Comments for NEP-DGE Blog

Comment on Real expectations: replacing rational expectations with survey expectations in dynamic macro models by Francisco Blasques

Francisco Blasques — Thu, 09 May 2013 09:14:47 +0000

Very interesting paper, taking steps in a very important direction.
I wonder if the author tried performing a Granger Causality test to ensure that `measured expectations’ cause, but are not caused by, future state variables. It seems crucial that measured expectations pass such a test in order to be given a structural interpretation.

Comment on Assessing International Efficiency by M. H.

M. H. — Sat, 27 Apr 2013 14:29:48 +0000

I am confused. I thought that a country with a positive productivity shock would borrow heavily to increase its capital to take advantage of of increased productivity, especially of the shock is persistent. You are telling us here this country would be a lender.

Comment on A theory of rollover risk, sudden stops, and foreign reserves by Kondo

Kondo — Wed, 10 Apr 2013 17:26:02 +0000

Thanks, Christian. In fact, the paper has a discussion regarding the Euro Area. Figure 9 in the paper shows a striking switch in the reserves held by the Euro Area Periphery economies upon joining the Euro.

Comment on The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World by Roger Farmer

Roger Farmer — Tue, 19 Mar 2013 14:05:58 +0000

Yes there is.

A positive human wealth shock in t+1 leads to a transfer from existing agents at date t to the t+1 newborns. A negative human wealth shock leads to transfer in the reverse direction. Since existing agents have different discount factors, they also have a different marginal propensity to consume out of wealth. That difference causes patient agents to lend to impatient agents in way that validates the human wealth shock.

A positive human wealth shock is associated with a fall in the stochastic discount factor and a new path of future discount factors that converges back to the steady state from below.

A negative human wealth shock is associated with an increase in the stochastic discount factor and a new path of future discount factors that converges back to the steady state from above.

In the steady state, patient agents have an increasing consumption profile and impatient agents have a decreasing consumption profile. The age distribution of each type is exponential with many young agents and very few old ones.

Comment on The Impact of Cartelization, Money, and Productivity Shocks on the International Great Depression by M. H.

M. H. — Tue, 19 Mar 2013 00:52:22 +0000

No. Americans are too infatuated with the Friedman-Schwartz story and the New Deal. Evidence will not change that.

Comment on The NEP-DGE Blog by Jorge Alonso

Jorge Alonso — Mon, 18 Mar 2013 17:48:09 +0000

I think this blog is a great idea

Comment on The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World by M. H.

M. H. — Mon, 18 Mar 2013 14:07:57 +0000

I agree with CZ that I do not understand with discount factor heterogeneity by itself would matter for multiplicity. It there some path dependence stemming from the OLG structure and its incomplete markets?

Comment on News and Financial Intermediation in Aggregate and Sectoral Fluctuations by John Tsoukalas

John Tsoukalas — Sat, 26 Jan 2013 11:35:55 +0000

Christian, thanks for the post. I will tend to agree with you that news may be also capturing factors that are absent from the model. I think this will be true in all models where news shocks is represented by a latent process. To what extend do ‘news’ shocks represent fundamentals vs. noise? I think this is the most challenging and fundamental question in this literature that, as far as I know, no one has been able to tackle yet.
Our goal in the paper is to investigate if there is ‘news’ that can withstand the stricter test of sectoral co movement (in addition to broad based comovement) while at the same time not requiring GHH preferences, in other words, having KPR type preferences (I.e. with a non zero wealth effect on labor supply). One thing that comes out of this exercise is that financial prices are key in finding a significant role for news: the shock has very strong implications for bond spreads and equity that beats all the others in that dimension in the horserace.

Comment on Really Uncertain Business Cycles by Alessandro Rebucci

Alessandro Rebucci — Sat, 17 Nov 2012 15:24:03 +0000

I tend to agree with Christian. News shocks essentially provide more, new information to agents. As such they tend to reduce aggregate volatility rather than increasing it. This is one of the results in a well known Econometrica paper by Ken West. In a follow in a recent JDEC paper with Akito Matsumoto, Pieteo Cova and Massimiliano Pisani, we show that West’s
partial equilibrium result can be overturned in general equilibrium. But in genral news shocks lead to lower not higher volatility. It is thus paradoxical to model volatility shocks as news shocks.

Comment on Optimal Policy for Macro-Financial Stability by Alessandro Rebucci

Alessandro Rebucci — Sat, 17 Nov 2012 15:09:27 +0000

The result is fairly intuitive. Consider ongoing efforts by the Fed to support the economy with exceptionally low interest rates and other quantitative easing measures. We know that low interest rates might lead to increased financial instability via several mechanisms, and possibly a follow up financial debacle once we exit from the current period of subdued economic activity. But the fed can temper these side effects by using a second se of tools, e.g., regulatory measures, to contain such distortions, and hence be very aggressive with its stimulative measures at this critical juncture. If instead there were no additional tools to complement the ongoing crisis response, the Fed would probably have to be much more cautious in using its crisis resolution tools, and would have no choice other than trying to prevent the next crisis from occurring with tightening of monetary policy in a preventive manner. Our research shows that this second, alternative course of policy action is dominated in welfare tems by the former.