Central bank research hub - Papers by Taisuke Nakata
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Research hub papers by author Taisuke NakataenEffective Lower Bound Risk
https://www.federalreserve.gov/econres/feds/files/2019077pap.pdf
Board of Governors of the Federal Reserve System Finance and Economics Discussion Series by Timothy S. Hills, Taisuke Nakata and Sebastian SchmidtEffective Lower Bound Risk2019-11-04T00:00:00ZEven when the policy rate is currently not constrained by its effective lower bound (ELB), the possibility that the policy rate will become constrained in the future lowers today's inflation by creating tail risk in future inflation and thus reducing expected inflation. In an empirically rich model calibrated to match key features of the U.S. economy, we find that the tail risk induced by the ELB causes inflation to undershoot the target rate of 2 percent by as much as 50 basis points at the economy's risky steady state. Our model suggests that achieving the inflation target may be more difficult now than before the Great Recession, if the likely decline in long-run neutral rates has led households and firms to revise up their estimate of the frequency of future ELB events.Effective Lower Bound RiskFull texthttps://www.federalreserve.gov/econres/feds/files/2019077pap.pdfTaisuke NakataTimothy S. HillsSebastian SchmidtTimothy S. Hills, Taisuke Nakata and Sebastian Schmidt2019-11-04Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52Expectations-driven liquidity traps: implications for monetary and fiscal policy
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2304~8e4b7bb2de.en.pdf
European Central Bank Working Papers by Taisuke Nakata and Sebastian SchmidtExpectations-driven liquidity traps: implications for monetary and fiscal policy2019-08-01T00:00:04ZWe study optimal monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence can give rise to persistent liquidity trap episodes. Unlike in the case of fundamental-driven liquidity traps, there is no straightforward recipe for mitigating the welfare costs and the systematic inflation shortfall associated with expectations-driven liquidity traps. Raising the inflation target or appointing an inflation-conservative central banker improves inflation outcomes away from the lower bound but exacerbates the shortfall at the lower bound. Using government spending as an additional policy tool worsens stabilization outcomes both at and away from the lower bound. However, appointing a policymaker who is sufficiently less concerned with government spending stabilization than society can eliminate expectations-driven liquidity traps altogether.Expectations-driven liquidity traps: implications for monetary and fiscal policyECBFull texthttps://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2304~8e4b7bb2de.en.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata and Sebastian Schmidt2019-08European Central Bank Working PapersE52E61E62Expectations-Driven Liquidity Traps: Implications for Monetary and Fiscal Policy
https://www.federalreserve.gov/econres/feds/files/2019053pap.pdf
Board of Governors of the Federal Reserve System Finance and Economics Discussion Series by Taisuke Nakata and Sebastian SchmidtExpectations-Driven Liquidity Traps: Implications for Monetary and Fiscal Policy2019-06-30T23:00:53ZWe study optimal monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. There is no straightforward recipe for enhancing welfare in this economy. Raising the inflation target or appointing an inflation-conservative central banker mitigates the inflation shortfall away from the lower bound but exacerbates deflationary pressures at the lower bound. Using government spending as an additional policy instrument worsens allocations at and away from the lower bound. However, appointing a policymaker who is sufficiently less concerned with government spending stabilization than society eliminates expectations-driven liquidity traps.Expectations-Driven Liquidity Traps: Implications for Monetary and Fiscal PolicyFull texthttps://www.federalreserve.gov/econres/feds/files/2019053pap.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata and Sebastian Schmidt2019-07-17Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE52E61E62Credible Forward Guidance
https://www.federalreserve.gov/econres/feds/files/2019037pap.pdf
Board of Governors of the Federal Reserve System Finance and Economics Discussion Series by Taisuke Nakata and Takeki SunakawaCredible Forward Guidance2019-04-30T23:00:37ZWe analyze credible forward guidance policies in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates by solving a series of optimal sustainable policy problems indexed by the duration of reputational loss. Lower-for-longer policies---while effective in stimulating the economy at the ELB---are potentially time-inconsistent, as the associated overheating of the economy in the aftermath of a crisis is undesirable ex post. However, if reneging on a lower-for-longer promise leads to a loss of reputation and prevents the central bank from effectively using lower-for-longer policies in future crises, these policies can be time-consistent. We find that, even without an explicit commitment technology, the central bank can still credibly keep the policy rate at the ELB for an extended period---though not as extended under the optimal commitment policy---and meaningfully mitigate the adverse effects of the ELB constraint on economy activit y.Credible Forward GuidanceFull texthttps://www.federalreserve.gov/econres/feds/files/2019037pap.pdfTaisuke NakataTakeki SunakawaTaisuke Nakata and Takeki Sunakawa2019-05-17Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52E61E62E63Optimal Inflation Target with Expectations-Driven Liquidity Traps
