Open Access
Firm entry under financial frictions
(2011) Casares Polo, Miguel; Poutineau, Jean-Christophe; Economía; Ekonomia
Introducing both endogenous firm entry and a requirement for external finance in a general-equilibrium model leads to three main results. First, the financial constraint has contractionary effects on both equity investment and the labor supply as they are inversely related to the marginal finance cost. Second, net firm creation amplifies the steady-state impact of changes in either productivity or banking efficiency due to procyclical firm entry. Third, a higher elasticity of substitution (that implies a lower mark-up) cuts the number of firms and makes aggregate output fall in steady state, opposite to standard models with constant number of firms.
Open Access
On staggered prices and optimal inflation
(Elsevier, 2019) Aguilera Bravo, Asier; Casares Polo, Miguel; Institute for Advanced Research in Business and Economics - INARBE; Universidad Pública de Navarra / Nafarroako Unibertsitate Publikoa
This paper computes the steady-state optimal rate of inflation in a model with monopolistic competition under two different sticky-price specifications, Calvo (1983) and Taylor (1980).The optimal rate of inflation is positive and almost identical to the ratio between the rate of discount and the Dixit-Stiglitzelasticity.
Open Access
A portfolio-choice model to analyze the recent gross capital flows between Canada and the US
(2019) Casares Polo, Miguel; Villar Olano, Alba del; Economía; Ekonomia
We calibrate a two-country New Keynesian model with endogenous portfolio choice and valuation effects to discuss the determinants of the increase in Canadian Net Foreign Assets with the US observed after 2012. Furthermore, we discuss the shocks that may explain the “reversed two-way” capital flows pattern recently characterizing the Canada-US asset trading: Canada has a negative position on bond holdings owned by US investors while a positive balance emerges on its equity holdings from US firms. The combination of a global technology shock, the US fiscal contraction, an adverse wage-push shock in the US and the greater monetary stimulus in the US than in Canada (QE) provide insights to describe the recent capital flows between Canada and the US. Both the QE and the negative wage-push shock in the US play a crucial role as explanatory factors through substantial valuation effects.
Open Access
Business cycle and monetary policy analysis in a structural sticky price model of the euro area
(2001) Casares Polo, Miguel; Economía; Ekonomia
Structural models are a powerful tool for business cycle and monetary policy analysis because they are assumed to be invariant to either policy changes or external shocks. In this paper, we derive a neoclassical monetary model in which both the demand and supply side are structural in the sense that the behavioral equations obtained are rigorously calculated from optimizing decisions of the individuals. Moreover, we introduce price stickiness on the supply side decisions so as to have relevant short-run real effects of monetary policy through the real interest rate channel. The resulting medium-size model will be calibrated and estimated for the euro area economies. As two examples of the applications of the model for the euro area, some simulations on business cycle and monetary policy analysis will be carried out.
Open Access
Entry and exit in recent US business cycles
(2015) Casares Polo, Miguel; Economía; Ekonomia
I show evidence indicating that the variability of the total number of business units (establishments) has significantly increased in recent US business cycles, accounting for nearly 2/3 of real GDP fluctuations during the 2003-2012 decade. Next, I examine the role of business creation and destruction in an estimated DSGE-style model extended with endogenous entry and exit. Shocks on both entry and, especially, exit have played a crucial role on explaining the latest boom-bust cycle in the US economy. I also find that the estimated innovations of total factor productivity are positive and high in 2010-2012, which might be the consequence of the dramatic increase in the exit rates observed during the recession of 2008-2009.
Open Access
Loan production and monetary policy
(Cambridge University Press, 2019) Casares Polo, Miguel; Deidda, Luca; Galdón Sánchez, José Enrique; Economía; Ekonomia
The authors examine optimal monetary policy in a New Keynesian model with unemployment and financial frictions where banks produce loans using equity as collateral. Firms and households demand loans to finance externally a fraction of their flows of expenditures. Our findings show amplifying business-cycle effects of a more rigid loan production technology. In the monetary policy analysis, the optimal rule clearly outperforms a Taylor-type rule. The optimized interest-rate response to the external finance premium turns significantly negative when either banking rigidities are high or when financial shocks are the only source of business cycle fluctuations.
Open Access
Dynamic analysis in an optimizing monetary model with transaction costs and endogenous investment
(2001) Casares Polo, Miguel; Economía; Ekonomia
This paper analyzes the period-to-period changes that occur in an optimizing monetary model with uncertainty and sticky prices. Money is incorporate in its role as a medium of exchange through a time-cost transactions technology. Another important characteristic of the model is that both capital and investment are obtained endogenously. In this regard, adjustment costs of installing investment are incorporated to smooth and delay capital movements over the economic cycle. We will focus attention on analyzing the consumption, investment and real money demand functions resulting from the model. These three equations give rise to the structural IS-LM economy as part of the general equilibrium described in the paper. Nominal prices are sticky, i.e., they do not adjust instantly thereby allowing departures from general equilibrium obtained when there is absence of nominal frictions. We chose to have the Fuhrer-Moore specification for nominal contract prices. The model is calibrated on quarterly observations from United States data. Four types of exogenous shocks are included in our setup: production technology shocks, consumption preference (demand) shocks, monetary policy shocks, and shopping time shocks. Hence, variability of output, consumption, investment, etc., may result from several sources. The impact of each shock in the economic cycle will be examined by plotting impulse-response functions implied by the solutions of the model.
Open Access
The great moderation of inflation: a structural analysis of recent U.S. monetary business cycles
(2012) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
U.S. inflation has experienced a great moderation in the last two decades. This paper examines the factors behind this and other stylized facts, such as the weaker correlation of inflation and nominal interest rate (Gibson paradox). Our findings point at lower exogenous variability of supply-side shocks and, to a lower extent, structural changes in money demand, monetary policy, and firms’ sticky pricing behavior as the main driving forces of the changes observed in recent U.S. business cycles.
Open Access
Short run and long run effects of banking in a New Keynesian model
(2010) Casares Polo, Miguel; Poutineau, Jean-Christophe; Economía; Ekonomia
This paper introduces both endogenous capital accumulation and deposit-in-advance requirements for investment in the banking model of Goodfriend and McCallum (2007). Impulse response functions from technology and monetary shocks show some attenuation effect due to the procyclical behavior of the marginal finance cost. In addition, an adverse financial shock produces sizeable declines in output, inflation and interest rates. In the long-run analysis, we find the following effects of banking intermediation: (i) the stock of capital increases to take advantage of its collateral services, and (ii) consumption and labor fall in response to the finance cost attached to purchases of goods. Using the baseline calibrated model, we show how a 10% increase in banking efficiency would result in a permanent welfare gain equivalent to 0.3% of output.
Embargo
On staggered prices and optimal inflation
(2019) Aguilera Bravo, Asier; Casares Polo, Miguel; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía; Universidad Pública de Navarra / Nafarroako Unibertsitate Publikoa
This paper computes the steady-state optimal rate of inflation assuming two different sticky-price specifications, Calvo (1983) and Taylor (1980), in a model with monopolistic competition. The optimal rate of inflation in steady state is always positive. This result is robust to changes in the degree of price stickiness. In both cases of staggered prices, the optimal rate of inflation is approximately equal to the ratio between the rate of discount and the Dixit-Stiglitz elasticity.