Ebook Advanced macroeconomics (5/E): Part 2
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Ebook Advanced macroeconomics (5/E): Part 2
Chapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2eloped two very incomplete pieces. In Chapter 5, we considered a full intertemporal macroeconomic model built from microeconomic foundations with explicit assumptions about the behavior of the underlying shocks. The model generated quantitative predictions about fluctuations, and is therefore an exa Ebook Advanced macroeconomics (5/E): Part 2mple of a quantitative dynamic stochastic general-equilibrium, or DSGE, model. The problem is that, as we saw in Section 5.10, the model appears to beEbook Advanced macroeconomics (5/E): Part 2
an empirical failure. For example, it rests on large aggregate technology shocks for which there is little evidence; its predictions about the effectChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2real effects.To address the real effects of monetary shocks. Chapter 6 Introduced nominal rigidity. It established that barriers to price adjustment and other nominal frictions can cause monetary changes to have real effects, analyzed some of the determinants of the magnitude of those effects, and s Ebook Advanced macroeconomics (5/E): Part 2howed how nominal rigidity has important implications for the impacts of other disturbances. But it did so at the cost of abandoning most of the richnEbook Advanced macroeconomics (5/E): Part 2
ess of the model of Chapter 5. Its models are largely static models with one-time shocks; and to the extent their focus is on quantitative predictionsChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2 monetary disturbances.Researchers’ ultimate goal is to build a model of fluctuations that combines the strengths of the models of the previous two chapters. This chapter starts down that path. But we will not reach that goal. The fundamental problem is that there is no agreement about what such a m Ebook Advanced macroeconomics (5/E): Part 2odel should look like. As we will see near the end of the chapter, the closest thing we have to a consensus starting point for a micro founded DSGE moEbook Advanced macroeconomics (5/E): Part 2
del with nominal rigidity has core Implications that appear to be grossly counterfactual. There are two possible ways to address this problem. One is Chapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2ended models arc often quite complicated, and there is a wide range of views about which modifications are most useful for understanding macroeconomic fluctuations. The other possibility is to find a different baseline. Bui lhal is just a research idea, nol a concrete proposal for a model.Because of Ebook Advanced macroeconomics (5/E): Part 2 lhese challenges, this chapter moves US only pari way loward constructing a realistic DSGE model of fluctuations. The bulk of rhe chap let exlends lhEbook Advanced macroeconomics (5/E): Part 2
e analysis of lhe microeconomic foundations of incomplete nominal flexibility to dynamic settings. This material vividly illustrates the lack of conseChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2 adjustment. As we will see, rhe models often have sharply different implications for the macroeconomic consequences of microeconomic frictions in price adjustment. This analysis shows rhe main issues in moving to dynamic models of price-selling and illustrates the list of ingredients to choose from Ebook Advanced macroeconomics (5/E): Part 2, bur it does not identify a specific "best practice” model.rhe main nominal friction we considered in chapter 6 was a fixed cost of changing prices,Ebook Advanced macroeconomics (5/E): Part 2
or menu cost. In considering dynamic models of price adjustment, it is therefore tempting to assume that the only nominal imperfection is that firms mChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2cated: analyzing models of dynamic optimization with fixed adjustment costs is technically challenging and only rarely leads to closed-form solutions. Second, the vision of price-setters constantly monitoring their prices and standing ready to change them at any moment subject only to an unchanging Ebook Advanced macroeconomics (5/E): Part 2fixed cost may be missing something important. Many prices arc reviewed on a predetermined schedule and arc only rarely changed al other limes. For exEbook Advanced macroeconomics (5/E): Part 2
