Abstract: A plethora of scholars have attempted to discern the causes of slow growth in the sub-Saharan Africa region. The effects of global economic integration, corruption, geography and ethnic diversity have been widely explored. Mainstream growth analyses, however, have not yet integrated the body of scholarship that identifies the linkages between gender, economic development and growth. This paper explores the theoretical and empirical macrogrowth effects of gender inequality in sub-Saharan Africa. It further identifies two key policy avenues for promoting gender equality and thus growth: public investment to reduce the gender gap in care burdens, and a shift in emphasis of central bank targets to employment.

Full paper can be found here.

Abstract: Nominal GDP targeting has been advocated by a number of authors since it produces relative stability of inflation and output. However, all of the papers assume rational expectations on the part of private agents. In this paper I provide an analysis of this assumption. I use stability under recursive learning as a criterion for evaluating nominal GDP targeting in the context of a model with explicit micro-foundations which is currently the workhorse for the analysis of monetary policy.

Full paper can be found here.

Abstract: We extend the basic (representative-household) New Keynesian [NK] model of the monetary transmission mechanism to allow for a spread between the interest rate available to savers and borrowers, that can vary for either exogenous or endogenous reasons. We find that the mere existence of a positive average spread makes little quantitative difference for the predicted effects of particular policies. Variation in spreads over time is of greater significance, with consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation. Nonetheless, we find that the target criterion—a linear relation that should be maintained between the inflation rate and changes in the output gap—that characterizes optimal policy in the basic NK model continues to provide a good approximation to optimal policy, even in the presence of variations in credit spreads. Such a “flexible inflation target” can be implemented by a central-bank reaction function that is similar to a forward-looking Taylor rule, but adjusted for changes in current and expected future credit spreads.

Full paper can be found here.

Abstract: We consider decision-making by boundedly-rational agents in dynamic stochastic environments. The behavioral primitive is anchored to the shadow price of the state vector. Our agent forecasts the value of an additional unit of the state tomorrow using estimated models of shadow prices and transition dynamics, and uses this forecast to choose her control today. The control decision, together with the agent’s forecast of tomorrow’s shadow price, are then used to update the perceived shadow price of today’s states. By following this boundedlyoptimal procedure the agent’s decision rule converges over time to the optimal policy. Specifically, within standard linear-quadratic environments, we obtain general conditions for asymptotically optimal decision-making: agents learn to optimize. Our results carry over to closely related procedures based on valuefunction learning and Euler-equation learning. We provide examples showing that shadow-price learning extends to general dynamic-stochastic decisionmaking environments and embeds naturally in general-equilibrium models.

Full paper can be found here

Abstract: This paper provides estimates of the government spending multiplier over the monetary policy cycle. We identify government spending shocks as forecast errors of the growth rate of government spending from the Survey of Professional Forecasters (SPF) and from the Greenbook record. The state of monetary policy is inferred from the deviation of the U.S. Fed funds rate from the target rate, using a smooth transition function. Applying the local projections method to quarterly U.S. data, we find that the federal government spending multiplier is substantially higher under accommodative than non-accommodative monetary policy. Our estimations also suggest that federal government spending may crowd-in or crowd-out private consumption, depending on the extent of monetary policy accommodation. The latter result reconciles—in a unified framework—apparently contradictory findings in the literature. We discuss the implications of our findings for the ongoing normalization of monetary conditions in advanced economies.

Full paper can be found here.

Abstract: This paper investigates the nature of the Federal Open Market Committee’s (FOMC’s) interest rate rule, with a focus on which variables have been relevant to the FOMC over the past 40 years. I consider a large number of potential variables, including alternate measures of inflation, aggregate real activity, and sectoral variables. Based on inclusion probabilities derived from Bayesian Model Averaging (BMA) over a sample from 1970-2007, I find that the FOMC responds to changes in unemployment rather than to changes in GDP growth. Additionally, I find that the FOMC reacts not only to inflation and aggregate output, but also to measures of sectoral activity, such as changes in commodity prices. Finally, I find that using BMA improves out-of-sample forecasting performance over baseline Taylor-type interest rate rules.

Full paper can be found here.

Abstract: This paper analyzes the quantitative importance of adaptive learning in business cycle fluctuations. We first introduce adaptive learning in a real business cycle model and a New Keynesian model, using specifications drawn from the literature which assume that agents learn about the equilibrium laws of motion. We consider a variety of learning rules, and find that in both environments learning has very minor effects on the volatility and the persistence of the key economic variables. However we discuss some potential theoretical drawbacks to this formulation of learning, and consider an alternative formulation in which agents learn about the structural fea- tures of the economy. In some simplified settings, we show that structural learning has much greater effects. We also illustrate how learning with misspecified beliefs can lead to fluctuations of a different kind, as agents “escape” from an equilibrium. Overall, our results show that the importance of learning depends greatly on the specification of beliefs.

Full paper can be found here.

Abstract: This paper analyzes the quantitative importance of adaptive learning in business cycle fluctuations. We first introduce adaptive learning in a real business cycle model and a New Keynesian model, using specifications drawn from the literature which assume that agents learn about the equilibrium laws of motion. We consider a variety of learning rules, and find that in both environments learning has very minor effects on the volatility and the persistence of the key economic variables. However we discuss some potential theoretical drawbacks to this formulation of learning, and consider an alternative formulation in which agents learn about the structural features of the economy. In some simplified settings, we show that structural learning has much greater effects. We also illustrate how learning with misspecified beliefs can lead to fluctuations of a different kind, as agents “escape” from an equilibrium. Overall, our results show that the importance of learning depends greatly on the specification of beliefs.

Full working paper can be found here.

Abstract: This paper models how transfers, a tax rate on labor income, and the distribution of government debt should respond to aggregate shocks when markets are incomplete. A planner sets a lump sum transfer and a linear tax on labor income in an economy with heterogeneous agents, aggregate uncertainty, and a single asset with a possibly risky payoff. Limits to redistribution coming from incomplete tax instruments and limits to hedging coming from incomplete asset markets affect optimal policies. Two forces shape long-run outcomes: the planner’s desire to minimize the welfare cost of fluctuating transfers, which calls for a negative correlation between agents’ assets and their skills; and the planner’s desire to use fluctuations in the return on the traded asset to compensate for missing state-contingent securities. In a multi-agent model calibrated to match facts about US booms and recessions, the planner’s preferences about distribution make policies over business cycle frequencies differ markedly from Ramsey plans for representative agent models.

Additional information can be found here.