دوره های فصلی، چرخه های کسب و کار، و سیاست های پولی
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|24545||2000||24 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Monetary Economics, Volume 46, Issue 2, October 2000, Pages 441–464
This paper presents a dynamic general equilibrium model that is consistent with both seasonal and business cycle facts in the U.S. economy. The model features consumption durability and a transaction technology, both crucial in accounting for seasonal patterns of nominal variables. A calibrated version of the model is used to quantitatively evaluate welfare consequences of three alternative monetary policy rules: (1) the Fed's historical policy that smooths nominal interest rates at the seasonal frequency, but not at the business cycle frequency; (2) a constant-money-growth rule; and (3) a constant-interest-rate rule. We find that the historical policy is associated with higher welfare than both alternatives.
The post-war U.S. economy has been characterized by both the traditional business cycle fluctuations and recurrent seasonal swings. Recent empirical work reveals that there is a seasonal cycle that bears many similarities to the business cycle in terms of co-movements and relative variabilities among aggregate variables (e.g., Barsky and Miron, 1989; Miron, 1996). Despite these empirical similarities, the Federal Reserve System (Fed) has followed different monetary policy rules in response to aggregate fluctuations across these two types of cycles. Since its inception in 1913, the Fed has tried to accommodate seasonal swings in money demand so that short-term nominal interest rates are smoothed. This is a well-documented aspect of the monetary policy practice in the United States (see Fig. 1). In contrast, the policy has been much less accommodative over the business cycle, resulting in strongly procyclical behaviors of nominal interest rates.1 An important issue of concern is whether such asymmetric policy reactions over the two types of cycles are socially desirable.There has been a prolonged debate in the literature about how the Fed should set monetary policy rules at the seasonal frequency and at the business cycle frequency. One popular view is the ‘k-percent’ rule. Under this rule, the monetary authority should not actively accommodate fluctuations in the demand for money and credit. Instead, it should try to keep money growth rates constant over both types of cycles, and allow nominal interest rates to fluctuate (e.g., Friedman 1959 and Friedman 1982). On the other hand, the classical real-bills doctrine prescribes that the central bank should fully accommodate fluctuations in money demand, and thereby effectively dampen nominal interest rate fluctuations. Sargent and Wallace (1982) provide a general equilibrium framework to study the implications of monetary policy prescriptions in the spirit of the real-bills doctrine and compare them with the quantity theory of money. More recently, Carlstrom and Fuerst 1995 and Carlstrom and Fuerst 1996 argue for keeping nominal interest rates constant at both the seasonal and cyclical frequencies, which is reminiscent of the real-bills doctrine. The current paper provides a resolution to the policy debates by examining the quantitative welfare implications of alternative policy rules. To accomplish this, I first develop a general equilibrium monetary business cycle model that is consistent with both seasonal and business cycle observations, and then use it to compare the welfare associated with three alternative policies: (1) the historical policy that smooths nominal interest rates across seasons but not over the business cycle; (2) a policy that keeps money growth rates constant while allowing nominal interest rates to fluctuate over both cycles; and (3) a policy that always keeps nominal interest rates constant. The model developed in this paper is capable of explaining the seasonal patterns of both real and nominal variables. In the literature, some progress has been made in extending a standard real business cycle model to account for seasonal variations in real quantities (e.g., Braun and Evans, 1995; Chatterjee and Ravikumar, 1992). Yet, it remains a challenge to explain seasonal patterns of nominal variables such as nominal interest rate and inflation rate. A standard cash-in-advance model (CIA) along the line of Cooley and Hansen (1991) implies a one-for-one variation between the nominal interest rate and the velocity of money in the money demand equation, which is at odds with the fact that velocity is highly seasonal while nominal interest rates are not. To alleviate this tension, I introduce a transaction technology shock that captures residual seasonality in the money demand equation so that velocity can respond to seasonal shifts in preferences and technologies without large seasonal swings in nominal interest rates. On the other hand, to explain the lack of seasonality in the inflation rate, I assume that preferences of consumption exhibit local durability (e.g., Dunn and Singleton, 1986). That is, the representative household enjoys utility from consumption purchases made during both the current period and the previous period. Consumption durability enhances the consumer's ability of intertemporal substitution, and thus dampens seasonal variations in the real interest rate. Since both the real interest rate and the nominal interest rate are smoothed across seasons, so is the inflation rate as a consequence of Fisher's relation. The model's parameters are calibrated based on post-war U.S. data that are not adjusted for seasonality. A quantitative welfare experiment is then conducted. The main finding is that the historical monetary policy attains higher social welfare than both the constant-money-growth rule and the constant-interest-rate rule, given that they all generate the same steady-state seigniorage revenue. When the economies under the three alternative policy rules are compared to the economy under Friedman's rule (the rule that calls for zero nominal interest rates), the historical policy incurs a welfare loss of about 0.85% of aggregate consumption, while the money growth rule and the interest rate rule result in a loss of 0.97% and 0.94% of consumption, respectively. This paper adds to the study of economic fluctuations and monetary policy in two aspects. First, in a positive sense, it represents an attempt to study both seasonal variations and business cycle fluctuations in an integrated framework. The model featuring consumption durability and a transaction technology distinguishes from similar monetary models in its ability of explaining seasonal variations in nominal variables. Second, in a normative sense, the current paper adds to other recent work that focuses on welfare properties of alternative