tag:blogger.com,1999:blog-7562826833514049440.post1370791153058680662..comments2019-01-08T21:06:10.972-08:00Comments on The Ramblings of an Amateur Economist: Monetary Offset Is A Thing in New Keynesian Models (Sort of)John Handleyhttp://www.blogger.com/profile/16057855086740377031noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7562826833514049440.post-636335270131196812015-05-14T20:36:44.898-07:002015-05-14T20:36:44.898-07:00edit: $ i_t = \beta^{-1} -1 + \phi_\pi (\pi_t - 1)...edit: $ i_t = \beta^{-1} -1 + \phi_\pi (\pi_t - 1) + \phi_y (\log y_t - y^n) $John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-7562826833514049440.post-71120296303935504342015-05-14T20:36:09.584-07:002015-05-14T20:36:09.584-07:00This comment has been removed by the author.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-7562826833514049440.post-62642623980219416502015-05-14T20:35:02.007-07:002015-05-14T20:35:02.007-07:00I can add a shock every period, but as long as mon...I can add a shock every period, but as long as monetary policy follows a rule (and I'm doing a stochastic/dynamic rather than deterministic simulation), a negative rate is always possible. Consider the policy rule in the model: $ i_t = \beta^{-1} + \phi_\pi (\pi_t - 1) + \phi_y (\log y_t - y^n) $. If $ \pi_t - 1 $ or $ \log y_t - y^n $ are sufficiently negative, the nominal interest rate will be lower than zero.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-7562826833514049440.post-44631816317717405702015-05-14T17:38:51.506-07:002015-05-14T17:38:51.506-07:00I get it.
One way you could create a pseudo zero ...I get it.<br /><br />One way you could create a pseudo zero lower bound is to add a small amount of noise ... effectively creating a "noise floor" for the interest rate -- that would approximate what the data looks like.<br /><br /><a href="http://research.stlouisfed.org/fred2/graph/?g=1bqC" rel="nofollow">http://research.stlouisfed.org/fred2/graph/?g=1bqC</a><br /><br /><a href="http://en.wikipedia.org/wiki/Noise_floor" rel="nofollow">http://en.wikipedia.org/wiki/Noise_floor</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-7562826833514049440.post-22306788723129667802015-05-04T17:26:03.956-07:002015-05-04T17:26:03.956-07:00The nominal interest rate is in log deviation from...The nominal interest rate is in log deviation from steady state, but you're right there isn't a zero lower bound in the model. The program I'm using to simulate the models doesn't seem to work well with things like the zero lower bound and variables that don't revert to the same steady state after a shock (like the price level). In a cashless economy, I'm pretty sure that if the zero lower bound is a binding constraint, monetary offset stops happening, but I'm not quite sure how this would work out with something like a nominal income target or a money supply rule since there are no constraints on monetary policy.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-7562826833514049440.post-58688062217159453222015-05-04T08:19:28.424-07:002015-05-04T08:19:28.424-07:00Hi John,
Your nominal interest rate appears to go...Hi John,<br /><br />Your nominal interest rate appears to go negative in the first case -- I believe the circumstances that allow that (program buying by big mutual funds or retirement funds or e.g. limits on ATM withdrawals or costs of holding cash) aren't in the model per se. Maybe I am misreading your graphs?Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.com