شوک های تورمی و قوانین پولی : تحلیل سناریوی یک اقتصاد باز

The paper considers the macroeconomic transmission of demand and supply shocks in an open economy under alternative assumptions on whether the zero interest floor (ZIF) is binding. It uses a two-country general-equilibrium simulation model calibrated to the Japanese economy vis-à-vis the rest of the world. Negative demand shocks have more prolonged and startling effects on the economy when the ZIF is binding than when it is not binding. Positive supply shocks can actually extend the period of time over which the ZIF may be expected to bind. More open economies hit the ZIF for a shorter period of time, and with less harmful effects. Deflationary supply shocks have different implications according to whether they are concentrated in the tradables rather than the nontradables sector. Price-level-path targeting rules are likely to provide better guidelines for monetary policy in a deflationary environment, and have desirable properties in normal times when the ZIF is not binding. J. Japanese Int. Economies20 (4) (2006) 665–698.

In recent years, quite a few research agendas have sought to pin down the causes of deflation, mostly focusing on whether falling prices are the result of structural factors or insufficient aggregate demand. In a nutshell, structural factors such as productivity improvements in the manufacturing sector are deemed to be responsible for worldwide disinflation, while weaknesses in demand are typically assumed to be accompanied by difficulties in providing monetary policy stimulus when interest rates hit the zero interest rate floor (ZIF). Specifically, the two views above have represented recurrent themes in both the policy and academic debate on the performance of the Japanese economy over the last 15 years.1 This paper does not take a specific view about the historical contribution of demand and supply factors in the evolution of prices in Japan, nor makes any normative or policy statements on the best course of action in the near future. Rather, it makes the simple point that a country facing deflationary risks would benefit from an integrated approach involving macroeconomic policies able to respond appropriately to adverse aggregate demand shocks and deal with the consequences of eventual expansions in supply. Such framework would not only eliminate deflation in the short run, but also guard against falling into liquidity traps in the future. Using a 2-country simulation model calibrated to the Japanese economy, the paper carries out a scenario analysis to illustrate possible difficulties in dealing with both demand and supply shocks when the ZIF is binding. It shows that the effects of negative demand shocks on the economy become more protracted and startling when the ZIF is binding than during normal times when it is not binding. It also shows that positive supply shocks (e.g. shocks that raise potential output) can extend the period of time during which the ZIF is expected to be binding, increasing the economy's vulnerability to adverse demand shocks. In addition, the paper comments on the relative benefits of alternative monetary rules in a deflationary environment, including price level targeting, inflation-targeting, and price-level-path targeting rules. The results indicate that price-level-path targeting rules are likely to provide better guidelines for monetary policy because they are more robust in a deflationary environment, and—when appropriately designed—have desirable properties in normal times when the ZIF is not binding. Throughout the paper we deliberately emphasize the implications of trade and financial openness on the effectiveness of monetary rules in a deflationary environment. This is not to restate the point made elsewhere (e.g. McCallum, 2000 and Svensson, 2001) that in an open-economy context policymakers can escape a liquidity trap by engineering the appropriate path for the exchange rate. Rather, we show that in the face of negative demand shocks, more open economies are less vulnerable to the problems associated with the ZIF: other things being equal, they hit the ZIF for a shorter period of time, and with less harmful effects. In addition, openness can reverse the sign of the short-term response of real exchange rates to shocks. With low openness, deflation results in a very high and persistent rise in real interest rates that strengthens the home currency in real terms. In contrast, with greater openness real interest rates are not expected to increase or even remain at a high level for a long time, and the real exchange rate depreciates on impact. Finally, the mechanism of transmission of deflationary supply shocks is significantly affected by whether they are concentrated in the tradables or the nontradables sector. In both cases the appropriate policy response is to reduce interest rates when it is possible (either now or in the future). However, when the shock is concentrated in the nontradables sector it results in a depreciation of the real exchange rate and stronger growth in the short run, reducing the period of time over which the ZIF is binding relative to the case in which the productivity shock is concentrated in the tradables sector. The remainder of this paper is organized as follows. Sections 2 and 3 describe the basic theoretical structure of the model and its calibration. Section 4 discusses the relative properties of price-level-path targeting rules. Section 5 then provides some illustrative scenarios to support the key arguments in the paper. The last section concludes by providing a brief discussion of possible future extensions.

Using a two-country simulation model calibrated to the Japanese economy, this paper has carried out a scenario analysis to illustrate possible difficulties in dealing with both demand and supply shocks when the ZIF is binding. The key results concerning the implications of openness on the effectiveness of monetary rules in a deflationary environment have been highlighted at length and need not be rehashed here. Instead, we conclude by commenting briefly on a few directions for further research. The basic insight of the large body of literature on policy rules is that it is not essential to derive optimal rules based on specific models or views about the economy, but rather to search for rules that are robust across different environments and circumstances. The arguments in the paper, which are based on illustrative scenarios, suggest that PLPT rules should be expected to have significant advantages over either pure IT rules or pure PLT rules (to some extent, PLPT rules combine the best from both IT and PLT approaches). The obvious extension would be to evaluate alternative rules in a fully stochastic environment and, in fact, doing so would likely strengthen the benefits of PLPT rules over their alternatives. For example, the analysis has ignored the permanent welfare consequences and deadweight losses that would be associated with rules that periodically allow for the occurrence of long deflationary spirals. Also, relative to IT rules, our analysis above has abstracted from the possible welfare benefits that PLPT rules could generate, stemming from lower uncertainty about the future price level. While the effects of uncertainty about price level movements has perhaps been overlooked in this literature, it may become a key issue over time as the policy debate focuses on the demographic consequences of population aging.