Macro Colloquium Fall 2006 _ Columbia University

Coordinators: Stefania Albanesi and Christian Hellwig

Logistics: W 1-2 PM 1027 IAB

The colloquium is a venue where graduate students interested in macroeconomics in the third year and above present their research. Second year students are also encouraged to attend. Research can be very preliminary. The audience provides feedback.

If you wish to attend the colloquium or require further information, e-mail Stefania Albanesi.

Schedule

Date	Speaker	Topic
9/13/2006	Stefania Albanesi	Gender Roles and Technological Progress
9/20/2006	Megan Torau	Learning in a Two-Country Model Abstract: This study will investigate the effects of relaxing the rational expectations assumption to incorporate learning in a two-country setting. Specifically, I will use a two-country model and consider several different monetary policy rules. Agents in these economies do not know the model parameters. They act as econometricians in that they estimate the model parameters from historical data and update their estimates by a recursive least squares learning rule. I will also investigate the determinacy and learnability conditions under the alternative monetary policy rules.
9/27/2006	Justin Svec	Ramsey Policy with Robust Control Abstract: Using the Lucas and Stokey Ramsey model, I will characterize optimal fiscal policy when consumers are unsure about the probability distribution over the government spending shock, while the benevolent government, endowed with rational expectations, has access only to linear, distortionary taxes. In this complete markets setup, I will find that the government will optimally set taxes so that the consumers will smooth their allocation across states. This result contrasts with the findings in the standard complete market optimal taxation model. Using a utility function that is separable across states, the standard result indicates that each state's optimal allocation (induced by the government through its choice of taxes and bond supply) directly depends only on the characteristics of that state. In my model, the government, recognizing the agent's uncertainty, encourages the consumer to make each state's allocation a function of the characteristics of all states in that period. In doing so, the government mitigates the distortion caused by the agent's uncertainty. Intuitively, as the agent's uncertainty increases, the distortion arising from the agent placing a greater weight on the bad state increases. This decreases her consumption, labor supply, and utility.
10/4/2006	Mauro Roca	Search in the Labor Market under Imperfectly Insurable Income Risk Abstract: The search and matching model of the labor market has been widely used to explain the determination of unemployment, vacancies, and wages. To ensure tractability, the various versions of the model usually assume that agents are either risk neutral or perfectly insured against income fluctuations. This paper analyzes the importance of incomplete markets when risk-averse agents are subject to idiosyncratic employment shocks. We characterize optimal agent behavior using a general equilibrium model in which agents randomly change employment status, and bargain over the wage. Because ex-ante homogeneous households accumulate different levels of wealth due to dissimilar employment histories, solving this model is particularly challenging. We propose and implement a novel solution based on perturbation methods. Our findings indicate that market incompleteness is crucial in shaping individual behavior and aggregate conditions. An important mechanism at work is the joint influence of imperfect insurance and risk aversion in the wage bargaining. We observe that the introduction of uninsurable income risk produces: 1) a decline in consumption of both employed and unemployed agents; 2) a bigger decline in the consumption of unemployed agents; 3) a decline in wages; 4) a decline in aggregate welfare. Finally, we analyze the effects of unemployment benefits in this framework.
10/11/2006	Mehmet Pasaogullari	Monetary Policy in Developing Economies Abstract: The inflation rate in developing countries is higher than that of developed countries on the average. To address this issue, I use a simple deterministic neo-classical growth model with monopolistically competitive firms and nominal frictions. Optimal monetary policy in this environment is analyzed using Ramsey approach. I characterize the steady state equilibrium of the model and the conditions under which full price stability might be optimal. I will analyze the optimal policy in the transition path and investigate how well nominal frictions can explain different inflation rates in and out of the steady state.
10/18/2006	Olga Gorbachev Melloni	Did Household Consumption Become More Volatile? Abstract: We show that volatility of household consumption increased between 1974-1996 and that for single parent households, or households headed by nonwhite or poorly educated individuals, this rise was significantly larger. This stands in sharp contrast with the dramatic fall in aggregate volatility of the US economy. How could these two trends diverge? Average covariances of consumption growth rates across households fell dramatically over this period. Why did volatility of household consumption rise? We look at changes in family structure, real interest rate shocks, changes in precautionary savings, and idiosyncratic shocks, while controlling for measurement error in consumption and sample composition effects. Composition changes have some impact on volatility, but do not fully explain its evolution. After adjusting for measurement error, household consumption volatility still increased between 1974 and 1996. Growing income uncertainty contributed to a rise in volatility of household consumption, while increased stability of family structure kept it from climbing even further between 1974 and 1986. The increased stability of family structure and households' improved ability to smooth consumption explain the fall in household volatility between 1986 and 1996.
10/25/2006	Anton Korinek	Excessive Dollar Borrowing in Emerging Markets: Balance Sheet Effects and Macroeconomic Externalities Abstract: Dollar borrowing is widely viewed as making emerging markets more vulnerable to financial crises. Given that such crises impose severe costs on dollar borrowers, it is puzzling that a large part of emerging market debts is still denominated in dollars. This paper demonstrates that rational borrowers, who are fully aware of how they would be affected by a financial crisis, borrow too much in foreign currency because of a fundamental macroeconomic externality that stems from balance sheet effects. The more currency risk one borrower takes on, the more frequent and deeper financial crises in the economy, and the more depreciated exchange rates during such crises. This in turn reduces the valuation of other borrowers' collateral, imposing an externality on them. Reduced collateral tightens binding borrowing constraints and forces borrowers to cut back on expenditure, deepening the crisis. The paper then discusses a number of policy implications, such as ways of addressing the externality through taxes on dollar borrowing and regulations, the implications of fear of floating, or the benefits of local currency denominated versus GDP-linked bonds.
11/1/2006	Simeon Tsonev	Forecasting the Term Structure of Interest Rates Using Macroeconomic Data Abstract: A new dataset consisting of weekly observations of a large panel of macroeconomic time series is used to forecast the US yield curve using the factor methods of Stock and Watson (2002). The forecasting results are compared to those various benchmark linear forecasting techniques, as well as those of some standard term structure models such as multifactor Gaussian affine models and the parameterisation proposed by Diebold and Li (2006). So far none of the methods described is able to consistently outperform a simple random walk.
11/8/2006	No meeting.
11/15/2006	Yuki Teranishi	Inflation Range and Monetary Policy: Theoretical and Empirical Views Abstract: This paper theoretically investigates the optimal monetary policy under the situation in which a specifically permitted inflation range is imposed on the central bank, such as under inflation targeting policy. We find that the sensitivity of monetary policy under an inflation range depends on how the central bank conducts the monetary policy. This means that the monetary policy rule does not always becomes more active under restrictions on the inflation range than under no restriction. The indicator of the monetary policy activism empirically calculated by the Markov Chain Monte Carlo technique supports our theoretical inference.
11/22/2006	No meeting- Thanksgiving
11/29/2006	Christian Hellwig	Prices and Market Shares in a Menu Cost Economy, joint with Ariel Burstein
12/6/2006