on the welfare costs of monetary policy
TRANSCRIPT
On the Welfare Costs of Monetary Policy
Jean Blaise Nlemfu M.
Department of EconomicsUniversity of Quebec at Montreal
June 2016
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 1 / 25
Outline1 Introduction
BackgroundWhat This Paper DoesFindingsRelated literature
2 ModelFirms and Price settingHouseholds and Wage settingMonetary PolicyAggregationWelfare
3 Calibration4 Results
Welfare costsVolatilitiesImpulse Responses Analysis
5 ConclusionJean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 2 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.
They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)
Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rule
combine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)
Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflation
Lubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).Coibion and Gorodnichenko (2011)
Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)
Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)
Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)Based on an estimated Taylor rule
calibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflation
Ascari, Branzoli and Castelnuovo (2015)However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
Background
Clarida, Gali, and Gertler (2000) explore the role of monetary policy.They estimate a taylor type monetary policy rulecombine it with a calibrated sticky-price model with zero trend inflationLubik and Schorfheide(2004);Zandweghe, Hirose and Kurozumi (2015).
Coibion and Gorodnichenko (2011)Based on an estimated Taylor rulecalibrated staggered-price model with non-zero trend inflationAscari, Branzoli and Castelnuovo (2015)
However, the aforementioned literature has been silent about thewelfare implications.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 3 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.
Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE model
Inspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)
An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.
A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literature
and combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.
structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parameters
Trend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
What This Paper Does
Analyzes the implications of policy changes for the welfare.Using a medium-scale DSGE modelInspired by Ascari, Phaneuf and Sims (2015)An extended work along with :
A split sample : 1960:I -1983:IV and 1984:I - 2007:III.A calibrated Fed’s reaction function based on estimates in the literatureand combine it with our calibrated medium-scale New Keynesian model.structural parameters do not change except for shocks parametersTrend inflation and real per capita output growth are set at theirobserved values in each sample period.
Explores the link between shifting non-zero trend inflation andmacroeconomic variables volatilities.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 4 / 25
Findings
Welfare costs respond symmetrically to a rise and a decline in trendinflation, trend growth and the level of volatility over the pre- andpost-1984 periods.
An increase in the variance of shocks to the trend inflation processincreases means welfare costs by increasing the volatilities of outputand inflation in the pre-1984 period (Christiano, 2015).welfare costs in the post-1984 period are modest.
Changes in the Fed’s response to macroeconomic variables along withthe decline in trend inflation are the main sources of the shift inmacroeconomic variables volatilities (Coibion and Gorodnichenko,2011 and Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 5 / 25
Findings
Welfare costs respond symmetrically to a rise and a decline in trendinflation, trend growth and the level of volatility over the pre- andpost-1984 periods.
An increase in the variance of shocks to the trend inflation processincreases means welfare costs by increasing the volatilities of outputand inflation in the pre-1984 period (Christiano, 2015).
welfare costs in the post-1984 period are modest.Changes in the Fed’s response to macroeconomic variables along withthe decline in trend inflation are the main sources of the shift inmacroeconomic variables volatilities (Coibion and Gorodnichenko,2011 and Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 5 / 25
Findings
Welfare costs respond symmetrically to a rise and a decline in trendinflation, trend growth and the level of volatility over the pre- andpost-1984 periods.
An increase in the variance of shocks to the trend inflation processincreases means welfare costs by increasing the volatilities of outputand inflation in the pre-1984 period (Christiano, 2015).welfare costs in the post-1984 period are modest.
Changes in the Fed’s response to macroeconomic variables along withthe decline in trend inflation are the main sources of the shift inmacroeconomic variables volatilities (Coibion and Gorodnichenko,2011 and Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 5 / 25
Findings
Welfare costs respond symmetrically to a rise and a decline in trendinflation, trend growth and the level of volatility over the pre- andpost-1984 periods.
An increase in the variance of shocks to the trend inflation processincreases means welfare costs by increasing the volatilities of outputand inflation in the pre-1984 period (Christiano, 2015).welfare costs in the post-1984 period are modest.
