Search Results
Conference Paper
Liquidity effects and transactions technologies
Working Paper
Demographic Transition, Industrial Policies and Chinese Economic Growth
We build a unified framework to quantitatively examine how demographic transition and industrial policies have contributed to China’s economic growth in the past five decades. On the demographic side, we consider evolutions in government population-control policies, life expectancy and pension income replacement. Industrial policies include changes in the speed of the growth of entrepreneurship, industry-specific interest subsidies and financial intermediation costs. Our analyses suggest that the demographic transition alone barely affects the aggregate savings rate, mainly due to general ...
Working Paper
Demographic Transition, Industrial Policies and Chinese Economic Growth
We build a unified framework to quantitatively examine the demographic transition and industrial policies in contributing to China’s economic growth between 1976 and 2015. We find that the demographic transition and industrial policy changes by themselves account for a large fraction of the rise in household and corporate savings relative to total output and the rise in the country’s per capita output growth. Importantly, their interactions also lead to a sizable fraction of the increases in savings since the late 1980s and reduce growth after 2010. A novel and important factor that ...
Journal Article
DSGE models and their use in monetary policy
The past 10 years or so have seen the development of a new class of models that are proving useful for monetary policy: dynamic stochastic general equilibrium (DSGE) models. Many central banks around the world, including the Swedish central bank, the European Central Bank, the Norwegian central bank, and the Federal Reserve, use these models in formulating monetary policy. In this article, Mike Dotsey discusses the major features of DSGE models and why these models are useful to monetary policymakers. He outlines the general way in which they are used in conjunction with other tools commonly ...
Journal Article
Monetary policy in a liquidity trap
In the United States, the Federal Reserve sets monetary policy by targeting the federal funds rate. This process usually involves lowering short-term interest rates when economic growth is weak and raising them when economic growth is strong. A wide class of economic models has shown that, in theory, conducting policy in this way allows the economy to employ resources efficiently. In addition, many empirical studies have shown that most central banks actually behave in this manner. In normal times, it is fairly easy for the central bank to conduct policy in this fashion. But there is one ...
Journal Article
Commitment versus discretion in monetary policy
Whether policymakers should commit to a certain course of action or have the flexibility to approach each situation as it arises continues to be a central question in the design of monetary policy. A seminal article written by two prominent economists in 1977 analyzed the benefits of carrying out plans based on commitment rather than discretion. Since then, others have joined the debate. In "Commitment Versus Discretion in Monetary Policy," Mike Dotsey elaborates on the merits of commitment versus discretion in setting monetary policy.
Journal Article
The relationship between capacity utilization and inflation
There's a common belief among economists that when there?s slack in the economy ? that is, when labor and capital are not fully employed ? the economy can expand without an increase in inflation. One measure of the intensity with which labor and capital are used in producing output is the capacity utilization rate. According to some economists, when capacity utilization is low, firms can increase employment and their use of capital without incurring large increases in the costs of production. So firms will not be forced to raise prices in order to make profits on additional output. But this ...
Journal Article
A review of inflation targeting in developed countries
In ?A Review of Inflation Targeting in Developed Countries,? Mike Dotsey examines five countries that have been targeting inflation for at least 10 years and whose inflation rates, though fairly well contained before inflation targeting, were nonetheless considered too high by policymakers. For purposes of comparison, he also looks at the economic performance of six noninflation-targeting countries
Journal Article
Designing monetary policy rules in an uncertain economic environment
A well-designed monetary policy can help the economy respond efficiently to economic disturbances by limiting the deviation of economic activity from its potential while keeping inflation close to its desired rate. But successful implementation of such strategies must confront significant challenges arising from various forms of economic uncertainty. In this article, Michael Dotsey and Charles Plosser discuss the design of monetary policy rules in an environment in which policymakers face two distinct forms of uncertainty: the uncertainty surrounding the precise values of key policy variables ...
Journal Article
How the Fed affects the economy: a look at systematic monetary policy
Until recently, when assessing the economic effects of monetary policy, economists have emphasized the role of unanticipated changes in policy. But are these policy shocks likely to be the most important influence on the economy? Mike Dotsey believes not. It seems more likely that the Fed's systematic behavior plays a bigger part in what happens in the U.S. economy. In "How the Fed Affects the Economy: A Look at Systematic Monetary Policy," Dotsey explains the ways in which systematic policy influences economic activity