nep-mac New Economics Papers
on Macroeconomics
Issue of 2023‒08‒28
eight papers chosen by
Daniela Cialfi, Universita' di Teramo

  1. Optimal Monetary Policy with r* By Roberto M. Billi; Jordi Galí; Anton Nakov
  2. The ECB Strategy Review - Implications for the Space of Monetary Policy By Lucian Briciu; Stefan Hohberger; Luca Onorante; Beatrice Pataracchia; Marco Ratto; Lukas Vogel
  3. Monetary Transmission through Bank Securities Portfolios By John Krainer; Pascal Paul
  4. The Fiscal Effects of Terms-of-Trade-Driven Inflation By Gergö Motyovszki
  5. Credit cycles revisited By Urban, Jörg
  6. Crop improvements for future‐proofing European food systems: A focus‐group‐driven analysis of agricultural production stakeholder priorities and viewpoints By Stacia Stetkiewicz; Jonathan Menary; Abhishek Nair; Mariana Rufino; Arnout R.H. Fischer; Marc Cornelissen; Remi Duchesne; Adrien Guichaoua; Petra Jorasch; Stephane Lemarié; Amrit Nanda; Ralf Wilhelm; Jessica A.C. Davies
  7. Implementing a Just Energy Transition By Minh Ha-Duong
  8. El Niño impacts in the Inkomati catchment By Montes, Carlo