Changes in the Fed’s response to macroeconomic variables along withthe decline in trend inflation are the main sources of the shift inmacroeconomic variables volatilities (Coibion and Gorodnichenko,2011 and Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 5 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)
Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)
Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)
Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)
This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).
Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Related literature
This paper is in line with a set of papers that examines the effects ofnon-zero trend inflation:
Ascari and Ropele (2007)Amano, Moran, Murchison, and Rennison (2009)Amano, Ambler, and Rebei (2007)Kiley (2007), Ascari and Ropele (2009), and Coibion andGorodnichenko (2011)This paper differs from the aforementioned :
it studies the implications of monetary policy changes for the welfarecosts over the pre- and post-1984.
The paper closest to ours : Ascari, Phaneuf and Sims (2015).Our paper is also closely related to Clarida, Gali, and Gertler (2000).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 6 / 25
Outline1 Introduction
BackgroundWhat This Paper DoesFindingsRelated literature
2 ModelFirms and Price settingHouseholds and Wage settingMonetary PolicyAggregationWelfare
3 Calibration4 Results
Welfare costsVolatilitiesImpulse Responses Analysis
5 ConclusionJean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 7 / 25
Final Goods Producers
Composite gross output :
Xt =(∫ 1
0Xt(j)
θ−1θ dj
) θθ−1
(1)
Input-demand function for the intermediate good :
Xt(j) =(Pt(j)
Pt
)−θXt , ∀j, (2)
Aggregate price indexe :
P1−θt =
∫ 1
0Pt(j)1−θdj (3)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 8 / 25
Intermediate Producers
The production function for a typical intermediate producer j :
Xt(j) = max{
AtΓt(j)φ(Kt(j)αLt(j)1−α
)1−φ−ΥtF , 0
}, (4)
F is a fixed cost, and production is required to be non-negative.Υt is a growth factor and F is chosen to keep profits zero along abalanced growth path.At follows a process with both a trending and stationary component :
At = AtAτt , (5)
Aτt = gAAτ
t−1 (6)
The stochastic process driving the detrended level of technology At isgiven by
At =(At−1
)ρA exp(sAuA
t
), 0 ≤ ρA< 1 (7)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 9 / 25
Profit Maximization and Price Setting
Firms set their price according to Calvo pricingSince all updating firms will choose the same reset price, the optimalreset price relative to the aggregate price index is p∗t ≡
P∗t
Pt.
The optimal pricing condition can be written:
p∗t = θ
θ − 1x1,tx2,t
. (8)
The auxiliary variables x1,t and x2,t can be written recursively :
x1,t = λrt νtXt + βξpEt(πt+1)θx1,t+1, (9)
x2,t = λrt Xt + βξpEt(πt+1)θ−1x1,t+1. (10)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 10 / 25
Labor Composite
The composite labor input is :
Lt =(∫ 1
0Lt(i)
σ−1σ di
) σσ−1
(11)
The input demand for labor of type-i :
Lt(i) =(Wt(i)
Wt
)−σLt (12)
The aggregate wage indexe is :
W 1−σt =
∫ 1
0Wt(i)1−σdi (13)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 11 / 25
Utility Maximization
The problem of a typical household :
maxCt ,Lt(i),Kt+1,Bt+1,It ,Zt
E0
∞∑t=0
βt(
ln (Ct − bCt−1)− ηLt(i)1+χ
1 + χ
)
subject to
Pt
(Ct + It + a(Zt)Kt
εI ,τt
)+ Bt+1
1 + it≤ Wt(i)Lt(i) + Rk
t ZtKt + Πt + Bt + Tt
wherea(Zt) = γ1(Zt − 1) + γ2
2 (Zt − 1)2
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 12 / 25
Utility Maximization
and the physical capital accumulation process,
Kt+1 = εI ,τt ϑt
(1− S
( ItIt−1
))It + (1− δ)Kt . (14)
Investment adjustment cost
S( It
It−1
)= κ
2
( ItIt−1
− 1)2, (15)
Two types of investment shocks (Justiniano et al., 2011)IST, shocks map one-to-one into the relative price of investmentgoodsMEI, ϑt , shocks do not impact the relative price of investmentwith
