Resumen de Essays on monetary economics and applied macroeconomics
This thesis consists three chapters on topics in monetary economics and applied macroeconomics. The first chapter of the thesis studies the information channel of monetary policy in a model where the central bank has superior information regarding news shock. Monetary policy shocks affect interest rates at long horizons (10 years or more). Furthermore, the private sector’s real GDP forecasts are revised upward in response to a monetary tightening. These facts challenge the prevailing theories in academic and policy circles, which are based on the paradigm that monetary policy has limited long-run effects and a monetary policy tightening should depress agents' beliefs about real GDP. In this paper, I propose a micro-founded model to rationalize those facts, based on the information channel of monetary policy. I consider a framework where the central bank has private information about future economic conditions. Agents update their beliefs according to Bayes’ theorem. Policy actions play a signaling role, and may therefore have an impact on both short and long term interest rates. Moreover, I provide novel empirical facts that the aforementioned responses are stronger when monetary shocks are expansionary.
An extension of the model with ambiguity averse agents and ambiguous signals rationalizes such an asymmetry. Finally, I discuss the implications of information frictions for the design of optimal simple rule.
The second chapter explores the role of market power for the design of the optimal monetary policy. Existing empirical evidence suggest crosssector heterogeneities in both nominal rigidity and market power. This paper studies the optimal choice of inflation index for a central bank to stabilize in a framework that embeds those features. The optimal weight attached to inflation in a sector is increasing in this sector’s: i) price stickiiness (stickiness channel) and ii) degree of market competition (competition channel). Moreover, if firms in a more competitive sector adjust their price more frequently as predicted by costly price adjustment models, the competition channel offsets the stickiness channel. The finding challenges the conventional wisdom that the central bank should attach a higher weight to a sector with a higher degree of nominal rigidity, and supports the current practice of central banks around the world (CPI targeting).
In the third chapter, I propose and rationalize puzzles related to the professional forecasts of exchange rates. For short horizon exchange rate predictability, the simple random walk model outperforms professional forecasts. A new puzzle arises: why do professional forecasters not adopt the simple random walk model to provide a more accurate estimate? This paper provides an explanation. In this framework, the forecaster faces model uncertainty and reports the forecast that minimizes the forecast error under the worst-case scenario. Therefore professional forecasts are intentionally suboptimal. Estimation results show that the model matches the empirical puzzle. In addition, the model predicts that the forecaster substantially underreacts to current news, which is consistent with empirical facts provided in this paper. Moreover, the null of ”rationality” is rejected using simulated data confirming existing findings even though forecasters in the model perform optimally.
