Monetary Policy and Speculative Stock Markets
This paper studies the macroeconomic consequences when -- potentially speculative -- stock prices affect macroeconomic aggregates, and whether monetary policy can mitigate potential spillovers from financial markets. I augment a model with financial constraints on working capital with stock markets, where excess volatility of these markets is endogenously amplified through behaviorally motivated financial speculation. The presence of credit constraints links asset returns to optimal leverage and the price level. Then, standard monetary policy rules can induce a dynamic feedback loop that actually amplifies stock price volatility. I estimate this model to match key moments of European data. The endogenous process of financial market speculation and the feedback from asset prices to the price level are key features to replicate and explain these moments. Numerical analysis suggests that central banks can offset the impact of speculation on either output or inflation by carefully targeting asset prices, but not on both, and can furthermore dampen excess volatility of stock prices. However, the scope of such policy to stabilize economic activity is limited narrowly due to its undesirable response to real economic shocks.
Capital Taxation and Investment: Matching 100 Years of Wealth Inequality Dynamics
Using a parsimonious, analytically tractable dynamic model, we are able to explain up to 100 years of the available data on the dynamics of top-wealth shares for several countries, and to provide sensible forecasts for the next decades. We build a micro-founded model of heterogeneous agents in which - in addition to stochastic returns on investment - individuals disagree marginally in their expectations of future returns and thus hold different asset positions. This generates fat tails in the distribution of returns and enables to explain fast transition between wealth distributions. We show that, given a positive tax on capital gains, the distribution converges to a double Pareto distribution for which the degree of wealth inequality decreases with the tax rate. The speed of transition dynamics are shown to increase with the tax rate. Moreover, our closed-form solutions confirm that without government intervention there is infinite inequality. The model is able to match the measured wealth inequality for the US, the UK, Sweden, and France, both in levels and transitions. The heterogeneous development in the different countries and across time can be traced back to different tax regimes.
On the Evolutionary Fitness of Rationality
This work analyses the interaction of perfectly rational agents in a market with coexisting boundedly rational traders. Whether an individual agent is perfectly rational or boundedly rational is determined endogenously depending on each types market performance. Perfect rationality implies full knowledge of the model including the non-linear switching process itself. I make use of iterative numerical methods to find a recursive solution of the highly nonlinear system, which then only depends on the state space of the original model, and show furthermore that this solution is not necessarily bounded. Depending on the parameterization, agents' interaction can trigger complicated endogenous fluctuations that are well captured by our solution algorithm. In conclusion, in a financial market setup rational agents might adapt sentiment beliefs and so fail to mitigate speculative behavior, and boundedly rational agents are not necessarily driven out of the market. Although the presence of fully rational agents tends to have stabilizing effects it may also induce further endogenous fluctuations.
Noise Induced Stationarity in Explosive Dynamic Feedback Systems
Cees Diks, draft upon request]
We show that under certain circumstances adding noise to an explosive dynamic expectations feedback system can decrease the probability of explosive dynamics and make stationary behavior more likely.
We build a small toy model of a market with positive expectations feedback, such as a housing or an asset market, and assume that agents form heterogeneous boundedly rational expectations. Identifying regions in the parameter space where the dynamics are explosive, we give conditions under which adding further stochastic noise can potentially stabilize the market.
We provide intuition for this result and discuss the economic implications.
For instance, this implies that policy measures that presumingly increase market volatility, such as a Tobin Tax, are not necessarily destabilizing.
Collateral Value and Credit Cycles
Egle Jakucionyte, work in progress]
This work studies the dynamic feedback between collateral prices and aggregate credit volume by formulating a simple non-linear model of a market for a durable good that can be used as collateral to finance expenditures. A finite number of agents that are heterogeneous in wealth maximize utility by deciding over the stock of the good, consumption expenditures and borrowing volumed. We assume that agents form boundedly rational mean-reverting expectations with risk-learning component. The individual borrowing conditions are determined by each agent's leverage ratio and the probability distribution of expected future prices of collateral. The use of projection methods allows agents to realistically anticipate for policy effect and effects of macroprudential regulation even though their expectations are not formed fully rationally. We show that this leads to non-trivial dynamics that are fed by the dynamic feedback of expectations on collateral value, credit and the prices of collateral. Running detailed numerical simulations, we analyze the dynamic stability properties and show how macroprudential policy is able to improve stability properties and decrease the magnitude of unwanted feedback effects.
The General Equilibrium Effects of a Basic Income Guarantee
[work in progress]
In this exploratory project I take a simple Walrasian economy with agents heterogeneous in skills as a starting point to compare the macroeconomic equilibrium outcome of a minimum wage and unemployment benefit with that of a basic income guarantee regime. Treating individual labor supply as a binary and using standard preferences, I focus on a labor-intensive real economy that embeds decreasing returns to scale and imperfectly competitive firms. This simple structure allows to study the distribution of employment, consumption and production among agents as well as aggregate measurements. While the introduction of minimum wages and/or unemployment benefit yields textbook results, a moderate basic income guarantee can increase labor market participation and output. The binary nature of employment is crucial to generate this result. I show analytically under which restrictions on the parameter space the above conclusion holds and when it does not. Furthermore, any combination of a basic income guarantee with minimum wages and/or unemployment benefits is harmful for employment and output.
The ETACE Virtual Appliance: An Exploratory for the Eurace@Unibi model
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.
In brief, I completed my PhD thesis at the
University of Amsterdam
Bielefeld University, supervised jointly by
Cars Hommes and
During my PhD I was financed by a scholarship from the Bielefeld Graduate School in Economics and Management. Before, I was holding a scholarship from the German Research Foundation.
I obtained my MSc in economics from the University of Granada (top of class) and studied economics at Humboldt University Berlin at undergraduate level. I have worked as a professional guitar player and as an IT consultant for several start-up companies.