ϑt = (ϑt−1)ρI exp(sI uI
t
), 0 ≤ ρI < 1. (16)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 13 / 25
Wage setting
Households update their wages each period with the probability(1− ξw).The first order condition gives the following optimal wage :
w∗t = σ
σ − 1f1,tf2,t
. (17)
Recursively the terms f1,t and f2,t give the following :
f1,t = η
(wtw∗t
)σ(1+χ)L1+χ
t + βξwEt(πt+1)σ(1+χ)(w∗t+1
w∗t
)σ(1+χ)f1,t+1,
(18)and
f2,t = λrt
(wtw∗t
)σLt + βξwEt(πt+1)σ−1
(w∗t+1w∗t
)σf2,t+1. (19)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 14 / 25
Monetary Policy
Monetary policy consists of a talor-type rule
1 + it1 + i =
(1 + it−11 + i
)ρi [(πtπ
)απ( Yt
Yt−1g−1
Y
)αy]1−ρi
εrt . (20)
with it and i the nominal and steady state interest rate respectevelyπtπ the inflation gap,Yt
Y the output gap and ρi the interest ratesmootingαπ and αy the control parametersεr
t an exogenous shock to the policy rule, εrt∼iid
(0, σ2
εr).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 15 / 25
Aggregation
The aggregate input demands :
Γt(j) = φmct (stXt(j) + ΥtF) , (21)
Kt(j) = α(1− φ)mctrk
t(stXt(j) + ΥtF) , (22)
Lt(j) = (1− α)(1− φ)mctwt
(stXt(j) + ΥtF) . (23)
The Real GDP or Aggregate net output, Yt is given by :
Yt = Xt − Γt (24)
The aggregate resource constraint is given by
Yt = Ct + It + a(Zt)εI ,τ
tKt (25)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 16 / 25
Welfare
Aggregate Welfare :
Wt = ln(Ct − bCt−1)− ηvwt
L1+χt
1 + χ+ βEtWt+1 (26)
where vwt is the wage dispersion and is given by :
vwt = (1− ξw)
(w∗twt
)σ(1+χ)+ ξw
(wtπtwt−1
)σ(1+χ)vw
t−1 (27)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 17 / 25
Outline1 Introduction
BackgroundWhat This Paper DoesFindingsRelated literature
2 ModelFirms and Price settingHouseholds and Wage settingMonetary PolicyAggregationWelfare
3 Calibration4 Results
Welfare costsVolatilitiesImpulse Responses Analysis
5 ConclusionJean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 18 / 25
Calibration
Baseline calibration
Non-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )
Non-shock parameters, post-1984 (see Table 2 )Shock parameters (see Table 3 )
Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )
Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )
We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)
Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.
The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the data
The trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capita
Trend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.
Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Calibration
Baseline calibrationNon-shock parameters
Non-shock parameters, pre-1984 (see Table 1 )Non-shock parameters, post-1984 (see Table 2 )
Shock parameters (see Table 3 )Alternative calibration (see Table 4 )We use series from the Bureau of Economic Analysis (BEA)Based on a split sample : 1960:I -1983:IV and 1984:I - 2007:III.The trend growth rate of the investment shock is chosen to matchthe average growth rate of the relative price of investment in the dataThe trend growth rate of the neutral shock is picked to match theobserved average growth rate of output per capitaTrend inflation is set at its observed value in each period.Contribution of shocks to output growth volatility: MEI (50%),Neutral productivity (35%), Monetary policy (15%) followingJustiniano,Primiceri and Tambalotti (2010)
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 19 / 25
Outline1 Introduction
BackgroundWhat This Paper DoesFindingsRelated literature
2 ModelFirms and Price settingHouseholds and Wage settingMonetary PolicyAggregationWelfare
3 Calibration4 Results
Welfare costsVolatilitiesImpulse Responses Analysis
5 ConclusionJean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 20 / 25
Welfare costs
Mean consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )
in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).
