Monetary Policy and the Wealthy Hand-to-Mouth with Mattias Almgren, John Kramer and Ricardo Lima. (Presented at Stockholm University, IIES, Warwick University, Queen Mary University of London, Stanford and Yale.)
Abstract: We study the effects of monetary policy shocks on countries in the Euro Area. We use a local projections instrumental variables (LPIV) estimation and identify monetary policy shocks with a series constructed from financial derivatives measured at minute frequency. We show that a monetary policy shock has heterogeneous effects on real GDP across countries, both in terms of timing and size. The results are robust to the estimation of impulse responses using a Global VAR approach. We find that the effectiveness of monetary policy is closely related to the share of households with low levels of liquid assets: a 10 percentage point increase in the share of Hand-to-Mouth households is associated with a real GDP response that is stronger by 0.5 percentage points.
Reconciling Empirics and Theory: The Behavioural New Keynesian Model with Atahan Afsar. (Presented at IIES and Stockholm School of Economics.)
Abstract: Structural estimates of the standard New Keynesian model are at odds with microeconomic estimates. To reconcile these findings, we develop and estimate a behavioral New Keynesian model that includes "keeping up with the Joneses" households and backward-looking firms. We find (i) strong evidence for bounded rationality, which motivates our departure from full rationality; (ii) that the behavioral setting reconciles the New Keynesian theory with empirical studies; (iii) we estimate the cognitive discount factor to be between 0.97 and 0.99 at a quarterly frequency; and (iv) consistent with the theory, the degree of myopia increases when we drop the additional behavioral assumptions, yet remains significantly different from the rational case.
Abstract: We study the effects of monetary policy shocks on countries in the Euro Area. We use a local projections instrumental variables (LPIV) estimation and identify monetary policy shocks with a series constructed from financial derivatives measured at minute frequency. We show that a monetary policy shock has heterogeneous effects on real GDP across countries, both in terms of timing and size. The results are robust to the estimation of impulse responses using a Global VAR approach. We find that the effectiveness of monetary policy is closely related to the share of households with low levels of liquid assets: a 10 percentage point increase in the share of Hand-to-Mouth households is associated with a real GDP response that is stronger by 0.5 percentage points.
Reconciling Empirics and Theory: The Behavioural New Keynesian Model with Atahan Afsar. (Presented at IIES and Stockholm School of Economics.)
Abstract: Structural estimates of the standard New Keynesian model are at odds with microeconomic estimates. To reconcile these findings, we develop and estimate a behavioral New Keynesian model that includes "keeping up with the Joneses" households and backward-looking firms. We find (i) strong evidence for bounded rationality, which motivates our departure from full rationality; (ii) that the behavioral setting reconciles the New Keynesian theory with empirical studies; (iii) we estimate the cognitive discount factor to be between 0.97 and 0.99 at a quarterly frequency; and (iv) consistent with the theory, the degree of myopia increases when we drop the additional behavioral assumptions, yet remains significantly different from the rational case.
