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Title: Essays on heterogeneity of price stickiness, persistence of real economy and optimal monetary policy
Author: Jiang, Yue
ISNI:       0000 0004 2718 5711
Awarding Body: Cardiff University
Current Institution: Cardiff University
Date of Award: 2011
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Nominal rigidity and the real effects of the monetary policy have been central to the macroeconomics research. This thesis incorporates the recently emerged micro evidence of heterogeneous price stickiness into the Dynamic Stochastic General Equilibrium (DSGE) models to address the issues of persistence of the real economy as well as the optimal monetary policy. Chapter 1 examines the source of output persistence from a monetary shock along two dimensions. The first dimension is different pricing models allowing for the heterogeneity in price rigidity, which include the Generalized Taylor Economy (GTE), Multiple Calvo model (MC) and Generalized Calvo model (GC). The other dimension is various assumptions made about the factor markets, including the presence of the endogeneous capital accumulation and the firm-specific labor market. The findings suggest that all the three pricing models with heterogeneous nominal rigidity are capable of generating higher real persistence relative to the models with homogeneous price durations; The presence of firm-specific labor market increases output persistence significantly due to the lower real rigidity, whereas the capital accumulation dampens the persistence in the short run, particularly when labor market is firm-specific. However, in the long run, capital market tends to increase persistence due to its slow adjustment dynamics. Chapter 2 addresses the issue of inadequate persistence of the real exchange rate generated by the two country DSGE model. It applies the GTE pricing structure consistent with the heterogeneous micro price data into anotherwise standard open-economy model with capital accumulation. The results show that the GTE model can increase the persistence of the real exchange rate and other macro variables similar to an extent that the data exihibit. In addition, other pricing structures featuring heterogeneous price durations such as MC and GC models yield similar results to GTE. Chapter 3 compares the optimal monetary policy in the GTE and MC models. In particular, it considers the performance of the aggregate inflation targeting regime as well as the sectoral inflation targeting rules, where the price stickiness is heterogeneous across sectors. It is found that the MC model yields lower absolute wellfare loss than the GTE in any policy regime, due to smaller variation in sectoral prices. Moreover, the sectoral inflation targeting regime outperforms the aggregate targeting rule, yet the welfare gain is insignificant. Under the sectoral inflation targeting, the optimal indices in the GTE are driven mainly by the sectoral weights, with the most flexible sectors receiving the highest policy weights. Whereas in the MC model where the sectors are equally sizaed, the stickier the sector is, the higher the policy weight it attracts
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available