in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )Steady state consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalent
Going from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )
in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )
in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Welfare costs
Mean consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to bearound:
in the baseline calibration : 8.38 and 2.34 respectively (see Table 5 )in the baseline calibration without trend growth : 4 and 0.137respectively (see Table 6 ).in the alternative calibration 13.56 and 2.37 respectively (see Table 7 )
Steady state consumption equivalentGoing from 0 to 4.75 percent and from 0 to 2.29 percent of trendinflation cause the welfare costs (in percent of consumption) to beabout :
in the baseline calibration 7.56 and 2.26 respectively (see Table 8 )in the baseline calibration without trend growth 3.57 and 0.123respectively (see Table 9 )in the alternative calibration 7.56 and 2.26 respectively (see Table 10 )
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 21 / 25
Volatilities
Unconditional volatilities
baseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilities
baseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )
alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilities
baseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )
The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilities
baseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilities
baseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilities
baseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )
Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )
Inflation volatility (see Table 15 )alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibration
Output volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibrationOutput volatility (see Table 16 )
Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibrationOutput volatility (see Table 16 )Output growth volatility (see Table 17 )
Inflation volatility (see Table 18 )Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibrationOutput volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibrationOutput volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.
interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibrationOutput volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.
Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Volatilities
Unconditional volatilitiesbaseline calibration (see Table 11 )alternative calibration (see Table 12 )The decline in the volatility of inflation is larger than those experiencedby output and output output growth.
Conditional volatilitiesbaseline calibration
Output volatility (see Table 13 )Output growth volatility (see Table 14 )Inflation volatility (see Table 15 )
alternative calibrationOutput volatility (see Table 16 )Output growth volatility (see Table 17 )Inflation volatility (see Table 18 )
Fluctuations in output volatility is accounted for by the N. shocks.interaction between trend inflation and MEI shocks is responsible forinflation volatility.Monetary shocks has a relatively larger contribution to the volatility ofoutput growth and its subsequent decline.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 22 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )
MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )
Monetary (see Figure 3 , Figure 6 , Figure 9 )Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.
Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.
Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.
We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)
along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Impulse Responses Analysis
IRFs relative to baseline calibration, alternative calibration and atheoritical exercise (experiment) respectively.
Neutral (see Figure 1 , Figure 4 , Figure 7 )MEI (see Figure 2 , Figure 5 , Figure 8 )Monetary (see Figure 3 , Figure 6 , Figure 9 )
Neutral productivity shocks appear to be the main source ofcontribution to the volatility of output.Fluctuations in the inflation volatility are largely accounted for by MEIshocks by more than the neutral productivity shocks.Monetary shocks play an important role as the main explanation forthe volatility of output growth and its subsequent decline in thepost-1984 period.We find sources of the shift in macroeconomic variables volatilities :
changes in the Fed’s response to macroeconomic variables (or policyresponse to the shocks) (Clarida, Gali, and Gertler, 2000)along with the decline in trend inflation ( Coibion and Gorodnichenko,2011; Arias, Ascari, Branzoli and Castelnuovo, 2015).
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 23 / 25
Outline1 Introduction
BackgroundWhat This Paper DoesFindingsRelated literature
2 ModelFirms and Price settingHouseholds and Wage settingMonetary PolicyAggregationWelfare
3 Calibration4 Results
Welfare costsVolatilitiesImpulse Responses Analysis
5 ConclusionJean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 24 / 25
Conclusion
We have provided the implications of monetary policy changes on thewelfare in the U.S economy over the pre-1984 and post-1984 periods.
We find the main sources of the shift in macroeconomic variablesvolatilities.Our findings are consistent with the results in the literature relative tothe welfare costs over both sample periods.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 25 / 25
Conclusion
We have provided the implications of monetary policy changes on thewelfare in the U.S economy over the pre-1984 and post-1984 periods.We find the main sources of the shift in macroeconomic variablesvolatilities.
Our findings are consistent with the results in the literature relative tothe welfare costs over both sample periods.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 25 / 25
Conclusion
We have provided the implications of monetary policy changes on thewelfare in the U.S economy over the pre-1984 and post-1984 periods.We find the main sources of the shift in macroeconomic variablesvolatilities.Our findings are consistent with the results in the literature relative tothe welfare costs over both sample periods.
