Tapering optimizations for TW level superconducting undulators: summary of simulation results
Inflation and Time Inconsistency · The Crisis: where are we? “Deleveraging”, “Quantitative...
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Inflation and Time Inconsistency (π* = 0) Coop solution Y = Y n L = L C Discretion Y n < Y < kY n L = L D Rational exp equil Y = Y n L = L RE Central bank workers π = 0 π = π D L D < L C < L RE π exp = 0 π exp = π D = π RE 1
Transcript of Inflation and Time Inconsistency · The Crisis: where are we? “Deleveraging”, “Quantitative...
Inflation and Time Inconsistency (π* = 0)
Coop solution
Y = Yn
L = LC
Discretion Yn < Y < kYn
L = LD
Rational exp equil
Y = Yn
L = LRE
Central bank
workers
π = 0 π = π D
LD
< LC
< LRE
π exp = 0
π exp = π D = π RE
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The Crisis: where are we?
“Deleveraging”, “Quantitative Easing” and “Tapering”
14.02 Spring 2014
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United States: real house prices since 1880
Source: S&P, Case-Shiller Index
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© S&P Dow Jones Indices. All rights reserved. This content is excluded from our Creative
Commons license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Real house prices (indeces, 2000=100)
Source: IMF, World Economic Outlook, October 2013 4
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
House prices and household debt (mortgages)
house debt and equity
house 100 equity 10
debt 90
house debt and equity
house
101 equity 11
debt 90
leverage = 9,18 leverage = 10
house debt and equity
house 101 equity 11
cash 9
debt 99
leverage = 10
• The additional 9$ borrowed are spent
• Leverage and amplification • 1$ increase in house price • 9$ increase in spending
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Households’ leverage ratios: debt to disposable income
Source: IMF, World Economic Outlook, October 2008 6
Source: IMF, World Economic Outlook, October 2013
House prices and household debt (mortgages)
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Deleveraging: US Household saving (percent of disposable income)
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"Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis:
Personal Savings; U.S. Department of Commerce: Bureau of Economic Analysis;http://research.stlouisfed.org; accessed September 8, 2014."
Deleveraging: US Household consumption (constant dollars)
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"Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: USHousehold Consumption; U.S. Department of Commerce: Bureau of Economic Analysis;
http://research.stlouisfed.org; accessed September 8, 2014."
The consequences of Banks’ Deleveraging
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Asset prices and banks’ leverage
assets liabilities
assets 100 capital 10
liabilities 90
assets liabilities
assets
95 capital 5
liabilities 90
leverage = 19 leverage = 10
assets liabilities
assets 50 capital 5
liabilities 45
leverage = 10
After a fall in asset values banks sell asset:
Demand function slopes the wrong way !
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The leverage cycle
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Banks deleveraging: an example
13Courtesy of the Federal Reserve Bank of Boston. Used with permission.
Source: Bank of England
Banks’ leverage and deleveraging
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Bank deleveraging and bank lending to firms
Source: Bank of England 15
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Bank deleveraging and bank lending to households and firms
Source: IMF, World Economic Outlook, October 2013 16
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
How long does a delever aging cycle last ? Japan: leverage of non financial corporations (1976 – 2010)
Source: Koo, 2008
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Reducing leverage: Japan 1990 - 2010
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Csiegel
Typewritten Text
Per-capita income after a banking crisis
average of 88 episodes
Source: IMF, World Economic Outlook, October 2009 19
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Macroeconomics
how it responded to the crisis and the challenges today
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Source: IMF, World Economic Outlook, April 2014
World Output Growth
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
How did monetary and fiscal policy respond ?
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However they responded, it worked ! This crisis and the Great Depression in the 1930s
World Industrial Output
Source: Eichengreen and O’Rourke, Vox-EU, March 2010 23
Courtesy of Barry Eichengreen and Kevin Hjortshøj O'Rourke. Used with permission.
Fiscal policy
Source: IMF, World Economic Outlook
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
US Federal Government debt (percent GDP, 1940-2013)
25
Image is in the public domain courtesy of the Congressional Budget Office.
26
© IMF. All rights reserved. This content is excluded from our Creative Commons
license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Monetary policy
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
Zero Lower Bound: the “Liquidity Trap”
• Spending shock shifts IS to IS ‘
• Monetary policy response shfts LM to LM ‘
• Zero Lower Bound
• Central bank buys asset, prints money: Quantitative Easing
• IS ‘ shifts up to IS ‘’
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Quantitative Easing and the Holmstrom-Tirole model • ρ = i + x : interest rate at which firms can borrow • Investment = I (Y, ρ) • Crisis reduces banks’ capital (slide 11)
– x = f (capital of banks and own resources of entrepreneurs, A ) ↑ • for given i, Investment ↓
– Quantitative Easing raises banks’ capital x ↓ • For given i, Investment ↑
x up
X down
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The «asset side» of the Federal Reserve’s balance sheet,before the crsis
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Image is in the public domain courtesy of the Federal Reserve of New York.
The «asset side» of the Federal Reserve’s balance sheet, today
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Image is in the public domain courtesy of the Federal Reserve of New York.
Quantitative easing
assets liabilities
Gvt bills 100 cash 80
bank reserves
20
assets liabilities
Loans 50
Mortgage backed
securities
30 deposits 90
Reserves at the CB
20 equity 10
Commercial Bank Central Bank
assets liabilities
Gvt bills 100 cash 80
Mortgage backed
securities
30 bank reserves
50
assets liabilities
Loans 50
Mortgage backed
securities
0 deposits 90
Reserves at the CB
50 equity 10
before
after
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Quantitative easing and Credit easing
https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/federal-reserve/v/more-on-quantitative-
easing--and-credit-easing
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Fed «Tapering» and its consequences
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license. For more information, see http://ocw.mit.edu/help/faq-fair-use/.
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14.02 Principles of MacroeconomicsSpring 2014
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