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Financial Markets, Business Cycles and Macroeconomic Policy

Priority areas of development: economics
2014
The project has been carried out as part of the HSE Program of Fundamental Studies.

Object of Research: Financial markets, macroeconomic policy and macroeconomic dynamics.

Goal of Research: Identification of the mechanisms of financial crisis and its propagation in a closed and an open economy, design and estimation of the effectiveness of conventional and unconventional monetary policy, macroprudential policy and fiscal policy, determination of the role of political regime for sustained economic growth.

Empirical Base of Research: Databases of the Central Bank of the Russian Federation (http://www.сbr.ru), the Federal State Statistics Service (http://www.gks.ru), Quandl (https://www.quandl.com/), Bloomberg Professional (http://www.bloomberg.com/professional), OECD (http://www.oecd.org), the World Bank (http://databank.worldbank.org), and the International Monetary Fund (http://www.imf.org/external/data.htm).

Results of Research: We develop a DSGE model, which allows us to introduce two monetary policy instruments in order to analyze the intermediate exchange rate regime that was implemented by the Bank of Russia in 2001-2012. We show that the DSGE model with exchange rate rule and Taylor rule appropriately fits Russian data. Also we analyze the impact of the national banking sector structure on the effectiveness of monetary policy in Russia. We conclude that when the Bank of Russia sets the minimum repo auctions interest rate, monetary policy has a significant impact only on those commercial banks whose assets are less than 100 billion roubles and which have sustained business models. Moreover, we find that the effect which is opposite to Kashyap and Stein liquidity effect (Kashyap, Stein, 2000) holds for such banks, i.e. Russian commercial banks with more liquid assets decrease their lending to the real sector of the economy when the Bank of Russia increases an interest rate. Also we characterize some important features of the interaction between monetary and macroprudential policies. These include the bargaining power of policies and the parameters of policy rules. In addition, we examine how expectations about productivity and default costs affect the risk premium on government bonds. We show that when bonds are bought by risk-averse agents that face liquidity constraints, the response of bond prices to changes in productivity is asymmetric. Our research also shows that a benevolent government optimally chooses to repress captive pension fund and set the capital-income tax rate to provide households with government spending. Furthermore, we conclude that financial repression and capital income taxation are not perfect substitutes and that the optimal degree of financial repression depends on the growth rate of population. In the section that is devoted to the problems of economic growth we show that a broader distribution of political power leads to the elimination of barriers to entry only for certain conditions which include a high level of skills and a low inequality in skills and incomes. The empirical part of our project concludes that the Bayesian vector autoregression (BVAR) approach allows making a better forecast than a frequentist vector autoregression (VAR). Our results demonstrate that the mean squared forecasting error (MSFE) for the BVAR is lower than the MSFE for an ordinary VAR. Finally, on the base of a simple two-region model we show that policymakers from relatively small regions tend to be too transparent while the policymaker from big regions may be too opaque.

Level of implementation, recommendations on implementation or outcomes of the implementation of Results: On basis of the results of our project we formulate some recommendations for macroeconomic policy design. Firstly, our DSGE model can be used by the Bank of Russia for designing the optimal monetary policy rule. Secondly, we propose that the results can be used for elaborating the design of monetary and macroprudential policy both in Russia and other countries. Finally, we propose that our results can be used to design policy aimed at mitigating default risks and to forecast the dynamics of the risk premium on government bonds.

Field of application: The results of the project are of interest for both empirical and theoretical research and can be used in elaboration of recommendations for optimal macroeconomic policy design both in Russia and other countries.

Publications:


Норкина О. А. Эконометрическая оценка кривой Лаффера для США // Журнал экономической теории. 2014. № 4. С. 133-141.
Яркин А. М. Интенсивность борьбы за ренту в модели производства и конфликта с неоднородными агентами // Журнал Новой экономической ассоциации. 2014. № Специальный выпуск. С. 19-34.
Yarkin A. Endogenous Property Rights, Conflict Intensity and Inequality in Asymmetric Rent-seeking Contest / NRU Higher School of Economics. Series EC "Economics". 2014. No. 72.
Шульгин А. Г. Оптимальные правила валютной и денежно-кредитной политики в DSGE-модели, оцененной на российских данных / Высшая школа экономики. Серия WP12 "Научные доклады лаборатории макроэкономического анализа". 2014. № 02.
Норкина О. А. Современная финансовая репрессия в развитых странах / Высшая школа экономики. Серия WP12 "Научные доклады лаборатории макроэкономического анализа". 2014. № 03.
Malkov E. The Effects of Robo-Signing on the Economy and Unconventional Monetary Policy / NRU Higher School of Economics. Series WP BRP "Economics/EC". 2014. No. 65.
Норкина О. А. Политическая экономия социального обеспечения / Высшая школа экономики. Серия WP12 "Научные доклады лаборатории макроэкономического анализа". 2014. № 04.
Веселов Д. А. Узкие интересы, перераспределение и блокирование развития в шумпетерианской модели роста с неоднородными агентам // В кн.: XIV Апрельская международная научная конференция по проблемам развития экономики и общества: в 4-х книгах. Книга 1 / Отв. ред.: Е. Г. Ясин. М. : Издательский дом НИУ ВШЭ, 2014. С. 287-296.
Малков Е. С. Моделирование недобросовестного поведения банков в условиях финансового кризиса // Журнал новой экономической ассоциации. Приложение. 2014. С. 151-159.
Соколова А. В. Риск суверенного дефолта и монетарная политика // Журнал Новой экономической ассоциации. 2014. № 1(21). С. 56-82.
Шульгин А. Г. Байесовская оценка DSGE-модели с двумя правилами монетарной политики для России / Высшая школа экономики. Серия WP12 "Научные доклады лаборатории макроэкономического анализа". 2014. № 01.
Sokolova A. Are inflation expectations in Russia forward-looking? // International Journal of Computational Economics and Econometrics. 2014. Vol. 4. No. 1/2. P. 254 -268.
Sokolova A. Fiscal Limits and Monetary Policy: Default vs. Inflation // Economic Modelling. 2015. Vol. 48. P. 189-198. doi
Malakhovskaya O. A., Minabutdinov A. R. Are commodity price shocks important? A Bayesian estimation of a DSGE model for Russia // International Journal of Computational Economics and Econometrics. 2014. Vol. 4. No. 1/2. P. 148-180. doi
Pekarski S. E., Norkina O. Optimal financial repression / NRU Higher School of Economics. Series WP BRP "Economics/EC". 2014. No. 81.