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
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
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.
Open Access
An estimated new-Keynesian model with unemployment as excess supply of labor
(2010) Casares Polo, Miguel; Moreno Pérez, Antonio; Vázquez, Jesús; Economía; Ekonomia
As one alternative to search frictions, wage stickiness is introduced in a New-Keynesian model to generate endogenous unemployment fluctuations due to mismatches between labor supply and labor demand. The effects on an estimated New-Keynesian model for the U.S. economy are: i) the Calvo-type probability on wage stickiness rises, ii) the labor supply elasticity falls, iii) the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data, and iv) wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations.
Open Access
Data revisions in the estimation of DSGE models
(2011) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
Revisions of US macroeconomic data are not white-noise. They are persistent, correlated with real-time data, and with high variability (around 80% of volatility observed in US real-time data). Their business cycle effects are examined in an estimated DSGE model that distinguishes real-time data from final data. Both the consumption habit formation and the price indexation to lagged inflation fall significantly in the estimation. The model also shows that revision shocks of both output and inflation are expansionary because they occur when real-time published data are too low and the Fed reacts by cutting interest rates. Consumption revisions, by contrast, are countercyclical as consumption habits mirror the observed reduction in real-time consumption. Finally, revisions of the three variables explain 9.3% of changes of output in its long-run variance decomposition.
Open Access
A structural analysis of US entry and exit dynamics. Technical appendix
(2018) Casares Polo, Miguel; Khan, Hashmat; Poutineau, Jean-Christophe; Economía; Ekonomia
A. The optimizing programs of the model and other technical details (pages 1-7) B. Short-run and long-run equilibria in the DSGE model with endogenous entry and exit (pages 8-12) C. Average productivity (pages 13-15) D. Data and measurement equations (pages 16 and 17) E. The loglinearized equation for short-run fluctuations of critical productivity, zcr (pages 18 and 19) F. Aggregation (pages 20-24) G. The overall resources constraint (pages 25 and 26) H. Estimated shock decomposition for US data (pages 27-31) I. The sources of fluctuations in the Great Recession (pages 32-37)
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
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.