In the first chapter “Impact of Quantitative Easing at the Zero Lower Bound (with J. Dorich, R. Mendes)”, we introduce imperfect asset substitution and segmented asset markets, along the lines of Andres et al. (2004), in an otherwise standard small open-economy model with nominal rigidities. We estimate the model using Canadian data. We use the model to provide a quantitative assessment of the macroeconomic impact of quantitative easing (QE) when the policy rate is at its effective lower bound. In the second chapter “Impact of Forward Guidance at the Zero Lower Bound”, I consider alternative monetary policy rules under commitment in a calibrated three-equation New Keynesian model and examine the extent to which forward guidance helps to mitigate the negative real impact of the zero lower bound. The simulation results suggest that the conditional statement policy prolongs the zero lower bound duration for an additional 4 quarters and reverses half of the decline in inflation associated with the lower bound. It even generates a period of overshooting in inflation three quarters after the initial negative demand shock. Alternatively, the effect of price-level targeting as a forward guidance policy at the zero lower bound is slightly different. In the third chapter “Impact of Quantitative Easing on Household Deleveraging”, I extend the DSGE model in the first chapter with some financial frictions to explore the effects of QE on asset prices and household balance sheet. There are two effects of QE on aggregate output originated from the model. First, QE leads to a decline in term premium, which increases current consumption relative to future consumption. Second, it leads to a lower loan to collateral value ratio and a decline in external finance premium. Favorable financing condition encourages further accumulation of household debt at cheaper rates, in turn, leads to an immediate higher household debt to income ratio. In the consideration of the future withdrawal of any stimulus provided from QE, this would pose greater challenges as it implies much intensive household deleveraging process. I provide some sensitivity analysis around key parameters of the model.

In the first chapter “Impact of Quantitative Easing at the Zero Lower Bound (with J. Dorich, R. Mendes)”, we introduce imperfect asset substitution and segmented asset markets, along the lines of Andres et al. (2004), in an otherwise standard small open-economy model with nominal rigidities. We estimate the model using Canadian data. We use the model to provide a quantitative assessment of the macroeconomic impact of quantitative easing (QE) when the policy rate is at its effective lower bound. In the second chapter “Impact of Forward Guidance at the Zero Lower Bound”, I consider alternative monetary policy rules under commitment in a calibrated three-equation New Keynesian model and examine the extent to which forward guidance helps to mitigate the negative real impact of the zero lower bound. The simulation results suggest that the conditional statement policy prolongs the zero lower bound duration for an additional 4 quarters and reverses half of the decline in inflation associated with the lower bound. It even generates a period of overshooting in inflation three quarters after the initial negative demand shock. Alternatively, the effect of price-level targeting as a forward guidance policy at the zero lower bound is slightly different. In the third chapter “Impact of Quantitative Easing on Household Deleveraging”, I extend the DSGE model in the first chapter with some financial frictions to explore the effects of QE on asset prices and household balance sheet. There are two effects of QE on aggregate output originated from the model. First, QE leads to a decline in term premium, which increases current consumption relative to future consumption. Second, it leads to a lower loan to collateral value ratio and a decline in external finance premium. Favorable financing condition encourages further accumulation of household debt at cheaper rates, in turn, leads to an immediate higher household debt to income ratio. In the consideration of the future withdrawal of any stimulus provided from QE, this would pose greater challenges as it implies much intensive household deleveraging process. I provide some sensitivity analysis around key parameters of the model.

The monetary policy of the Fed and the ECB has greatly change as a result of the global crisis. The goal of the thesis is to analyse the evolution of unconventional monetary instruments in the USA and the EU after the outbreak of the global crisis and nowadays with the help of pivotal economic models; namely, the IS-LM-BP model and the quantity theory of money. In addition, the paper should assess the impacts of adopted instruments and programs and draw conclusions about their success. The theoretical part explains the IS-LM-BP framework and the quantity theory of money and describes the unconventional monetary tools that the central banks can use when the interest rates reach the zero lower bound. The practical part analyses EU and US economy with the explained models. Furthermore, the implemented instruments of the Fed and the ECB are described and compared. The thesis should be concluded with the claim that the transmission mechanism was restored with the help of the non-standard measures, however, the desirable price level stabilization has not been reached.

