Layoff Risk, the Welfare Cost of Business Cycles, and Monetary Policy

2015 ◽  
Author(s):  
David Berger ◽  
Ian Dew-Becker ◽  
Lawrence D. W. Schmidt ◽  
Yuta Takahashi
Keyword(s):  
Monetary Policy ◽  
Business Cycles ◽  
Welfare Cost

Counterfactual Inflation Targeting in Nepal

2019 ◽  
Vol 8 (2) ◽  
pp. 97-117
Author(s):  
Tomoya Suzuki
Keyword(s):  
Monetary Policy ◽  
Business Cycles ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Jel Classification ◽  
Dynamic Stochastic General Equilibrium ◽  
Welfare Cost ◽  
Risk Averse ◽  
Interest Rate Volatility ◽  
Dynamic Stochastic

The Nepal Rastra Bank (NRB) pegs the Nepalese rupee to the Indian rupee, meaning that the NRB effectively transfers control over the country’s monetary policy to India. It is therefore argued that Indian inflation causes Nepalese inflation. This study investigates whether the NRB should have instead floated the Nepalese rupee and targeted inflation. For this purpose, a dynamic stochastic general equilibrium (DSGE) model under a fixed exchange rate regime is estimated using Nepalese data during the 1993–2016 period. The estimated model is used for simulations under counterfactual scenarios for which the NRB floated the Nepalese rupee and followed a rule to target inflation during the study period. Findings show that inflation targeting would have significantly increased the welfare cost associated with business cycles to risk-averse household, owing to interest-rate volatility. The volatilities of consumption and labour services would have become larger. JEL Classification: E31, E32, E52, F41, F45

scholarly journals Business cycle (de)synchronization in the aftermath of the global financial crisis: implications for the Euro area

2015 ◽  
Vol 19 (5) ◽  
Author(s):  
Stelios Bekiros ◽  
Duc Khuong Nguyen ◽  
Gazi Salah Uddin ◽  
Bo Sjö
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Business Cycles ◽  
Euro Area ◽  
Global Financial Crisis ◽  
Wavelet Coherence ◽  
Before And After ◽  
The Global Financial Crisis ◽  
The Cost ◽  
European Economies

AbstractThe introduction of Euro currency was a game-changing event intended to induce convergence of Eurozone business cycles on the basis of greater monetary and fiscal integration. The benefit of participating into a common currency area exceeds the cost of losing autonomy in national monetary policy only in case of cycle co-movement. However, synchronization was put back mainly due to country-specific differences and asymmetries in terms of trade and fiscal policies that became profound at the outset of the global financial crisis. As opposed to previous studies that are mostly based on linear correlation or causality modeling, we utilize the cross-wavelet coherence measure to detect and identify the scale-dependent time-varying (de)synchronization effects amongst Eurozone and the broad Euro area business cycles before and after the financial crisis. Our results suggest that the enforcement of an active monetary policy by the ECB during crisis periods could provide an effective stabilization instrument for the entire Euro area. However, as dynamic patterns in the lead-lag relationships of the European economies are revealed, (de)synchronization varies across different frequency bands and time horizons.

Business cycles asymmetry and monetary policy: a further investigation using MRSTAR models

2004 ◽  
Vol 21 (1) ◽  
pp. 37-71 ◽  
Author(s):  
Gilles Dufrénot ◽  
Valérie Mignon ◽  
Anne Péguin-Feissolle
Keyword(s):  
Monetary Policy ◽  
Business Cycles

Individual Consumption Risk and the Welfare Cost of Business Cycles

2007 ◽  
Vol 97 (4) ◽  
pp. 1488-1506 ◽  
Author(s):  
Massimiliano De Santis
Keyword(s):  
Business Cycles ◽  
Idiosyncratic Risk ◽  
Welfare Cost ◽  
Aggregate Fluctuations ◽  
Welfare Gain ◽  
Aggregate Consumption ◽  
Consumption Insurance ◽  
Consumption Risk ◽  
Consumption Fluctuations ◽  
Overall Risk

We measure the welfare gain from removing aggregate consumption fluctuations in a model where each individual faces incomplete consumption insurance. We show that, because this welfare gain is a convex function of the overall consumption risk—aggregate plus idiosyncratic—each individual faces, to gauge the magnitude of the gain, it is important to match individuals' overall risk prior to any policy. In an economy calibrated to match individuals' overall risk, even removing 10 percent of aggregate fluctuations can result in a large welfare gain. Further, large gains do not necessarily depend on the countercyclical nature of idiosyncratic risk. (JEL E21, E32)

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