Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Macro > Zanetti > Flashcards

Zanetti Flashcards

1
Q

RBC model based on 3 claims

A
  1. Efficiency of bus cycle fluctuations
  2. Tech shocks only ones to generate economic fluctuations
  3. Monetary factors unimportant (nominal rate =0 by Friedman rule)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How is unrealistic RBC used

A

As frictionless benchmark, hard to identify though

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Optimal inflation rate

A

Beta

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

long-run equil output is

A

below efficient level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Commitment vs not in Barro Gordon results

A

Higher inflation with no commitment but same long-run output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Efficient varieties allocation without frictions

A

produce and consume same quantity of each good,

same amount of labour to all firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Firms maximise profits but with frictions:

A

choose p facing own demand function

price adjustment costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Inefficiency from monop. comp.

A

Markup leads to employment and output below optimum

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Policy solution to markup problems

A

Employment subsidy to the firm such that 1-t=1/markup

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

2 staggered price setting distortions

A
  1. average markup varies over time (not the constant frictionless one)
  2. Prices and quantities vary across firms
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Average markup

A

ratio of average price to average marginal cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

2 key equations in monetary policy optimal analysis

A 
Household FOC (Euler)
Firm FOC (Phillips Curve)
(leads to normal IS, PC NK set up)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Why is price stability desirable even if policy maker doesn’t care directly about it

A

related to attainment of efficient allocation and output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Why does CB not need to worry about efficient level of output

A

will be obtained by successful price stabilisation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Interest rate rule has threat of strong response by CB to movement of output gap and inflation

A

Suffices to rule out such deviations

Able to achieve i=r natural rate with unique stable equil

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Equil unique if

A

di/dpi>1 which is Taylor principle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Taylor type rule requires knowledge of

A

natural rate

comes from true model, parameter values and realised shocks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Endogenous rules fulfil

A

use observed variables only
don’t require parameter values knowledge
ideally approximate optimal rule

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How to microfound a welfare function for mon. pol.

A

2nd order approx around zero inflation sty st

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Marginal costs are related to output gap

A

output above natural requires hiring more workers requires higher real wages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Loss function increasing in effects of imperfections

A

elasticity of substitution for dispersion in quantity of goods
price stickiness amplifies price rigidities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

in observable taylor rule

welfare losses from shocks:

A

increases in responsiveness to inflation or y effective in reducing welfare losses
Tech shock trade-off between stabilising and the output gap

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Constant money growth rule compared to taylor

A

performs reasonably well but worse than aggressive taylor rule

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

output gap in PC vs loss function

why do frictions introduce mon. pol. trade-off

A

output gap in PC compared to natural level, not efficient level as in loss function
so flexible prices introduce mon. pol. trade off when frictions cause natural not to be efficient

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Why is discretion a static problem in each period

A

no endogenous variables link periods

no debt or capital stock in equil in this model

26
Q

In normal times the IS curve doesnt constrain mon. pol.

A

may be different under zlb

mon authority drives output below efficient level in response to +ve cost-push shock to deal with inflation

27
Q

Commitment response to cost push shock

A

raise inflation
decrease output gap
history dependent adjustments

28
Q

Commitment or discretion welfare improving?

A

commitment

attempt to stabilise output gap too fast in discretion

29
Q

With distortion and optimal commitment

A

price level converges to constant

inflation bias avoided asymptotically

30
Q

Where does the zlb problem come from

A

natural rate below 0

which is a function of unobservable shocks as well as positively depending on the discount rate

31
Q

under zlb, main policy tool is

A

expectations which can be influenced by a commitment to hold rates low even after natural rate becomes +ve again (or change inflation target)
This still has an immediate effect even though policy is only influenced in the future

32
Q

Problem with forward guidance model

A

not as effective as rational expectations model would predict

33
Q

What can we learn from professional inflation forecaster errors

A
  1. forecast errors are serially correlated
  2. actual inflation tends to lead movements in expectations
  3. fall below 2% for some time after recession but return to 2% after
    Can read in that inflation expectations are probably adaptive and anchored to some extents
34
Q

What does rational expectations imply for y= eqn in NK

A

no discounting as households take the effect of future interest rates into general equil model

35
Q

direct vs indirect effect of expected interest rates on output

A

direct on yt is same for all forward interest rates

indirect through impact of expected inflation

36
Q

Hybrid expectations

A

Update forecast based on previous forecast error
Some belief of target
Suppress forward guidance impact

37
Q

Stabilisation bias under discression

A

Attempt to stabilise the output gap faster than under commitment

38
Q

Inflation bias phenomenon

A

CB tries to push output above natural steady state to reach efficient level, generating higher inflation
Long run output gap stays the same though so lower welfare
Solved asymptotically under commitment

39
Q

Ramsey problem

A

Choosing optimal tax rates

taxes available are distortionary

40
Q

Primal approach to Ramsey problem

A

find a set of taxes and prices such that allocations are PO in comp. equil.

41
Q

Mirrlees approach to Ramsey problem

A

Focus on the best incentive vs insurance trade off
ie provide best insurance for low income whilst provide incentives to engage in production
requires mechanism design

42
Q

optimal sty st capital income tax

A

0

to smooth distortions over time

43
Q

optimal tax on K0

A

high as possible as inelastically supplied

44
Q

If capital market imperfections, capital tax

A

redistributes wealth from those without credit constraints to those with
if this goes to more productive individual then would pay back with higher taxes in long run

45
Q

Search friction externalities

A

Workers and firms bargain to split surplus

Do not internalise the effect on the unemployed who are not represented

46
Q 
Search:
v=
u=
ξ=
q=
p=
θ=
δ=
n=
l=
A 
v= number of vacancies
u= number of unemployed
ξ= contribution of unemployment to matching tech
q= probability of filling vacancy
p= probability of finding a job
θ= v/u
δ= exogenous separation rate
n= number of employed
l= total labour force n+u
47
Q

beveridge curve u=

A

sep. rt/(sep. rt + p)

plot in the u,v space

48
Q

η in search

A

fraction of total surplus going to workers

49
Q

q(θ)=

p(θ)=

A

θ^-ξ

θ^(1-ξ)

50
Q

κ=

A

cost per vacancy posted

51
Q

output used for 2 things in search model:

A

consumption

cost of posting vacancies

52
Q

job creation condition

A

marginal cost of posting an extra vacancy= marginal social benefit of posting an extra vacancy

53
Q

b surplus from what?

A

not working

54
Q

Hosios’ condition:

Job creation conditions for social planner and decentralised equil coincide (so equil is PO) if…

A

η = ξ
The worker’s bargaining power is equal to the elasticity of the
matching function with respect to unemployment

55
Q

Search firm externality

A

if hiring too high, firms outside bargaining contract worse off

56
Q

Worker externality

A

if unemployment too high, unemployed suffer from slack labour market with probability of finding job low

57
Q

Duration of filling a vacancy

A

1/q

58
Q

How to achieve socially efficient rate of unemployment

A

tax or subsidy on vacancies

59
Q

if η < ξ:

policy needed

A

market wage too low, too many vacancies, too low unemployment
need tax on labour

60
Q

Does the Hosios condition still apply with endogenous job separation

A

yes

61
Q

Unemployment: causes and policy responses from classical vs NK

A

Classical: wages cause, employment subsidies response
NK: aggregated demand cause (so labour demand fixed maybe below equil, with higher wage), expand AD

62
Q

Response to positive tech shock

A

Classical: increased labour productivity increases employment
NK: increases wage schedule for same reason but need fewer workers to meet demand so more unemployment, but overall effect depends on induced changes in real interest rates

Macro (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions