Gregor Boehl

We provide evidence that the Federal Reserve's large-scale asset purchases actually reduce inflation. Using nonlinear Bayesian methods that fully account for the binding zero lower bound (ZLB), we estimate a macro-finance DSGE model. Counterfactual analysis suggests that by easing financing conditions, quantitative easing facilitated an increase in aggregate investment. The resulting expansion of firms’ production capacities lowered their marginal costs. These disinflationary supply side effects dominated over the inflationary effects coming from the higher aggregate demand. At the ZLB, the concomitant rise in real interest rates in turn induced a net fall in aggregate consumption.

I study monetary policy in an estimated financial New-Keynesian model extended by behavioral expectation formation in the asset market. Credit frictions create a feedback between asset markets and the macroeconomy, and behaviorally motivated speculation can amplify fundamental swings in asset prices, that potentially cause endogenous, nonfundamental bubbles and bursts. Booms in asset prices improve firms financing conditions and are therefore deflationary. These features significantly improve the power of the model to replicate empirical key moments. A monetary policy that targets asset prices can dampen financial cycles and reduce volatility in asset markets (dampening effect). This comes at the cost of creating an additional channel through which asset price fluctuations transmit to macroeconomic fundamentals (spillover effect). I find that unless financial markets are severely overheated, the undesirable fluctuations in inflation and output caused by the spillover effect more than outweigh the benefits of the dampening effect.

Structural estimation of macroeconomic models and new HANK-type models with extremely high dimensionality require fast and robust methods to efficiently deal with occasionally binding constraints (OBCs). This paper proposes a novel algorithm that solves for the perfect foresight path of piecewise-linear dynamic models. In terms of computation speed, the method outperforms its competitors by more than three orders of magnitude. I develop a closed-form solution for the full trajectory given the expected duration of the constraint. This allows to quickly iterate and validate guesses on the expected duration until a perfect-foresight equilibrium is found. A toolbox, featuring an efficient implementation, a model parser and various econometric tools, is provided in the Python programming language. Benchmarking results show that for medium-scale models with an occasionally binding interest rate lower bound, more than 150,000 periods can be simulated per second. Even simulating large HANK-type models with almost 1000 endogenous variables requires only 0.2 milliseconds per period.

Building on automatic differentiation, I propose a solution method for heterogeneous agents models with many aggregate equations which allows to account even for strong nonlinearities. A powerful open source reference implementation is provided which typically solves the canonical HANK model within a few seconds, including the nonlinear transition dynamics of the complete distribution. I study a permanent shift in redistribution policy in a medium-scale two-asset HANK model featuring many aggregate frictions. Since firms wish to deplete their capital stock, the transition path is characterized by a long-lasting deflationary episode, which may be intensified by the interest rate lower bound.

This paper proposes a Differential-Independence Mixture Ensemble (DIME) sampler for the Bayesian estimation of structural models. DIME allows the estimation of models that are computationally expensive to evaluate with challenging, multimodal, high-dimensional posterior distributions and ex-ante unknonw properties. It combines the advantages of gradient-free global multi-start optimizers with the properties of Monte Carlo Markov chains to quickly explore the typical set. DIME is used to estimate a two-asset heterogeneous agent New Keynesian ("HANK") model, for the first time including the households' preference parameters. The results point towards a less accentuated role of household heterogeneity for the empirical macroeconomic dynamics.

We evaluate the empirical performance of financial frictions á la Bernanke et al. (1999) during and after the Global Financial Crisis. We document that in an ex-post analysis, these frictions do not improve the canonical medium-scale DSGE model's ability to explain macroeconomic dynamics during the Great Recession. The reason is that in the estimated model with financial frictions, the drastic post-2008 collapse of investment causes firms' leverage to decline, which in the model would trigger a counterfactual narrowing of the credit spread. This would imply financial decelerator effects for the post-2008 period. Additionally, the estimated model only attributes a minor role to the associated financial shocks. These findings are confirmed independently for US and euro area data. Our analysis is based on nonlinear Bayesian methods, which account for the binding effective lower bound on nominal interest rates.

We propose a set of tools for the efficient and robust Bayesian estimation of medium- and large-scale DSGE models while accounting for the effective lower bound on nominal interest rates. We combine a novel nonlinear recursive filter with a computationally efficient piece-wise linear solution method and a state-of-the-art MCMC sampler. The filter allows for fast likelihood approximations, in particular of models with large state spaces. Using artificial data, we demonstrate that our methods accurately capture the true model parameters even with very long lower bound episodes. We apply our approach to analyze post-2008 US business cycle properties.