Both the ECB and the Fed implemented various unconventional measures in response to the last crisis. While the ECB's policies were based on direct lending to banks, the FED adopted large-scale asset purchases. According to the empirical evidence these policies had economically beneficial effects in the US and the Eurozone but these measures have also certain spillovers which scope and exact impacts are quite difficult to estimate. There have been already many papers focusing on cross-border impacts of the FED's policies, but far less studied the spillovers of the ECB's policies. This work provides a theoretical background concerning the unconventional monetary policies implemented by the ECB and the FED after 2008 and analyse the impacts of ECB's policies on six particular countries outside euro area. The Impulse Responses of output, inflation, domestic interest rate and exchange rate are analyzed via block-restricted VAR model. My results confirm that euro area monetary policy does have an impact on non-euro area countries, although the response of macroeconomic variables in analysed countries are heterogeneous and also differ in the period before and after September 2008. Countries seem to be indeed affected more by conventional monetary policies until September 2008, but the euro-area monetary policy spills over via unconventional policies after September 2008. Overall, the ECB's policies affect economic activity outside euro area, but does not have significant impact on inflation. Furthermore, the exchange rate just initially drops in response to monetary tightening, but this reaction usually does not last for more than four months.

In this paper we compare the transmission of a conventional monetary policy shock with that of an unexpected decrease in the term spread, which mirrors quantitative easing. Employing a time-varying vector autoregression with stochastic volatility, our results are two-fold: First, the spread shock works mainly through a boost to consumer wealth growth, while a conventional monetary policy shock affects real output growth via a broad credit / bank lending channel. Second, both shocks exhibit a distinct pattern over our sample period. More specifically, we find small output effects of a conventional monetary policy shock during the period of the global financial crisis and stronger effects in its aftermath. This might imply that when the central bank has left the policy rate unaltered for an extended period of time, a policy surprise might boost output particularly strongly. By contrast, the spread shock has affected output growth most strongly during the period of the global financial crisis and less so thereafter. This might point to diminishing effects of large scale asset purchase programs. (authors' abstrct) / Series: Department of Economics Working Paper Series

This work investigates the international spillover effects and transmission channels of Unconventional Monetary Policy (UMP) of major central banks from United States, United Kingdom, Japan and Europe to Latin-American countries. A Global VAR model is estimated to analyze the impact on output, inflation, credit, equity prices and money growth on the selected countries. Results suggest that indeed, there are international spillovers to the region with money growth, stock prices and international reserves as the main transmission channels. In addition, outcomes are different between countries and variables implying not only that transmission channels are not same across the region but also that the effects of the monetary policy are not distributed equally. Furthermore, it is found evidence that for some countries transmission channels may have transformed due to the crisis. Finally, effects of UMP during the crisis were in general positive with exception of Japan indicating that policies from this country brought more costs than benefits to the region. Keywords Zero Lower Bound, Unconventional Monetary Policy, International Spillovers, Global VAR, GVAR.

<p>This dissertation presents two essays on Markov-Switching dynamic stochastic general equilibrium models.</p><p>The first essay is "Perturbation Methods for Markov-Switching Models," which is co-authored with Juan Rubio-Ramirez, Dan Waggoner, and Tao Zha. This essay develops an perturbation-based approach to solving dynamic stochastic general equilibrium models with Markov-Switching, which implies that parameters governing policies or the environment evolve over time in a discrete manner. Our approach has the advantages that it introduces regime switching from first principles, allows for higher-order approximations, shows non-certainty equivalence of first-order approximations, and allows checking the solution for determinacy. We explain the model setup, introduce an iterative procedure to solve the model, and illustrate it using a real business cycle example.</p><p>The second essay considers a model with financial frictions and studies the role of expectations and unconventional monetary policy during financial crises. During a financial crisis, the financial sector has</p><p>reduced ability to provide credit to productive firms, and the central bank may help lessen the magnitude of the downturn by using unconventional monetary policy to inject liquidity into credit markets. The model allows agents in the economy to expect policy changes by allowing parameters to change according to a Markov process, so agents have expectations about the probability of the central bank intervening during a crisis, and also have expectations about the central bank's exit strategy post-crisis. </p><p>Using this Markov Regime Switching specification, the paper addresses three issues. First, it considers the effects of different exit strategies, and shows that, after a crisis, if the central bank sells off its accumulated assets too quickly, the economy can experience a double-dip recession. Second, it analyzes the effects of expectations of intervention policy on pre-crisis behavior. In particular, if the central bank commits to always intervening during crises, there is a loss of output in pre-crisis times relative to if the central bank commits to never intervening. Finally, it considers the welfare implications of committing to intervening during crises, and shows that committing can raise or lower welfare depending upon the exit strategy used, and that committing before a crisis can be welfare decreasing but then welfare increasing once a crisis occurs.</p> / Dissertation

