Heterogeneity in Macroeconomics and its Implications for Monetary Policy
by Fabian Schnell (Author)

About the Author
Fabian Schnell, Ph.D., works as a research associate at the University of St. Gallen and as a project leader for economic policy at economiesuisse, the Swiss Business Federation.

About this book
Fabian Schnell develops a model indicating that by keeping real interest rates too low, monetary policy can distort the allocation of resources across firms and potentially delay economic recovery after a recession. This is a new channel of monetary policy that is especially relevant in view of “Quantitative Easing” programs. A second model focuses on the short-term implications of heterogeneously productive firms, showing an acceleration effect of technology shocks. Finally, an empirical investigation of firms’ price-setting behaviors shows that time-dependent factors, relative to state-dependent ones, play a small role with respect to the probability and the size of a price change. All results provide new insights for monetary policy.

Table of contents
1 Introduction: Heterogeneity and Macroeconomics
2 Can Monetary Policy Delay the Reallocation of Capital?
    Abstract
    2.1 Introduction
    2.2 Review of related literature
    2.3 Themodel
        2.3.1 Households
        2.3.2 Production
        2.3.3 Zero cut-off profit condition
        2.3.4 Aggregation
        2.3.5 Welfare analysis
    2.4 The long-run steady state
    2.5 The central bank
    2.6 Numerical simulations
        2.6.1 Monetary policy with r∗ < r
        2.6.2 Monetary policy with r∗ > r
    2.7 Conclusion
  Appendices
    2.A Structural breaks in the US real interest rates
    2.B Proofs
        2.B.1 Proof of Proposition 1
        2.B.2 Proof of Proposition 2
        2.B.3 Proof of Proposition 4
    2.C Optimization by the social planner
3 Business Cycles and Monetary Policy with Productivity Heterogeneity
    Abstract
    3.1 Introduction
    3.2 Review of related literature
    3.3 Themodel
        3.3.1 Input good production
        3.3.2 Intermediate and final good production
        3.3.3 Aggregation
        3.3.4 Free entry and zero cut-off productivity condition
        3.3.5 Total output
        3.3.6 Households and preferences
        3.3.7 Wage setting and labor supply
        3.3.8 The central bank
        3.3.9 Parametrization of the technology distribution
        3.3.10 Equilibrium and model dynamics
    3.4 Model estimations
        3.4.1 Calibration of parameters
        3.4.2 Impulse responses
        3.4.3 Second moments
    3.5 Some notes on monetary policy
    3.6 Conclusion
  Appendices
    3.A Linearized model
    3.B OLS-regression for the Taylor rule
    3.C Impulse response functions following a monetary shock
4 What Determines Price Changes and the Distribution of Prices? Evidence from the Swiss CPI
    Abstract
    4.1 Introduction
    4.2 Review of related literature
    4.3 Data description and descriptive statistics
        4.3.1 The data
        4.3.2 Constructed variables
        4.3.3 Descriptive statistics
    4.4 Econometric results
        4.4.1 Methodology
        4.4.2 Pricing at the extensive margin
        4.4.3 Pricing at the intensive margin
        4.4.4 The VAT
        4.4.5 Endogeneity issues
        4.4.6 Additional robustness checks
    4.5 Price dispersion
    4.6 Conclusion
  Appendices
    4.A IV regressions
    4.B Additional robustness checks
        4.B.1 Reduced time frame
        4.B.2 Results with censored data
        4.B.3 Estimations for separated product groups

Length: 166 pages
Publisher: Springer Gabler; 2015 edition (April 29, 2015)
Language: English
ISBN-10: 3658097302
ISBN-13: 978-3658097301