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on Dynamic General Equilibrium |
| By: | Radim Bohacek; Hugo Rodriguez Mendizabal |
| Abstract: | This paper analyzes the propagation of monetary policy shocks through the creation of credit in an economy. Models of the monetary transmission mechanism typically feature responses which last for a few quarters contrary to what the empirical evidence suggests. To propagate the impact of monetary shocks over time, these models introduce adjustment costs by which agents find it optimal to change their decisions slowly. This paper presents another explanation that does not rely on any sort of adjustment costs or stickiness. In our economy, agents own assets and make occupational choices. Banks intermediate between agents demanding and supplying assets. Our interpretation is based on the way banks create credit and how the monetary authority affects the process of financial intermediation through its monetary policy. As the central bank lowers the interest rate by buying government bonds in exchange for reserves, high productive entrepreneurs are able to borrow more resources from low productivity agents. We show that this movement of capital among agents sets in motion a response of the economy that resembles an expansionary phase of the cycle. |
| Keywords: | Credit, Monetary policy shock, Heterogeneous agents |
| JEL: | E50 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp244&r=dge |
| By: | V. V. Chari; Patrick J. Kehoe; Ellen R. McGrattan |
| Date: | 2005–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:122247000000000880&r=dge |
| By: | Roger Lagunoff (Georgetown University) (Department of Economics, Georgetown University) |
| Abstract: | This paper examines existence of Markov equilibria in the class of dynamic political games (DPGs). DPGs are dynamic games in which political institutions are endogenously determined each period. The process of change is both recursive and instrumental: the rules for political aggregation at date t+1 are decided by the rules at date t, and the resulting institutional choices do not affect payoffs or technology directly. Equilibrium existence in dynamic political games requires a resolution to a political fixed point problemin which a current political rule (e.g., majority voting) admits a solution only if all feasible political rules in the future admit solutions in all states. If the class of political rules is dynamically consistent, then DPGs are shown to admit political fixed points. This result is used to prove two equilibrium existence theorems, one of which implies that equilibrium strategies, public and private, are smooth functions of the economic state. We discuss practical applications that require existence of smooth equilibria. Classification-JEL Codes: C73, D72, D74 |
| Keywords: | Recursive, dynamic political games, political fixed points, dynamically consistent rules |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~05-05-07&r=dge |
| By: | Oviedo, P. Marcelo |
| Abstract: | By simplifying the computational tasks and by providing step-by-step explanations of the procedures required to study a linear dynamic rational expectations (LDRE) model, this paper and the accompanying ``LDRE Toolbox" of Matalb functions guide a researcher with almost no experience in computational work to resolve and study his own model. After coding the model following specific guidelines, a single function call is all that is needed to log-linearize the model; simulate it under exogenous sequences of shocks; compute sample and population moment conditions; and obtain impulse-response functions. Three classical models in the Real-Business-Cycles literature are solved and studied throughout to give detailed examples of the steps involved in solving and studying LDRE models using the LDRE Toolbox. Namely, the economies in Brock and Mirman (Optimal Growth and Uncertainty: the Discounted Case, Journal of Economic Theory, 4(3): 479-513; 1972); King, Plosser, and Rebelo (Production, Growth and Business Cycles I: The Basic Neoclassical Model, Journal of Monetary Economics 21: 195-232; 1988); and Mendoza (Real Business Cycles in a Small Open Economy, American Economic Review 81(4): 797-818; 1991). |
| JEL: | C6 E3 E4 |
| Date: | 2005–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12235&r=dge |
| By: | Mats Persson; Torsten Persson; Lars E.O. Svensson |
| Abstract: | This paper demonstrates how time consistency of the Ramsey policy - the optimal fiscal and monetary policy under commitment - can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite a general Ramsey policy, including timevarying polices with positive inflation and positive nominal interest rates. We compare our results with those in Persson, Persson, and Svensson (1987), Calvo and Obstfeld (1990), and Alvarez, Kehoe, and Neumeyer (2004). |
| JEL: | E31 E52 H21 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11088&r=dge |