Job Market Paper
- The Informational Effect of Monetary Policy and the Case for Policy Commitment
I study how the informational effect of monetary policy leads to gains from commitment. Monetary policy has an informational effect when the private sector has imperfect information about the underlying economy and thus extracts information about unobserved shocks from the central bank's interest-rate decisions. With serially uncorrelated shocks, I show that optimal monetary policy rule responds more aggressively to natural-rate shocks and less aggressively to cost-push shocks, compared with central bank’s optimizing response under discretion. The optimal policy rule improves ex-ante welfare by reducing the information revealed on cost push shocks, which consequently reduces the stabilization bias caused by actual cost push shocks under perfect information. In addition, I study how external information and serial correlation in shocks affect the size of gains from commitment. A calibrated dynamic model shows that, with relatively precise external information, committing to optimal rule improves ex-ante welfare by 54 percent from the equilibrium outcome under optimizing discretionary policy. Close
Working Papers
- Central Bank Commitment under Uncertainty
I study optimal monetary policy when both the central bank and the private sector have imperfect information about the underlying economy. I model forward guidance as providing the central bank's own forecast on optimal policy conditional on its own imperfect information. When the private sector has rational expectation, it is able to infer the imperfect information held by the central bank from the forward guidance policy. The central bank can either commit to the forward guidance policy, or re-optimize when accurate information becomes available in later stage. I demonstrate the policy trade-off for central bank commitment under imperfect information: re-optimization closes the output gap, but also makes the aggregate price level deviate further away from zero, as re-optimization leads to additional uncertainty in firms' pricing decisions, whose effect is amplified through higher order beliefs. Close
Research in Progress
- Financing Like China(with Shijun Gu)
We study how the reform of state-owned enterprises (SOEs) has led to the aggregate TFP improvement and the economic growth in China. We develop a two-sector firm dynamic model with financial frictions and study three aspects of the SOE reform: 1) the collateral constraints are tightened for the SOEs; 2) loss-making SOEs are shut down; 3) redundant labors are laid-off. All three aspects have positive effect on the aggregate TFP. At the intensive margin, the selection effect of the reform increases the average productivity of the state sector. At the extensive margin, the general equilibrium effect of the reform reallocates labors and capitals away from the state sector. However, the tightened credit conditions for the SOEs have an ambiguous effect on total output, as it increases the average financial frictions in the economy. We plan to calibrate the model to quantitatively assess the effect of the SOE reform on China’s aggregate TFP improvement and economic growth. Close
Chengcheng Jia
Ph.D. Candidate
Department of Economics
1022 International Affairs Building
420 West 118th Street
New York City, NY 10027
Phone: (574) 339-8147
chengcheng.jia@columbia.edu