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
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
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
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
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
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 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
Long run analysis in alternative optimizing monetary models
(2001) Casares Polo, Miguel; Economía; Ekonomia
This paper explores the transmission channel from monetary variables to real variables in the steady-rate equilibria of various neoclassical optimizing models with money. The existence of superneutrality is rejected for the four models at hand: time-cost transactions approach, output-cost transactions approach, money in the utility function model, and cash-in-advance model. However, the real effects of high rates of inflation are not large: output, consumption, and investment slightly fall with higher inflation rates. In addition, the welfare cost of inflation is calculated for annual rates of inflation ranging from 0% to 50%. Three of the models (all but the cash-in-advance model) agree on the following result: a 10% rate of inflation creates a permanent welfare cost equal to 0.3% of GPD per year.
Open Access
Business dynamism and economic growth: U.S. regional evidence
(2016) Casares Polo, Miguel; Khan, Hashmat; Economía; Ekonomia
We document empirical evidence on the determinants of U.S. regional growth over the last 25 years, with a special attention to the role of entrepreneurial activity or `business dynamism'. The main data source is the Business Dynamics Statistics (BDS) released by the U.S. Census Bureau. The key findings are: i) business entry and exit rates are similarly distributed across states, ii) neither entry nor exit rates have had a significant impact on regional growth, iii) higher business density results in faster regional growth, iv) entry rates have fallen over time and the states with greater business detrending have had weaker economic growth, v) states where entry and exit show substantial comovement (business churning) tend to grow faster, especially after 2007, vi) state-level population growth has no substantial effect on regional growth, and vii) the convergence hypothesis holds across the states of the U.S.
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.