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 25 / 25
Appendix
Table: Non-Shock Parameters, Pre-1984
β δ α η χ b κ γ20.99 0.025 1/3 6 1 0.7 3 0.05θ σ ξp ξw φ ρi απ αy6 6 0.66 0.66 0.61 0.81 1.65 0.2
Back
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 26 / 25
Appendix
Table: Non-Shock Parameters, Post-1984
β δ α η χ b κ γ20.99 0.025 1/3 6 1 0.7 3 0.05θ σ ξp ξw φ ρi απ αy6 6 0.66 0.66 0.61 0.84 1.77 0.16
Back
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 27 / 25
Appendix
Table: Shock Parameters
Pre-1984gA gI ρr sr ρI sI ρA sA1.002581−φ 1.0029 0 0.002 0.81 0.0164 0.95 0.0033Post-1984gA gI ρr sr ρI sI ρA sA1.00191−φ 1.0065 0 0.001 0.81 0.0089 0.95 0.0018
Back
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 28 / 25
Appendix
Table: Alternative calibration
ρi απ αy sua suinvs sur
Before 1984 0.75 1.15 0.125 0.0028 0.0117 0.002After 1984 0.75 2.3 0.125 0.0016 0.0106 0.0019
We set ρI to 0.9 and double απ coefficent in the post-1984 whilemaintaining ρi and αy at their pre-1984 level;and shocks are computed accordingly.
Back
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 29 / 25
Appendix
Table: Consumption Equivalents, Mean
π∗ 1.00→Pre-19841.0000 01.0475 0.0838Post-19841.0000 01.0229 0.0234
Mean C.E based on the baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 30 / 25
Appendix
Table: Consumption Equivalents, Mean
π∗ 1.00→Pre-19841.0000 01.0475 0.040Post-19841.0000 01.0229 0.00137
Mean C.E based on the baseline calibration without trend growthBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 31 / 25
Appendix
Table: Consumption Equivalents, Mean
π∗ 1.00→Pre-19841.0000 01.0475 0.1356Post-19841.0000 01.0229 0.0237
Mean C.E based on the alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 32 / 25
Appendix
Table: Consumption Equivalents, Steady State
π∗ 1.00→Pre-19841.0000 01.0475 0.0756Post-19841.0000 01.0229 0.0226
Steady state C.E based on the baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 33 / 25
Appendix
Table: Consumption Equivalents, Steady State
π∗ 1.00→Pre-19841.0000 01.0475 0.0357Post-19841.0000 01.0229 0.00123
Steady state C.E based on the baseline calibration without trendgrowth
Back
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 34 / 25
Appendix
Table: Consumption Equivalents, Steady State
π∗ 1.00→Pre-19841.0000 01.0475 0.0756Post-19841.0000 01.0229 0.0226
Steady state C.E based on the alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 35 / 25
Appendix
Table: Unconditional volatilities
π∗ σ(Y ) σ(∆Y ) σ(π)
Pre-1984 1.0475 0.1084 0.0120 0.0032Post-1984 1.0229 0.0449 0.0064 0.0015Variation - -0.5859 -0.4676 -0.5409
Unconditional volatilities based on the baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 36 / 25
Appendix
Table: Unconditional volatilities
π∗ σ(Y ) σ(∆Y ) σ(π)
Pre-1984 1.0475 0.1239 0.0094 0.0068Post-1984 1.0229 0.0394 0.0057 0.0012Variation - -0.6820 -0.3936 -0.8235
