kehoe, On the Need for a New Approach to Analyzing Monetary Policy," NBER Working Paper No. 14260, 2008.
Backus, D. K., B. R. Routledge and S. Zin, Asset Prices in Business Cycle Analysis," Mimeo, New York University, 2007.
Calvo, G., Staggered Prices in a Utility-Maximizing Framework," Journal of Monetary Economics 12 (1983), 383-98.
Canzoneri, M., R. E. Cumby and B. T. Diba, Euler Equations and Money Market In- terest Rates: A Challenge for Monetary Policy Models," Journal of Monetary Economics 54 (2007), 1863-81.
Chakraborty, S., Business Cycles in a Neoclassical Growth Model: How Important are Technology Shocks as a Propagation Mechanism?," Mimeo, 2005.
Chari, V. V., P. J. Kehoe and E. R. McGrattan, Business Cycle Accounting," Econometrica 75 (2007a), 781-836.
---, Comparing Alternative Representations, Methodologies, and Decompositions in Business Cycle Accounting," Staff Report No. 384, Federal Reserve Bank of Minneapolis, 2007b.
Christiano, L. J. and J. Davis, Two Flaws in Business Cycle Accounting," Mimeo, Northwestern University, 2006.
Christiano, L. J. and M. Eichenbaum, Liquidity Effects and the Monetary Transmis- sion Mechanism," American Economic Review 82 (1992), 346-53.
Christiano, L. J. and T. J. Fitzgerald, The Band Pass Filter," International Eco- nomic Review 44 (2003), 435-65.
Crucini, M. and J. Kahn, Tarifs and the Great Depression Revisited," Sta® Report No. 172, Federal Reserve Bank of New York, 2003.
Feenstra, R. C., Functional Equivalence between Liquidity Costs and the Utility of Money," Journal of Monetary Economics 17 (1986), 271-91.
Finn, M. G., A Theory of the Capacity Utilization/In°ation Relationship," Federal Re- serve Bank of Richmond Economic Quarterly 82 (1996), 67-85.
Fuerst, T. S., Liquidity, Loanable Funds, and Real Activity," Journal of Money, Credit, and Banking 29 (1992), 3-24.
Fuhrer, J. and G. Moore, Infation Persistence," Quarterly Journal of Economics 110 (1995), 127-159.
Gali, J. and M. Gertler, Infation Dynamics: A Structural Econometric Analysis," Journal of Monetary Economics 44 (1999), 195-222.
Gavin, W. T. and F. E. Kydland, The Nominal Facts and the October 1979 Policy Change," Reserve Bank of St. Louis Quarterly Review November/December (2000), 39- 61.
Gavin, W. T., F. E. Kydland and M. R. Pakko, Monetary Policy, Taxes, and the Business Cycle," Journal of Monetary Economics 54 (2007), 1587-1611.
Goffe, W. L., G. D. Ferrier and J. Rogers, Global Optimization of Statistical Functions with Simulated Annealing," Journal of Econometrics 60 (1994), 65-99.
Hall, R. E., Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics 15 (1997), 223-50.
Hansen, G. D. and E. C. Prescott, Recursive Methods for Computing Equilibria of Business Cycle Models," in T. F. Cooley, ed., Frontiers of Business Cycle Research (Princeton University Press, 1995).
Hansen, L. P. and K. J. Singleton, Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy 91 (1983), 249-65.
Henriksen, E., F. E. Kydland and R. ·Sustek, The High Cross-Country Correlations of Prices and Interest Rates," Mimeo, University of Oslo, 2008.
Hodrick, R. J. and E. C. Prescott, Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit, and Banking 29 (1997), 1-16.
Ireland, P. N., Technology Shocks in the New-Keynesian Model," Review of Economics and Statistics 86 (2004), 923-36.
Kersting, E., The 1980s Recession in the UK: A Business Cycle Accounting Perspective," Review of Economic Dynamics 11 (2008), 179-91.
King, R. G. and M. W.Watson, Money, Prices, Interest Rates and the Business Cycle," Review of Economics and Statistics 78 (1996), 35-53.
Kobayashi, K. and M. Inaba, Business Cycle Accounting for the Japanese Economy," RIETI Discussion Paper No. 05-E-023, 2006.
Lucas, R. E. J., Liquidity and Interest Rates," Journal of Economic Theory 50 (1990), 237-264.
McGrattan, E., Predicting the Effects of Federal Reserve Policy in a Sticky-Price Model: An Analytical Approach," Working paper No. 598, Federal Reserve Bank of Minneapolis, 1999.
Mulligan, C. B., A Dual Method of Empirically Evaluating Dynamic Competitive Equi- librium Models with Market Distortions, Applied to the Great Depression and World War II," NBER Working paper No. 8775, 2002.
Primiceri, G. E., E. Schaumburg and A. Tambalotti, Intertemporal Disturbances," NBER Working Paper No. 12243, 2006.
Rotemberg, J., Monopolistic Price Adjustment and Aggregate Output," Review of Eco- nomic Studies 49 (1982), 517-31.
Smets, F. and R. Wouters, Shocks and Frictions in U.S. Business Cycles: A Bayesian DSGE Approach," American Economic Review 97 (2007), 586-606.
Sustek, R., Monetary Business Cycle Accounting," Mimeo, 2009.
Taylor, J. B., Discretion Versus Policy Rules in Practice," Carnegie-Rochester Confer- ence Series on Public Policy 39 (1993), 195-204.
Wang, P. and Y. Wen, Infation Dynamics: A Cross-Country Investigation," Journal of Monetary Economics 54 (2007), 2004-31.
Woodford, M., Interest and Prices: Foundations of a Theory of Monetary Policy (Prince- ton University Press, 2003).