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Florin Bilbiie (Paris School of Economics) – “The New Keynesian Cross: Understanding Monetary Policy and Forward Guidance with Heterogeneous Households”
October 19, 2:00 pm - 3:30 pm
The Malinvaud-Adres Seminars: Every Thursday at 2:00 pm
Time: 2:00 pm – 3:30 pm
Date: 19th of October 2017
Place: Room 3001
Florin Bilbiie (Paris School of Economics) – “The New Keynesian Cross: Understanding Monetary Policy and Forward Guidance with Heterogeneous Households”.
Abstract: The New Keynesian Cross describes aggregate demand through a planned expenditure PE
curve and captures a key amplification mechanism and decomposition of heterogeneous-agent
New Keynesian (HANK) models à la Kaplan, Moll and Violante, 2015. In response to monetary
policy, PE’s shift is the direct effect (intertemporal substitution), while its slope (marginal
propensity to consume) is the share of the indirect effect in total. There is amplification
(dampening) when hand-to-mouth’s income elasticity to aggregate is more (less) than unity;
This elasticity depends chiefly on income (including fiscal re-distribution. The effects are
magnified by self-insurance when households are hand-to-mouth only occasionally: the
aggregate Euler equation now features discounting (McKay, Nakamura and Steinsson, 2015)
when the elasticity of hand-to-mouth income to aggregate is lower than unity, but compounding
when larger. This matters most for forward guidance (FG), whose power is reduced in the
former case, thus resolving the “FG puzzle” (Del Negro et al, 2013) – but amplified in the latter
(Werning, 2015), thus aggravating the puzzle.
Edouard CHALLE (CREST – École Polytechnique)