Monetary Policy and Monetary Policy and Liquidity Constraints: Evidence from the Euro Area with Mattias Almgren, John Kramer and Ricardo Lima. (Presented at Stockholm University, IIES Stockholm, Warwick University, Queen Mary University of London, Stanford, Yale, MIT and Harvard.)
Abstract: We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity constrained households. We do so in the context of the euro area using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy is larger in countries that have a larger fraction of households that are liquidity constrained.
Reconciling Empirics and Theory: The Behavioural New Keynesian Model with Atahan Afsar. (Presented at IIES Stockholm 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 quantify the relationship between the response of output to monetary policy shocks and the share of liquidity constrained households. We do so in the context of the euro area using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy is larger in countries that have a larger fraction of households that are liquidity constrained.
Reconciling Empirics and Theory: The Behavioural New Keynesian Model with Atahan Afsar. (Presented at IIES Stockholm 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.
