National Repository of Grey Literature 6 records found  Search took 0.00 seconds. 
Sparse restricted perception equilibrium
Audzei, Volha ; Slobodyan, Sergey
In this paper we study model selection under bounded rationality and the impact of monetary policy on the equilibrium choice of forecasting models. We use the concept of sparse rationality (developed recently by Gabaix, 2014), where paying attention to all possible variables is costly and agents can choose to over- or under-emphasize particular variables, even fully excluding some of them. Our main question is whether an initially mis-specified equilibrium (the restricted perceptions equilibrium, or RPE) is compatible with the equilibrium choice of sparse weights describing the allocation of attention to different variables by the agents inhabiting this RPE. In a simple New Keynesian model, we find that the agents stick to their initial mis-specified AR(1) forecasting model choice when monetary policy is less aggressive or inflation is more persistent. We also identify a region in the parameter space where the agents find it advantageous to pay attention to no variable at all.
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Essays on Macroeconomics with Financial Frictions
Audzei, Volha ; Slobodyan, Sergey (advisor) ; Wouters, Rafael (referee) ; Benigno, Pierpaolo (referee)
This dissertation analyzes how relaxing the assumption of rational expectations modifies the output of macroeconomic models. In particularly we show how imperfect information among the financial agents modifies their risk-taking decisions, the effect of monetary policy on banks' lending or equilibrium selection. In the first paper we incorporate a model of the interbank market into a standard DSGE model, with the interbank market rate and the volume of lending depending on market confidence and the perception of counterparty risk. As a result, a credit crunch occurs if the perception of counterparty risk increases. Changes in market confidence then can generate credit crunches and contribute to the depth of recessions. We conduct an exercise to mimic some central bank policies: targeted and untargeted liquidity provision, and reduction of the reserve rate. Our results indicate that policy actions have a limited effect on the supply of credit if they fail to influence agents' expectations. A policy of a low reserve rate worsens recessions due to its negative impact on banks' revenues. Liquidity provision stimulates credit slightly, but its efficiency is undermined by liquidity hoarding. The second paper is devoted to a problem of excessive risk-taking by financial agents. Recent central banks' policies...
Confidence Cycles and Liquidity Hoarding
Audzei, Volha
Market confidence has proved to be an important factor during past crises. However, many existing general equilibrium models do not account for agents’ expectations, market volatility, or overly pessimistic investor forecasts. In this paper, we incorporate a model of the interbank market into a DSGE model, with the interbank market rate and the volume of lending depending on market confidence and the perception of counterparty risk. In our model, a credit crunch occurs if the perception of counterparty risk increases. Our results suggest that changes in market confidence can generate credit crunches and contribute to the depth of recessions. We then conduct an exercise to mimic some central bank policies: targeted and untargeted liquidity provision, and reduction of the policy rate. Our results indicate that policy actions have a limited effect on the supply of credit if they fail to influence agents’ expectations. Interestingly, a policy of a low policy rate worsens recessions due to its negative impact on banks’ revenues. Liquidity provision stimulates credit slightly, but its efficiency is undermined by liquidity hoarding.
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Exchange Rate Dynamics and its Effect on Macroeconomic Volatility in Selected CEE Countries
Audzei, Volha ; Brázdik, František
To understand the potential for forming an optimum currency area it is important to investigate the origins of macroeconomic volatility. We focus on the contribution of exchange rate shocks to macroeconomic volatility in selected Central and Eastern European countries. The contribution of the exchange rate shock relative to other shocks allows us to evaluate whether the Exchange rate is a source of volatility or a buffer against shocks as the theory suggests. The identification of the contributions is based on variance decomposition in two-country structural VAR models, which are identified by the sign restriction method. We identify countries where shocks are predominantly symmetric relative to the effective counterpart and countries where the contribution of real exchange rate shocks is strong. In general, for all the countries considered the results are consistent with the real exchange rate having a shock-absorbing nature. Finally, a significant role of symmetric monetary policy shocks in movements in real exchange rates is found for some of the countries.
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The Exchange Rate as a Shock Absorber
Audzei, Volha ; Brázdik, František
The traditional view of the exchange rate as a shock absorber has been challenged by a number of studies. Therefore, it is not surprising to identify economies in which exchange rate movements fuel business cycle volatility. We assess whether the Czech economy belongs to this group. We analyze the relations between the exchange rate and other macroeconomic variables within the VAR framework using the sign restriction technique as proposed by Uhlig (2005). The results of variance decomposition of the exchange rate do not allow us to reject a shock-absorbing role of the exchange rate for the Czech economy. To assess the robustness of the results, we also examined the relation between monetary policy and exchange rate volatility. We conclude that the shock-absorbing nature of the exchange rate prevails over shock generating one.
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