| Contact Information | Curriculum Vita | Research Papers | Computer Code | Teaching | Seminars | Other Stuff |
Fields of Interest: Monetary Economics, Macroeconomics, Applied Time-Series Econometrics
"Estimating Central Bank Preferences under Commitment and Discretion" under review
(First Draft June 2009) This paper explains US macroeconomic outcomes with an empirical new-Keynesian model in which monetary policy minimizes the central bank's loss function. The presence of expectations in the model forms a well-known distinction between two modes of optimization, termed commitment and discretion. I estimate the model separately under each policy using maximum likelihood over the Volcker-Greenspan-Bernanke period. Comparisons of fit reveal that the data favor the specification with discretionary policy. Estimates of the loss function weights point to an excessive concern for interest rate smoothing in the commitment model but a more balanced concern relative to inflation and output stability in the discretionary model.
"Unemployment Insurance in a Sticky-Price Model with Worker Moral Hazard" revisions requested from the Journal of Economic Dynamics and Control
(First Draft July 2008) This paper studies the role of unemployment insurance in a sticky-price model that features an efficiency-wage view of the labor market based on unobservable effort. The risk-sharing mechanism central to the model permits, but does not force, agents to be fully insured. Structural parameters are estimated using a maximum-likelihood procedure on US data. Formal hypothesis tests reveal that the data favor a model in which agents only partially insure each other against employment risk. The results also show that limited risk sharing helps the model capture many salient properties of the business cycle that a restricted version with full insurance fails to explain.
"Which Price Level to Target? Strategic Delegation in a Sticky Price and Wage Economy" Journal of Macroeconomics, December 2009, 31(4), pp. 685-98.
(Revised October 2008, formerly titled "Revisiting the Delegation Problem in a Sticky Price and Wage Economy") This paper assesses the value of delegating price level targets to a discretionary central bank in an economy with nominal frictions in both labor and product markets. In contrast to recent studies that demonstrate the benefits of targeting the price of output, model simulations provide evidence that favors targeting the price of labor, or the nominal wage, instead. While both policies impart inertia (a salient feature of commitment), wage targeting dominates output-price targeting because the former delivers more favorable tradeoffs between the stabilization goals appearing in the social welfare function. Delegating joint price and wage targets, however, nearly replicates the commitment policy from a timeless perspective.
"Generalized Method of Moments and Inverse Control" with Michael K. Salemi, Journal of Economic Dynamics and Control, October 2008, 32(10), pp. 3113-47.
(Revised July 2007) This paper presents a Generalized Method of Moments algorithm for estimating the structural parameters of a macroeconomic model subject to the restriction that the coefficients of the monetary policy rule minimize the central bank's expected loss function. The algorithm combines least-squares normal equations with moment restrictions derived from the first-order necessary conditions of the auxiliary optimization. We assess the performance of the algorithm with Monte Carlo simulations using three increasingly complex models. We find that imposing the optimizing restrictions when they are true improves estimation accuracy and that imposing those restrictions when they are false biases estimates of some of the structural parameters but not of the policy rule coefficients.
"Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle" The B.E. Journal of Macroeconomics, March 2008, 8(1) (Contributions), Article 13.
(Revised January 2008) This paper examines the impact of unemployment insurance on the propagation of monetary disturbances in a staggered price model of the business cycle. To motivate a role for risk sharing behavior, I construct a quantitative equilibrium model that gives prominence to an efficiency-wage theory of unemployment based on imperfectly observable labor effort. Dynamic simulations reveal that under a full insurance arrangement, staggered price-setting is incapable of generating persistent real effects of a monetary shock. Introducing partial insurance, however, bolsters the amount of endogenous wage rigidity present in the model, enriching the propagation mechanism. Positive real persistence appears in versions of the model that exclude capital accumulation as well as in versions that do not.
"Policy Evaluation with a Forward-Looking Model," with R.V. Atoian and M. K. Salemi, in Money Matters: Essays in Honour of Alan Walters, Patrick Minford (editor), September 2004, pp. 280-305.
In this paper, we follow the standard two-step approach to policy evaluation. We set out a small structural model and obtain estimates of its parameters, and then evaluate the performance of alternative policy rules while treating estimates of the structural parameters as fixed and known. We break with standard practice in an interesting way. On the assumption that structural-error covariances are fixed and known, we compare the performance of fixed-coefficients rules that condition on past state variables, current state variables, and expectations of future state variables. We also compare fixed-coefficient rules to optimal commitment and discretion. Our paper provides evidence on the practical importance to a central bank of obtaining a commitment mechanism and on the loss in performance when the commitment mechanism takes the form of a simple fixed-coefficient policy rule.