Unconditional volatilities based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 37 / 25
Appendix
Table: Output volatility
π∗ suinvs sua sur
Pre-1984 1.0475 0.0023 0.0040 0.0006Post-1984 1.0229 0.0017 0.0017 0.0006Variation - -0.2781 -0.5625 -0.04
Output volatilities based on baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 38 / 25
Appendix
Table: Output growth volatility
π∗ suinvs sua sur
Pre-1984 1.0475 0.0019 0.0017 0.0004Post-1984 1.0229 0.0011 0.0008 0.0003Variation - -0.4232 -0.5084 -0.1235
Output growth volatilities based on baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 39 / 25
Appendix
Table: Inflation volatility
π∗ suinvs sua sur
Pre-1984 1.0475 0.0002 0.0005 0.0001Post-1984 1.0229 0.0001 0.0002 0.0001Variation - -0.5797 -0.5411 -0.1363
Inflation volatilities based on baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 40 / 25
Appendix
Table: Output volatility
π∗ suinvs sua sur
Pre-1984 1.0475 0.0015 0.0031 0.0011Post-1984 1.0229 0.0010 0.0013 0.0009Variation - -0.3429 -0.5873 -0.1750
Output volatilities based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 41 / 25
Appendix
Table: Output growth volatility
π∗ suinvs sua sur
Pre-1984 1.0475 0.0014 0.0011 0.0008Post-1984 1.0229 0.0009 0.0007 0.0005Variation - -0.3492 -0.3433 -0.3774
Output growth volatilities based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 42 / 25
Appendix
Table: Inflation volatility
π∗ suinvs sua sur
Pre-1984 1.0475 0.0006 0.0003 0.0002Post-1984 1.0229 0.0001 0.0002 0.0001Variation - -0.8311 -0.4093 -0.5013
Inflation volatilities based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 43 / 25
Appendix
Figure: Neutral Shock
0 10 200
0.005
0.01
0.015
0.02output
0 10 20-10
-5
0
5x 10
-3 Hours
0 10 202
4
6
8
10
12
14x 10
-3Consumption
0 10 200
0.01
0.02
0.03
0.04Investment
0 10 20-0.01
-0.005
0
0.005
0.01
0.015Intermediate Input
0 10 200
0.002
0.004
0.006
0.008
0.01realwage
0 10 20-4
-2
0
2
4
6x 10
-3capital rental rate
0 10 20-6
-5
-4
-3
-2
-1
0x 10
-4nominal interest rate
0 10 20-5
-4
-3
-2
-1
0
1x 10
-3marginal cost
0 10 20-2
-1.5
-1
-0.5
0x 10
-3 inflation
0 10 200.005
0.01
0.015
0.02productivity
0 10 200
0.005
0.01
0.015
0.02Marginal Rate of Substitution
0 10 20-8
-6
-4
-2
0x 10
-3Wage Mark up
0 10 20-1
0
1
2
3
4
5x 10
-3Price Mark up
before 84after 84
IRFs relative to Neutral shock, based on the baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 44 / 25
Appendix
Figure: MEI Shock
0 10 200
0.002
0.004
0.006
0.008
0.01
0.012output
0 10 20-2
0
2
4
6
8x 10
-3 Hours
0 10 200
2
4
6
8x 10
-3Consumption
0 10 200
0.01
0.02
0.03
0.04Investment
0 10 200
0.002
0.004
0.006
0.008
0.01Intermediate Input
0 10 200.5
1
1.5
2
2.5
3x 10
-3 realwage
0 10 20-7
-6
-5
-4
-3
-2
-1x 10
-3capital rental rate
0 10 20-4
-2
0
2
4
6
8x 10
-4nominal interest rate
0 10 20-1
-0.5
0
0.5
1x 10
-3marginal cost
0 10 20-2
0
2
4
6x 10
-4 inflation
0 10 201
2
3
4
5
6x 10
-3productivity
0 10 202