  1. By: Roberto M. Billi; Jordi Galí; Anton Nakov
    Abstract: We study the optimal monetary policy problem in a New Keynesian economy with a zero lower bound (ZLB) on the nominal interest rate, when the steady state natural rate (r*) becomes permanently negative. We show that the optimal policy aims to approach gradually a new steady state with positive average inflation. Around that steady state, the optimal policy implies well defined (second-best) paths for inflation and output in response to shocks to the natural rate. Under plausible calibrations, the optimal policy implies that the nominal rate remains at its ZLB most of the time. Despite the latter feature, the central bank can implement the optimal outcome as a unique equilibrium by means of an appropriate nonlinear interest rate rule. In order to establish that result, we derive sufficient conditions for local determinacy in a general model with endogenous regime switches.
    JEL: E32 E5
    Date: 2023–07
  2. By: Lucian Briciu; Stefan Hohberger; Luca Onorante; Beatrice Pataracchia; Marco Ratto; Lukas Vogel
    Abstract: This paper investigates two important elements of the ECB’s 2021 monetary policy strategy review in an estimated structural open-economy macro model of the euro area: (a) explicit symmetry of the 2% inflation target, which can be expected to lower the risk of hitting the effective lower bound (ELB) on short-term interest rates by raising average inflation towards the target, and (b) commitment to forceful or persistent monetary accommodation in a low interest rate environment, here interpreted as low-for-longer response in the recovery from the ELB. We simulate the model with draws from the estimated distribution of shocks. Both elements increase average inflation and reduce the average output gap. Stabilisation gains are modest in quantitative terms, however, for the given illustrative policy rules, and they are more pronounced when the economy operates at the ELB. Important in the current context, the low-for-longer policy in the model does not jeopardise inflation stabilisation in the event of (inflationary) negative supply shocks at the exit from the ELB. With private sector ‘myopia’ instead of fully rational expectations, the low-for-longer rule still yields stabilisation gains at the ELB, but they shrink in quantitative terms.
    JEL: E30 E52 E58
    Date: 2023–07
  3. By: John Krainer; Pascal Paul
    Abstract: We study the transmission of monetary policy through bank securities portfolios for the United States using granular supervisory data on bank securities, hedging positions, and corporate credit. We find that banks that experienced larger market value losses on their securities during the monetary tightening cycle in 2022 extended relatively less credit to firms. Such a spillover effect was stronger for (i) available-for sale securities, (ii) unhedged securities, (iii) low-capitalized banks, and (iv) banks that have to include unrealized gains and losses on their available-for-sale securities in their regulatory capital. Our findings provide evidence for a forceful transmission channel of monetary policy that is shaped by the regulatory framework of the banking system.
    Keywords: banks; firms; securities; monetary policy
    JEL: E32 E43 E44 E51 E52 E60 G21 G32
    Date: 2023–07–26
  4. By: Gergö Motyovszki
    Abstract: This paper looks at whether the recent sharp spike in inflation can be beneficial for public debt sustainability by eroding the real value of nominal debt. Simulations with the European Commission’s QUEST model suggest that if the source of inflation is an adverse terms-of-trade shock, then it leads to a rising public debt-to-GDP ratio. In this case, the debt-reducing effect of higher inflation is outweighed by the adverse effects of slower real growth, a declining primary budget balance, and higher interest rates as an active monetary policy tightens to fight inflationary pressures. The results are highly policy-dependent: shorter consolidated debt maturity (brought about by past QE programs) would speed up the rise in interest expenditures, while a more accommodative monetary policy would delay them, also supporting nominal growth. The reaction of the primary fiscal balance (via automatic stabilisers, inflation indexation and debt-stabilisation rules) also matters. However, the baseline result that the debt-to-GDP ratio rises in response to an adverse terms-oftrade shock is fairly robust across all but the most extreme alternative policy scenarios
    JEL: E52 E62 E63 F41 F44 H62 H63
    Date: 2023–07
  5. By: Urban, Jörg
    Abstract: Credit and business cycles play an important role in economic research, especially for central banks and supervisors. We reexamine a dynamic model proposed by Kiyotaki and Moore (1997) of an economy with an endogenous credit limit. They claim that a small temporary shock generates large and persistent deviations from the steady state due to a positive feedback loop and the endogenous credit constraint. We mathematically show that contrary to common belief the model does not show amplification and persistence is visible only for a few parameter settings. Kiyotaki and Moore have linearized the model in deviations of landholdings and found that these deviations from the equilibrium are large. This is mathematically inconsistent, because any higher order term would then be more important, rendering any finite-order Taylor expansion invalid. Further, we show that spillover effects in an economy with two distinct sectors are small. The strong amplification present in the original results, which supposedly is due to the large inter-temporal or dynamic multiplier effect, is spurious. The dynamic multiplier effect is of similar size than the static effect and in all cases numerically small.
    Keywords: Amplification, credit constraints, credit cycles, dynamic economies, Taylor expansion
    JEL: E32 E37 E51 E52
    Date: 2023
  6. By: Stacia Stetkiewicz (Lancaster University, UON - University of Nottingham, UK); Jonathan Menary (Lancaster University, University of Oxford); Abhishek Nair (WUR - Wageningen University and Research [Wageningen]); Mariana Rufino (Lancaster University); Arnout R.H. Fischer (WUR - Wageningen University and Research [Wageningen]); Marc Cornelissen (BASF Innovat Ctr Gent, Ghent, Belgium); Remi Duchesne (Acta - Les instituts techniques agricoles); Adrien Guichaoua (Acta - Les instituts techniques agricoles); Petra Jorasch (Euroseeds, Brussels); Stephane Lemarié (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Amrit Nanda (Plants FutureEuropean Technol Platform, Brussels); Ralf Wilhelm (JKI - Julius Kühn-Institut); Jessica A.C. Davies (Lancaster University)
    Abstract: Crop breeding is one of the main tools which can assist in future-proofing food systems for more sustainable outcomes. In order to ensure priorities are aligned with the needs and wants of food system actors, it is essential to engage with key stakeholders to understand preferences on plant breeding solutions. This study presents results from a series of online focus groups conducted with agricultural production related stakeholders (i.e. farmers and farmer representatives, policymakers and NGOs) regarding the potential for crop improvement to future-proof European food systems. Stakeholders shared concern around climate change and environmental impacts (particularly drought and heat stress), and general agreement about the need to develop resilient crops which combine multiple positive attributes, while reducing trade-offs and negative externalities. Stakeholders also prioritized plant breeding solutions for areas where they felt they had little agency, and existing alternative solutions, such as improving input use efficiency, or altering diets to be considered where these are available. This highlights the need for the crop breeding community to focus its attentions on the 'most hard to fix' issues, where in-field measures are currently not offering viable solutions, to maximize acceptance and adoption by agricultural production stakeholders. It also highlights that consideration of trade-offs, within plant and within a broader agri-food context, must be integrated into crop breeding research and development, with trade-off analysis an explicit component of breeding research. Understanding broader agri-food system knock-on effects of plant innovation is a non-trivial challenge requiring interdisciplinary research and close partnerships with food system stakeholders.
    Keywords: Focus groups, Plant breeding, Stakeholder engagement, Sustainable food systems
    Date: 2023–01
  7. By: Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Vietnam is at a critical juncture in its energy transition. While robust economic growth drives electricity demand, sustainability concerns necessitate a shift to renewable sources. International cooperation can provide vital support through knowledge, technology and finance. However, funding proposals like the Just Energy Transition Partnership (JETP) require balanced evaluation. Transition policies must also incorporate multifaceted notions of justice and adaptively blend planning with market forces. Seizing opportunities while overcoming hurdles demands policy innovation, stakeholder inclusion and evidence-based analysis. With creativity, pragmatism and social responsibility, Vietnam can pioneer an equitable transition that meets development needs cost-effectively. I present an integrated perspective across technical, financial, political and social dimensions, and welcome expert input on charting an optimal pathway during this pivotal moment.
    Date: 2023–07–26
  8. By: Montes, Carlo
    Abstract: Near normal temperatures are predicted for the Inkomati catchment from July to December 2023. Near normal rainfall amounts are predicted for the Inkomati catchment from July to December 2023. A reduction in rainfall, higher than usual temperatures and evaporative demand. Drought conditions induced by the 2023 strong El Niño event are expected for the Inkomati catchment from January to March 2024 and likely until the next wet season.
    Keywords: SOUTH AFRICA; SOUTHERN AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; temperature measurement; rainfall; evaporation; climate; sea surface temperature; El Niño; watersheds; drought; trade winds
    Date: 2023

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