monetary policies. It provides a quantitative welfare evaluation of three important policy rules at both the seasonal frequency and the business cycle frequency. In the literature, Sargent and Wallace (1982) compare the real-bills doctrine to the quantity theory of money in a general equilibrium environment, focusing on the qualitative implications of the two alternative policies. More recent work by Carlstrom and Fuerst (1995) compares the welfare associated with the constant-money-growth rule and with the constant-interest-rate rule in an economy with cash-in-advance constraints and portfolio rigidity. They emphasize the welfare implications of these two policy rules at the business cycle frequency. In addition, Mankiw and Miron (1991) show that a seasonal interest-rate-smoothing policy results in lower welfare cost than other alternatives, and Chatterjee (1993) also finds that smoothing interest rates across seasons can be welfare improving. Other authors such as Miron (1986) and Canova (1991) have investigated the role of the seasonal interest-rate-smoothing policy in eliminating bank runs and financial panics at the time when the Fed was established. Yet, little has been done to quantify the welfare effects of alternative monetary policies based on a unified framework that incorporates both seasonal and business cycle fluctuations. The current paper represents such an attempt. It thus contributes to better understanding of the role of monetary policies over the two types of cycles. The rest of the paper is organized as follows. Section 2 presents a two-sector monetary business cycle model with seasonal variations. Section 3 describes the calibration of parameters. Section 4 evaluates the model's empirical plausibility by comparing the first- and the second-moment properties of the equilibrium series generated from the model with those of the U.S. data. Section 5 outlines the policy experiments. Finally, Section 6 concludes the paper.
نتیجه گیری انگلیسی
6. Conclusions I have developed a general equilibrium monetary model to explain the observed seasonal and cyclical patterns of aggregate fluctuations in the postwar U.S. economy. The model has three distinctive features. First, the model's equilibrium paths display both seasonal variations and cyclical fluctuations, where seasonality is introduced through periodical seasonal shifts in preferences and technologies. Second, credit service production is explicitly modeled, and the distinctions between cash goods and credit goods are endogenous. Finally, and most importantly, there are two key elements in the model, namely consumption durability and a shock to transaction technologies, that contribute significantly to the model's overall success in accounting for seasonal and business cycle facts. The model is used to answer two sets of questions. One is positive in nature and studies whether a standard real business cycle model can be extended to explain both the seasonal and cyclical behaviors of aggregate variables, including both real and nominal variables. The other is normative and evaluates the welfare costs of alternative monetary policy rules in response to aggregate fluctuations over the two types of cycles. In particular, the Fed's historical monetary policy that smooths nominal interest rates at the seasonal frequency but not at the business cycle frequency is compared with a constant-money-growth rule and with a constant-interest-rate rule. The answer to the first set of questions suggests that a standard real business cycle model can be extended in a straightforward way to account for seasonal facts in the U.S. economy, and it does a reasonably good job in doing so. The model is successful in accounting for seasonal variations in nominal variables, including inflation rates and nominal interest rates. This success is mainly attributable to the assumptions of consumption durability and seasonal variations in transaction technologies. Additionally, consumption durability is crucial in explaining seasonal variations in aggregate variables such as consumption and investment. The answer to the second set of questions reveals that, although the seasonal cycle and the business cycle display similar characteristics of aggregate fluctuations, they do differ in key aspects that call for different monetary policy treatments. In particular, the anticipated versus unanticipated nature of the two types of cycles implies that the historical monetary policy that treats the two cycles differently is welfare improving relative to the constant-interest-rate rule and the constant-money-growth rule. We conclude that for the purpose of evaluating alternative monetary policy rules in response to aggregate fluctuations, seasonal variations are an important aspect of the economy that should be explicitly integrated into the model. We also learn that modeling consumption durability and an explicit transaction technology is important in accounting for the seasonal and business cycle facts. Finally, a comparison between the general equilibrium welfare analysis in this paper and that of Poole's (1970) reveals some interesting points. Poole (1970) shows that if shocks to money demand dominate, smoothing nominal interest rates is a desirable policy; if the shocks mainly originate in the goods market, then interest rates should be allowed to move because the interest rate movements would partially offset output fluctuations. In the economy studied in this paper, the transaction technology shock acts like a money demand shock, and it is more important over the seasons. However, over the business cycles, the effects of the more-persistent technology shocks build up while the less-persistent transaction technology shocks average out. Thus, Poole's (1970) insights also suggest that the policy that calls for interest rate smoothing at the seasonal frequency but not at the business cycle frequency is desirable. This is perhaps surprising given the fact that the welfare criterion in this paper is the representative agent's lifetime discounted indirect utility, while in Poole's (1970) economy, it is the stability of output fluctuations. A natural extension of this research is to investigate welfare consequences of alternative exchange-rate regimes in an open economy environment. As pointed out by Taylor (1993), Poole's (1970) insights suggest that if a country specific shock to money demand is dominant, then a fixed exchange-rate system works better because it offers the same advantage as smoothing nominal interest rates; if a country specific shock to the goods market is more important, then a flexible exchange-rate system works better. It would be interesting to find out whether this intuition holds in analyzing alternative exchange-rate regimes in a dynamic general equilibrium open economy model.