4
6
8
10x 10
-3Marginal Rate of Substitution
0 10 20-8
-6
-4
-2
0x 10
-3Wage Mark up
0 10 20-1
-0.5
0
0.5
1x 10
-3Price Mark up
before 84after 84
IRFs relative to MEI shock, based on the baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 45 / 25
Appendix
Figure: Monetary Shock
0 10 200
0.5
1
1.5
2
2.5x 10
-3 output
0 10 20-5
0
5
10
15
20x 10
-4 Hours
0 10 204
6
8
10
12
14x 10
-4Consumption
0 10 200
1
2
3
4
5x 10
-3Investment
0 10 200
0.5
1
1.5
2
2.5x 10
-3Intermediate Input
0 10 201.5
2
2.5
3
3.5
4
4.5x 10
-4 realwage
0 10 20-5
0
5
10
15x 10
-4capital rental rate
0 10 20-8
-6
-4
-2
0
2x 10
-4nominal interest rate
0 10 200
1
2
x 10-4marginal cost
0 10 20-1
0
1
2
3
4x 10
-4 inflation
0 10 202
3
4
5
6
7x 10
-4productivity
0 10 200
1
2
3
4
5x 10
-3Marginal Rate of Substitution
0 10 20-5
-4
-3
-2
-1
0x 10
-3Wage Mark up
0 10 20-3
-2.5
-2
-1.5
-1
-0.5
0x 10
-4Price Mark up
before 84after 84
IRFs relative to Monetary shock, based on the baseline calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 46 / 25
Appendix
Figure: Neutral Shock
0 5 10 15 200
0.005
0.01
0.015output
0 5 10 15 20-10
-5
0
5x 10
-3 Hours
0 5 10 15 200
0.005
0.01
0.015Consumption
0 5 10 15 200
0.005
0.01
0.015
0.02Investment
0 5 10 15 20-5
0
5
10x 10
-3Intermediate Input
0 5 10 15 200
2
4
6x 10
-3 realwage
0 5 10 15 20-2
0
2
4x 10
-3capital rental rate
0 5 10 15 20-6
-4
-2
0x 10
-4nominal interest rate
0 5 10 15 20-3
-2
-1
0
1x 10
-3 marginal cost
0 5 10 15 20-15
-10
-5
0
5x 10
-4 inflation
0 5 10 15 204
6
8
10
12x 10
-3 productivity
0 5 10 15 200
0.005
0.01
0.015
0.02Marginal Rate of Substitution
0 5 10 15 20-0.015
-0.01
-0.005
0Wage Mark up
0 5 10 15 20-1
0
1
2
3x 10
-3 Price Mark up
before 84after 84
IRFs relative to Neutral shock, based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 47 / 25
Appendix
Figure: MEI Shock
0 5 10 15 200
0.005
0.01
0.015output
0 5 10 15 200
2
4
6
8x 10
-3 Hours
0 5 10 15 200
0.005
0.01
0.015Consumption
0 5 10 15 200.005
0.01
0.015
0.02
0.025Investment
0 5 10 15 200
0.005
0.01
0.015Intermediate Input
0 5 10 15 200
1
2
3
4x 10
-3 realwage
0 5 10 15 20-6
-4
-2
0
2x 10
-3capital rental rate
0 5 10 15 20-5
0
5
10
15x 10
-4nominal interest rate
0 5 10 15 20-5
0
5
10x 10
-4 marginal cost
0 5 10 15 20-5
0
5
10
15x 10
-4 inflation
0 5 10 15 202
4
6
8x 10
-3 productivity
0 5 10 15 200
0.005
0.01
0.015
0.02Marginal Rate of Substitution
0 5 10 15 20-0.015
-0.01
-0.005
0Wage Mark up
0 5 10 15 20-10
-5
0
5x 10
-4 Price Mark up
before 84after 84
IRFs relative to MEI shock, based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 48 / 25
Appendix
Figure: Monetary Shock
0 5 10 15 200
2
4
6x 10
-3 output
0 5 10 15 20-2
0
2
4
6x 10
-3 Hours
0 5 10 15 200
1
2
3
4x 10
-3 Consumption
0 5 10 15 200
0.005
0.01Investment
0 5 10 15 200
2
4
6x 10
-3Intermediate Input
0 5 10 15 202
4
6
8
10x 10
-4 realwage
0 5 10 15 20-1
0
1
2
3x 10
-3capital rental rate
0 5 10 15 20-2
-1
0
1x 10
