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
The post-covid inflation episode
(2023) Casares Polo, Miguel; Aguirre Osa, Idoia; Economía; Ekonomia
The recent inflation episode has been examined in an estimated NK-DSGE model with sticky wages and unemployement. The rise of US price inflation resulted from a combination of a sudden rise in 2020, the expansionary monetary policy in 2021 and price-push shocks in the quarters of a global rising on the cost of energy. The projections of the disinflation path indicate that if either prices or wages are further indexed to lagged inflation, wage inflation will be higher and the price disinflation will slow down. Also, a severe tightening of Fed's monetary policy will barely reduce inflation at the cost of higher unemployment.
Open Access
On financial frictions and firm market power
(Banco de España, 2019) Casares Polo, Miguel; Deidda, Luca; Galdón Sánchez, José Enrique; Economía; Ekonomia
Construimos un modelo de equilibrio general estático con empresas monopolísticamente competitivas que toman prestados fondos de bancos competitivos en una economía sujeta a restricciones financieras. Estas fricciones son debidas a la imposibilidad de verificar tanto los beneficios de las empresas como el esfuerzo de sus gestores. El poder de mercado tiene dos efectos contrapuestos. Por un lado, las empresas marcan sus precios por encima del coste marginal y la producción resultante es inferior a la que se obtendría en competencia perfecta. Por otro, debido al incremento en la rentabilidad de las empresas, el poder de mercado reduce el impacto de las fricciones financieras. El resultado de la interacción de estos dos efectos es ambiguo. Este trabajo muestra que, ceteris paribus, existe un nivel óptimo positivo de poder de mercado que maximiza el bienestar. Este nivel aumenta con el riesgo moral y disminuye con la eficiencia del proceso de liquidación de las empresas en caso de quiebra.
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
The extensive margin and US aggregate fluctuations: a quantitative assessment
(Elsevier, 2020) Casares Polo, Miguel; Khan, Hashmat; Poutineau, Jean-Christophe; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía
We report empirical evidence indicating that US net business formation has recently turned more volatile, procyclical and persistent. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The model provides a better fit than a constant exit rate model with the fluctuations of US business formation. The introduction of the extensive margin amplifies the effects of technology and risk-premium shocks, and reduces the procyclicality of firm-level production. The main sources of variability of the US aggregate fluctuations during the Great Recession are countercyclical technology shocks, persistent adverse risk-premium shocks, and expansionary monetary policy shocks.
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.
Open Access
The timing and intensity of social distancing to flatten the COVID-19 curve: the case of Spain
(MDPI, 2020) Casares Polo, Miguel; Khan, Hashmat; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía
The continued spread of COVID-19 suggests a significant possibility of reimposing the lockdowns and stricter social distancing similar to the early phase of pandemic control. We present a dynamic model to quantify the impact of isolation for the contagion curves. The model is calibrated to the COVID-19 outbreak in Spain to study the effects of the isolation enforcement following the declaration of the state of alarm (14 March 2020). The simulations indicate that both the timing and the intensity of the isolation enforcement are crucial for the COVID-19 spread. For example, a 4-day earlier intervention for social distancing would have reduced the number of COVID-19 infected people by 67%. The model also informs us that the isolation enforcement does not delay the peak day of the epidemic but slows down its end. When relaxing social distancing, a reduction of the contagion probability (with the generalization of preventive actions, such as face mask wearing and hands sanitizing) is needed to overcome the effect of a rise in the number of interpersonal encounters. We report a threshold level for the contagion pace to avoid a second COVID-19 outbreak in Spain.
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
Did US business dynamism recover in the 2010s?
(2021) Aguilera Bravo, Asier; Casares Polo, Miguel; Khan, Hashmat; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía
We provide evidence that both firm and establishment entry rates in the US have been increasing over the past decade, seemingly ending the secular decline observed over previous decades. However, the job-size of new businesses relative to incumbents has decreased substantially. Controlling for these opposite trends reveals that the size-adjusted entry rate continues to decline.
Open Access
A dynamic model of COVID-19: contagion and implications of isolation enforcement
(2020) Casares Polo, Miguel; Khan, Hashmat; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía
We present a dynamic model that produces day-to-day changes in key variables due to the COVID-19 contagion: the number of ever infected people, currently infected, deaths, healed, and infected people who require hospitalization. The model is carefully calibrated to Spanish data and we conduct simulation exercises to study the role of isolation measures to contain the virus spread. We find that virus containment from isolation exhibits increasing returns. Our model simulations show that the State of Alarm intervention of the Spanish government on March 14th, 2020 reduces deaths by almost 85%, and lowers the maximum number of infected people who need daily hospitalization by a factor of 1/12. The simulations also indicate that both the timing and the intensity of the isolation enforcement are key for the evolution of the virus spread and the smoothing of the hospitalization needs.