We show that the interplay between a binding effective lower bound (ELB) and the costs of external financing weakens the disinflationary effect of financial shocks. In normal times, factor costs dominate firms' marginal costs and hence inflation; credit spreads and the nominal interest rate, which together constitute external financing costs, balance out. When nominal rates are constrained by the ELB, larger spreads can in parts offset the effect of lower factor costs on firms' price setting. The Phillips curve is hence flat at the ELB, but features a positive slope in normal times and thus an overall hockey stick shape. This mechanism also weakens the effects of forward guidance on inflation, since such policy reduces spreads and thereby financing costs.

Can boundedly rational agents survive competition with fully rational agents? We develop a highly nonlinear heterogeneous agents model with rational forward looking versus boundedly rational backward looking agents and evolving market shares depending on their relative performance. Our novel numerical solution method detects equilibrium paths characterized by complex bubble and crash dynamics. Boundedly rational trend-extrapolators amplify small deviations from fundamentals, while rational agents anticipate market crashes after large bubbles and drive prices back close to fundamental value. Overall rational and non-rational beliefs co-evolve over time, with time-varying impact, and their interaction produces complex endogenous bubble and crashes, without any exogenous shocks.

We show that the degree of capital gains taxation can retrace the dynamics of wealth inequality in the US since the 1920s. Precisely matching up- and downturns and levels of top shares, it has high overall explanatory power. This result is drawn from an estimated and micro-founded portfolio-choice model where idiosyncratic return risk and disagreement in expectations on asset returns generate an analytically tractable fat-tailed Pareto distribution for the top-wealthy. This allows us to decompose the sample into periods of transient and stationary wealth concentration. The model generates good out-of-sample forecasts. As an addition we predict the future evolution of inequality for different tax regimes.

Macroeconomic theory assigns a central role to the risk free savings rate, which in reality corresponds to the banks' deposit rate that is only indirectly controlled by the central bank. Backed by Euro-Area evidence, this paper shows that the pass-through of central bank reserves and interest-on-reserves policy on equilibrium rates may be state-dependent. I develop an industrial organization model of the banking sector where loans are financed by deposits and banks use reserves to hedge against liquidity risk from holding deposits. Swapping assets and reserves (i.e. central bank asset purchases) compresses the liquidity premium between lending and deposit rate, thereby stimulating lending. If the lending rate falls by less than the liquidity premium (if investment demand is elastic, e.g. in a recession), deposit rates may increase, thereby dampening consumption. Additionally, inflation may remain subdued as lower lending rates reduce firms' financing costs. Incorporated into a DSGE model, the estimated model suggests that the effects of the ECB policy amount to 0.25 percent of quarterly GDP, and the effects on inflation is negligible.

We document that the effects of the zero lower bound on nominal interest rates (ZLB) on inequality dynamics can be decomposed in two channels: (i) the real rate channel compounds the effects of a recessionary shock on inequality while (ii) the liquidity premium channel compresses the spread between liquid and illiquid assets, therby reducing inequality. We find that the real rate channel dominates for income inequality whereas wealth inequality is driven by the liquidity premium channel. Large-scale asset purchases (LSAPs) and helicopter money drops (HDs) are moderately effective in stimulating the economy. Their effects are greatly amplified by the duration for which the ZLB is expected to bind. HDs are always egalitarian. For LSAPs, short ZLB durations cause a hike in consumption inequality and a longer binding ZLB causes wealth inequality to increase.

We use a novel identification strategy of functional-coefficient structural inference to estimate the relationship between different forms of taxation and the concentration of income and wealth. We find that overall, the degree of taxation has a very high explanatory power on the dynamics of top shares, in particular so the series of income taxes. This regularity holds for the US, UK, France and Sweden. We estimate that an 1 percent increase of taxation reduces the concentration of wealth in the long run by approximately 0.5 percent and concentration of income by 0.25 percent. This effect is more emphasized in the US and less so for Sweden.

This paper presents the Etace Virtual Appliance. The purpose of the software package is, among others, to provide researchers the possibility to explore the dynamics of the Eurace@Unibi agent-based macroeconomic model and to encourage the reproducibility and transparency of research. The package contains various components that allow the user to initialize, simulate and analyze the model. We also give a short overview of what can be done with the Etace Virtual appliance.