-3nominal interest rate
0 5 10 15 200
2
4
6x 10
-4 marginal cost
0 5 10 15 20-2
0
2
4
6x 10
-4 inflation
0 5 10 15 200
0.5
1
1.5x 10
-3 productivity
0 5 10 15 200
0.005
0.01
0.015Marginal Rate of Substitution
0 5 10 15 20-0.015
-0.01
-0.005
0Wage Mark up
0 5 10 15 20-6
-4
-2
0x 10
-4 Price Mark up
before 84after 84
IRFs relative to Monetary shock, based on alternative calibrationBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 49 / 25
Appendix
Figure: Neutral Shock
0 5 10 15 200
0.005
0.01
0.015output
0 5 10 15 20-10
-5
0
5x 10
-3 Hours
0 5 10 15 200
0.005
0.01
0.015Consumption
0 5 10 15 200
0.01
0.02
0.03Investment
0 5 10 15 20-5
0
5
10x 10
-3Intermediate Input
0 5 10 15 200
2
4
6
8x 10
-3 realwage
0 5 10 15 20-2
0
2
4x 10
-3capital rental rate
0 5 10 15 20-8
-6
-4
-2
0x 10
-4nominal interest rate
0 5 10 15 20-3
-2
-1
0
1x 10
-3 marginal cost
0 5 10 15 20-15
-10
-5
0
5x 10
-4 inflation
0 5 10 15 204
6
8
10
12x 10
-3 productivity
0 5 10 15 200
0.005
0.01
0.015
0.02Marginal Rate of Substitution
0 5 10 15 20-0.015
-0.01
-0.005
0Wage Mark up
0 5 10 15 20-1
0
1
2
3x 10
-3 Price Mark up
before 84after 84B84 vs trendA84
IRFs relative to Neutral shock, based our theoritical exerciseBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 50 / 25
Appendix
Figure: MEI Shock
0 5 10 15 20
5
10
x 10-3 output
0 5 10 15 200
2
4
6
8x 10
-3 Hours
0 5 10 15 20-5
0
5
10
15x 10
-3 Consumption
0 5 10 15 200.005
0.01
0.015
0.02
0.025Investment
0 5 10 15 200
0.005
0.01
0.015Intermediate Input
0 5 10 15 200
1
2
3
4x 10
-3 realwage
0 5 10 15 20-6
-4
-2
0
2x 10
-3capital rental rate
0 5 10 15 20-5
0
5
10
15x 10
-4nominal interest rate
0 5 10 15 20-5
0
5
10x 10
-4 marginal cost
0 5 10 15 20-5
0
5
10
15x 10
-4 inflation
0 5 10 15 202
3
4
5
6x 10
-3 productivity
0 5 10 15 200
0.005
0.01
0.015
0.02Marginal Rate of Substitution
0 5 10 15 20-15
-10
-5
0
5x 10
-3 Wage Mark up
0 5 10 15 20-10
-5
0
5x 10
-4 Price Mark up
before 84after 84B84 vs trendA84
IRFs relative to MEI shocks, based our theoritical exerciseBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 51 / 25
Appendix
Figure: Monetary Shock
0 5 10 15 200
2
4
6x 10
-3 output
0 5 10 15 20-2
0
2
4
6x 10
-3 Hours
0 5 10 15 200
1
2
3
4x 10
-3 Consumption
0 5 10 15 200
0.005
0.01Investment
0 5 10 15 200
2
4
6x 10
-3Intermediate Input
0 5 10 15 202
4
6
8
10x 10
-4 realwage
0 5 10 15 20-1
0
1
2
3x 10
-3capital rental rate
0 5 10 15 20-2
-1
0
1x 10
-3nominal interest rate
0 5 10 15 200
2
4
6x 10
-4 marginal cost
0 5 10 15 20-2
0
2
4
6x 10
-4 inflation
0 5 10 15 200
0.5
1
1.5x 10
-3 productivity
0 5 10 15 200
0.005
0.01
0.015Marginal Rate of Substitution
0 5 10 15 20-0.015
-0.01
-0.005
0Wage Mark up
0 5 10 15 20-6
-4
-2
0x 10
-4 Price Mark up
before 84after 84B84 vs trendA84
IRFs relative to Monetary shock, based our theoritical exerciseBack
Jean Blaise Nlemfu M. ( Department of Economics University of Quebec at Montreal) June 2016 52 / 25