Topic: Financial Frictions and Monetary Policy Tradeoffs
Speaker: Francesco Furlanetto, Researcher, Norges Bank
Date: November 4th, 2013 (Mon.)
Time: 1:00-2:30pm
Location: Building 4, Room 101
Language: English
Abstract:
In the wake of recent global financial crisis, financial frictions appear to be a significant source of inefficiency in the economy. This paper builds on the recent generation of estimated New Keynesian models that include financial frictions. We investigate monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We make two contributions to the literature. First, we derive a measure of output gap that accounts for financial frictions in the data. Second, we compute the trade-offs between nominal and real stabilization that arise when the monetary policy authority behaves optimally. The presence of financial frictions implies that the central bank faces an additional source of inefficiency, besides the presence of monopolistic competition and nominal rigidities in the goods and labor markets. We find that policy trade-offs are substantial; price and wage inflation are significantly less volatile under the optimal policy, but stabilization policy fails to counteract the fluctuation in output gap.
About the speaker:
Dr. Furlanetto did his undergraduate studies at the University Ca’Foscari in Venice. Then he moved to Lausanne in Switzerland where he took a master and a PhD in Economics under the supervision of professors Bacchetta and Danthine. After completion of the PhD, he spent one year at CREI in Barcelona as a post-doc under the supervision of Professor Jordi Gali’. Dr. Furlanetto accepted a job offer from Norges Bank in 2007.
His research is concentrated on monetary economics (standard New Keynesian models and models with labor market frictions and financial frictions) and in applied econometrics (structural VARs). He has published six articles in the Journal of Economic Dynamics and Control, the Scandinavian Journal of Economics, the International Journal of Central banking, Macroeconomic Dynamics, the Journal of Macroeconomics and the Berkley Electronic Journal Macroeconomics.