ample, many wages are reviewed annually; some union contracts specify wages over a three year period: and many companies issue catalogues wilh prices Chapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2 regardless of lhe lime over which the developments have occurred): they arc partly time dependent (that is, triggered by lhe passage of lime).Because time dependent models arc easier, we will Stan, with them. Sec lion 7.1 presents a common framework for all lhe models of this pan of the chapter. Se Ebook Advanced macroeconomics (5/E): Part 2ctions 7.2 through 7.4 then consider three baseline models of time dependent price adjustment: rhe Fischer, or Fischer Phelps Taylor, model (Fischer,Ebook Advanced macroeconomics (5/E): Part 2
1977; Phelps and Taylor, 1977); lhe Taylor model (Taylor. 1979); and the Calvo model (Calvo, 1983). All three models posit that prices (or wages) are Chapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2 determined by the passage of time, noi economic developments. The central result of rhe models is that multiperiod contractsChapter 7 DSGE MODELS OF FLUCTUATIONS 311lead to gradual adjustment of the price level to nominal disturbances. As a result, aggregate demand disturbances have persistent real Ebook Advanced macroeconomics (5/E): Part 2 effects.The Taylor and Calvo models differ from the Fischer model in one important respect. The Fischer model assumes that prices are predetermined bEbook Advanced macroeconomics (5/E): Part 2
ut not fixed. That is, when a multiperiod contract sets prices for several periods, it can specify a different price for each period. In the Taylor anChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2d Calvo models is smaller. In the Taylor model, opportunities to change prices arrive deterministically, and each price is in effect for the same number of periods. In the Calvo model, opportunities to change prices arrive randomly, and so the number of periods a price is in effect is stochastic. In Ebook Advanced macroeconomics (5/E): Part 2 keeping with the assumption of time-dependence rather than state-dependence, the stochastic process governing price changes operates independently ofEbook Advanced macroeconomics (5/E): Part 2
other factors affecting the economy. The qualitative implications of the Calvo model are the same as those of the Taylor model. Its appeal is that itChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2state-dependent price adjustment, the Caplin-Spulber and Danziger-Golosov-Lucas models (Caplin and Spulber. 1987: Danziger, 1999: Golosov and Lucas. 2007). In both, the only barrier to price adjustment is a constant fixed cost. There are two differences between the models. First, money growth is alw Ebook Advanced macroeconomics (5/E): Part 2ays positive in the Caplin-Spulber model, while the version of the Danziger-Golosov-Lucas model we will consider assumes no trend money growth. SecondEbook Advanced macroeconomics (5/E): Part 2
, the Caplin-Spulber model assumes no firm-specific shocks, while the Danziger-Golosov-Lucas model includes them. Both models deliver strong results aChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2o more models of dynamic price adjustment: the Calvo-with-indexation model and the Mankiw-Reis model (Mankiw and Reis. 2002: Christiano, Eichenbaum, and Evans, 2005). These models are more complicated than the models of the earlier sections, but appear to have more hope of fitting key facts about in Ebook Advanced macroeconomics (5/E): Part 2flation dynamics.The final sections begin to consider how dynamic models of price adjustment can be embedded in models of the business cycle. SectionEbook Advanced macroeconomics (5/E): Part 2
7.8 presents a complete DSGE model with nominal rigidity—the canonical three-equation new Keynesian model of Clarida, Gali, and Gertler (2000). UnfortChapter 7DYNAMIC STOCHASTIC GENERAL-EQUILIBRIUM MODELS OF FLUCTUATIONSOur analysis of macroeconomic fluctuations in the previous two chapters has deve Ebook Advanced macroeconomics (5/E): Part 2l, it is elegant and tractable. But also like the baseline RBC model, the evidence for its key ingredients is weak, and we will see in Section 7.9 that together the ingredients make predictions about the macroeconomy that appear to be almost embarrassingly incorrect. Section 7.10 therefore discusses Ebook Advanced macroeconomics (5/E): Part 2 elements of other DSGE models with monetary non-neutrality. Because of the models'312 Chapter? DSGE MODELS OF FLUCTUATIONScomplexity and the lack ofEbook Advanced macroeconomics (5/E): Part 2
agreement about their key ingredients, however, it stops short of analyzing other fully specified models.7.1 Building Blocks of Dynamic New KeynesianGọi ngay
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