Koiti Yano

Dynamic Instrument Rules Based on Time Varying Coefficients Vector Autoregressive Modeling and Forecast-Based Monetary Policy

This paper proposes a method to construct monetary instrument rules whose coefficients are time varying. We refer the instrument rules as the dynamic instrument rules. Our approach is a statistical and practical tool for the central bank to achieve some specified targets. The dynamic instrument rules consist of two elements: (1) time varying coefficients vector autoregressive modeling (time varying VAR) with the vector of control variables and (2) linear quadratic dynamic programming. The coefficients of time varying VAR are assumed to change gradually (this assumption is widely known as smoothness priors of the Bayesian procedure), and they are estimated by the Kalman filer. Based on the estimated time varying VAR and linear quadratic dynamic programming, the dynamic instrument rules are derived in each period for achieving the targets. Our approach is convenient and effective for the practitioners in the central bank when they are unaware of the true model of the economy. However, it is not based on the theory of the economic agents who have rational expectations. In our empirical analyses, we show the effectiveness of our approach by applying it to the inflation targeting of the United Kingdom and the nominal growth rate targeting of Japan. Furthermore, we emphasize that the optimal monetary policy must be forecast-based because there exist lags of monetary policy. Our method realizes a forecast-based policy. Additionally, we find that the coefficients of time varying VAR change in response to the changes of monetary policy.

The death penalty and homicide deterrence in Japan

Japanese officials commonly claim that their country retains and uses capital punishment because it deters homicide. Although this claim is contested, few empirical studies have been done to assess the empirical reality. This paper uses data not previously available (monthly homicide statistics obtained from Japan’s National Police Agency) to examine whether Japan’s death penalty deters homicide or robbery-homicide. Using vector autoregression models, it concludes that neither death sentences nor executions deter homicide or robbery-homicide.

Why Have The Recoveries In The Euro Countries Been So Different

The Euro area economy has been recovering modestly since 2008. However, the recoveries in the Euro area countries have been very different. We find that the difference in recoveries after 2008 is projected well by Economic Complexity Indices (ECIs) before 2007, and the economic performance of the low ECI countries after 2008 is poorer than that of the high ECI countries. The result indicates that product and firm diversity is the major factor of our problem. To explain our findings, we analyze a heterogeneous-agent model based on the multisector Schumpeterian endogenous growth model with firm entry and exit and firm diversity. In our numerical analysis, we show that an economy that has low firm diversity is fragile to unanticipated exogenous environmental changes that can precipitously slow down the growth rate. The result explains our empirical findings and indicates that policies to increase firm diversity are required to solve the problem. We conclude that the significance of firm diversity in each country should not be ignored.

Zero Lower Bounds in New Keynesian Models and a Constrained Ramsey Problem

There exist difficulties in escaping from stagnation and/or deflation if the economy hits zero lower bounds on short-term nominal interest rates because the central bank cannot stimulate the economy further using rate cuts. How can it escape from them? Answering the question, we extend a closed-looped solution of a Ramsey problem (also known as a Stackelberg problem) by introducing zero lower bounds. Herein, we formulate a constrained Ramsey problem and derive a solution for it. In our extension, we found that the discounted Lyapunov equation is necessary to obtain the shadow price of the economy that hits the zero lower bounds. Herein we apply our method to new Keynesian models with zero lower bounds. Our simulation shows that committing to mild inflation engenders positive effects on the economy and that managing inflation expectations is necessary to escape from the bounds.

Zero Lower Bounds and a Stackelberg Problem: A Stochastic Analysis of Unconventional Monetary Policy

There exist difficulties to escape from stagnation and/or deflation if the economy hits zero lower bounds on short-term nominal interest rates because the central bank cannot stimulate the economy using rate cuts. How to escape from them? Answering the question, we extend a closed-looped solution of a Stackelberg problem (also known as a Ramsey problem) by introducing zero lower bounds. In this paper, we formulate a constrained Stackelberg problem and derive a solution of it. In our extension, we found that the discounted Lyapunov equation is required to obtain the shadow price of the economy which hits the zero lower bounds. Additionally, we stress that our method is consistent with rational expectations hypothesis. In this paper, we apply our method to new Keynesian models with zero lower bounds. In the numerical analysis, we evaluate the quantitative effects of zero interest rate policies with committing mild or zero inflation. Our simulation indicates that committing mild inflation causes positive effects on the economy and managing inflation expectations is necessary to escape from the bounds.

The Linear Preferences and the Restriction of Capital Accumulation

This theoretical note presents that the Ramsey model with the linear preferences has the restriction of capital accumulation. We call the restriction the linear preferences trap. Additionally we discuss the cases of the linear preferences trap.