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Working Paper
On Targeting Frameworks and Optimal Monetary Policy
Zhao, Junzhu; Bodenstein, Martin (2017-09-22)
Speed limit policy, a monetary policy strategy that focuses on stabilizing inflation and the change in the output gap, consistently delivers better welfare outcomes than flexible inflation targeting or flexible price level targeting in empirical New Keynesian models when policymakers lack the ability to commit to future policies. Even if the policymaker can commit under an inflation targeting strategy, the discretionary speed limit policy performs better for most empirically plausible model parameterizations from a normative perspective.
Finance and Economics Discussion Series , Paper 2017-098

Working Paper
Oil shocks and the zero bound on nominal interest rates
Gust, Christopher J.; Bodenstein, Martin; Guerrieri, Luca (2010)
Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices ...
International Finance Discussion Papers , Paper 1009

Working Paper
On the GDP Effects of Severe Physical Hazards
Bodenstein, Martin; Scaramucci, Mikaël (2024-02-13)
We assess the impacts from physical hazards (or severe weather events) on economic activity in a panel of 98 countries using local projection methods. Proxying the strength of an event by the monetary damages it caused, we find severe weather events to reduce the level of GDP. For most events in the EM-DAT data set the effects are small. The largest events in our sample (above the 90th percentile of damages) bring down the level of GDP by 0.5 percent for several years without recovery to trend. Smaller events (below the 90th percentile) see a less immediate decrease in initial years (0.1 ...
International Finance Discussion Papers , Paper 1386

Working Paper
Global Flight to Safety, Business Cycles, and the Dollar
Bodenstein, Martin; Cuba-Borda, Pablo A.; Gornemann, Nils M.; Presno, Ignacio; Prestipino, Andrea; Queraltó, Albert; Raffo, Andrea (2023-10-11)
We develop a two-country macroeconomic model that we fit to a set of aggregate prices and quantities for the U.S. and the rest of the world. In addition to a standard array of shocks, the model includes time variation in agents’ preference for safe bonds. We allow for a component of this time variation to be common across countries and biased toward dollar-denominated safe assets, and refer to this component as global flight to safety (GFS). We find that GFS shocks are the most important shocks driving world business cycles, and are also important drivers of activity in the U.S. and ...
Working Papers , Paper 799

Working Paper
Commodity Prices and Labour Market Dynamics in Small Open Economies
Thoenissen, C.; Kamber, Gunes; Bodenstein, Martin (2017-04-04)
We investigate the connection between commodity price shocks and unemployment in advanced resource-rich small open economies from an empirical and theoretical perspective. Shocks to commodity prices are shown to influence labour market conditions primarily through the real exchange rate. The empirical impact of commodity price shocks is obtained from estimating a panel vector autoregression; a positive price shock is found to expand the components of GDP, to cause the real exchange rate to appreciate, and to improve labour market conditions. For every one percent increase in commodity prices, ...
Finance and Economics Discussion Series , Paper 2017-039

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