This dissertation consists of three essays on topics in macroeconomics. In the first chapter, I construct a macroeconomic model with a heterogeneous banking sector and an interbank lending market. Banks differ in their ability to transform deposits from households into loans to firms. Bank size differences emerge endogenously in the model, and in steady state, the induced bank size distribution matches two stylized facts in the data: bigger banks borrow more on the interbank lending market than smaller banks, and bigger banks are more leveraged than smaller banks. I use the model to evaluate the impact of increasing concentration in US banking on the severity of potential downturns. I find that if the banking sector in 2007 was only as concentrated as it was in 1992, GDP during the Great Recession would have declined by 40% less it did, and would have recovered twice as fast. In the second chapter, my co-author and I investigate the impact of firm capacity constraints on aggregate production and productivity when the economy is driven by aggregate and idiosyncratic demand shocks. We are motivated by three observed regularities in US GDP: business cycles are asymmetric, in that large absolute changes in output are more likely to be negative than positive; capacity and capital utilization are procyclical, and increase the procyclicality of measured productivity; the dispersion of firm productivity increases in recessions. We devise a model of demand shocks and endogenous capacity constraints that is qualitatively consistent with these observations. We then calibrate the model to aggregate utilization data using standard Bayesian techniques. Quantitatively, we find that the calibrated model also exhibits significant asymmetry in output, on the order of the regularities observed in GDP. The third chapter explores the role of distance in equilibrium selection. I consider a model economy with multiple steady state equilibria where a high productivity and a low productivity technology are available for use in production. The high productivity technology requires a fixed set up cost for production. Sectors are linked by localized production complementarities. I consider selection under a learning rule in which agents imitate their most successful neighbor. As distance between neighbors decreases, the possible profits from industrialization increase, and the likelihood that the learning rule process converges to a steady state matching the H equilibrium increases. The result suggests that, in the presence of localized technology spillovers, there may be important gains to economic growth from infrastructure development. / text

In this paper, I examine the effects of unconventional monetary policies and quantitative easing programs in the U.S and UK on their respective commercial real estate markets. I study two sample periods (2007-2017 and 2009-2017) and find that between 2007 and 2017, quantitative easing and the expansion of the U.S monetary base significantly drives the returns of the U.S commercial indices as well as the returns of the UK commercial index. Between 2009 and 2017, I find the expansion of the U.S monetary base only drives the UK commercial index. The difference in the results between these two sample periods may be a function of the magnitude of assets being purchased by the Fed prior to 2009 as well as the volatility and uncertainty that gripped the markets between October and December of 2008. I find that the UK index drives the expansion of the UK monetary base in both 2007-2017 and 2009-2017. This is likely the result of global uncertainty and volatility surrounding 2008 as well as the risk of financial market collapse inspiring monetary policy action. I also find the indices show a predominantly negative reaction to U.S and UK monetary policy events; suggesting the indices react negatively to the events that preceded the monetary policy announcements as well as the announcements themselves.

The diploma thesis focuses on quantitative easing in Japanese economy. In the first part the problematic is set into a theoretical frame and then is connected with the development of the modern Japanese economy. The thesis describes the progress of the both waves of quantitative easing which have been implemented so far as well as the circumstances of their start and their so far known impacts. The application part presents an evaluation of the impacts of the current wave of quantitative easing. The evaluation is based on the impulse-response analysis.