https://www.federalreserve.gov/econres/feds/files/2019036pap.pdf
Board of Governors of the Federal Reserve System Finance and Economics Discussion Series by Philip Coyle and Taisuke NakataOptimal Inflation Target with Expectations-Driven Liquidity Traps2019-04-30T23:00:36ZIn expectations-driven liquidity traps, a higher inflation target is associated with lower inflation and consumption. As a result, introducing the possibility of expectations-driven liquidity traps to an otherwise standard model lowers the optimal inflation target. Using a calibrated New Keynesian model with an effective lower bound (ELB) constraint on nominal interest rates, we find that even a very small probability of falling into an expectations-driven liquidity trap lowers the optimal inflation target nontrivially. Our analysis provides a reason to be cautious about the argument that central banks should raise their inflation targets in light of a higher likelihood of hitting the ELB.Optimal Inflation Target with Expectations-Driven Liquidity TrapsFull texthttps://www.federalreserve.gov/econres/feds/files/2019036pap.pdfTaisuke NakataPhilip CoylePhilip Coyle and Taisuke Nakata2019-05-17Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52E61E62E63Financial Stability and Optimal Interest Rate Policy
http://www.ijcb.org/journal/ijcb19q1a7.pdf
IJCB International Journal of Central Banking by Andrea Ajello, Thomas Laubach, David López-Salido and Taisuke NakataFinancial Stability and Optimal Interest Rate Policy2019-03-01T00:00:07ZWe study optimal interest rate policy in a New Keynesian framework in which the model economy can experience financial crises and the probability of a crisis depends on credit conditions. We find that the optimal response of the shortterm interest rate to credit conditions is (very) small in the model calibrated to match the historical relationship between credit conditions, output, inflation, and likelihood of financial crises. Given the imprecise estimates of key parameters, we also study optimal policy under parameter uncertainty. We find that Bayesian and robust central banks will respond more aggressively to financial instability when the probability and severity of financial crises are uncertain.Financial Stability and Optimal Interest Rate PolicyAbstracthttps://www.ijcb.org/journal/ijcb19q1a7.htmFull texthttp://www.ijcb.org/journal/ijcb19q1a7.pdfAndrea AjelloTaisuke NakataJ. David López-SalidoThomas LaubachAndrea Ajello, Thomas Laubach, David López-Salido and Taisuke Nakata2019-03IJCB International Journal of Central BankingE43E52E58G01Monetary Policy Options at the Effective Lower Bound : Assessing the Federal Reserve's Current Policy Toolkit
https://www.federalreserve.gov/econres/feds/files/2019003pap.pdf
Board of Governors of the Federal Reserve System Finance and Economics Discussion Series by Hess Chung, Etienne Gagnon, Taisuke Nakata, Matthias Paustian, Bernd Schlusche, James Trevino, Diego Vilan and Wei ZhengMonetary Policy Options at the Effective Lower Bound : Assessing the Federal Reserve's Current Policy Toolkit2019-02-01T00:00:03ZWe simulate the FRB/US model and a number of statistical models to quantify some of the risks stemming from the effective lower bound (ELB) on the federal funds rate and to assess the efficacy of adjustments to the federal funds rate target, balance sheet policies, and forward guidance to provide monetary policy accommodation in the event of a recession. Over the next decade, our simulations imply a roughly 20 to 50 percent probability that the federal funds rate will be constrained by the ELB at some point. We also find that forward guidance and balance sheet polices of the kinds used in response to the Global Financial Crisis are modestly effective in speeding up the labor market recovery and return of inflation to 2 percent following an economic slump. However, these policies have only small effects in limiting the initial rise in the unemployment rate during a recession because of transmission lags. As with any model-based analysis, we also discuss a number of c aveats regarding our results.Monetary Policy Options at the Effective Lower Bound : Assessing the Federal Reserve's Current Policy ToolkitFull texthttps://www.federalreserve.gov/econres/feds/files/2019003pap.pdfMatthias PaustianTaisuke NakataBernd SchluscheHess T. ChungEtienne GagnonJames TrevinoDiego VilanWei ZhengHess Chung, Etienne Gagnon, Taisuke Nakata, Matthias Paustian, Bernd Schlusche, James Trevino, Diego Vilan and Wei Zheng2019-02-01Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE31E32E52E58Attenuating the forward guidance puzzle: implications for optimal monetary policy
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2220.en.pdf
European Central Bank Working Papers by Taisuke Nakata, Ryota Ogaki, Sebastian Schmidt and Paul YooAttenuating the forward guidance puzzle: implications for optimal monetary policy2019-01-11T17:30:07ZWe examine the implications of less powerful forward guidance for optimal policy using a sticky-price model with an effective lower bound (ELB) on nominal interest rates as well as a discounted Euler equation and Phillips curve. When the private-sector agents discount future economic conditions more in making their decisions today, an announced cut in future interest rates becomes less effective in stimulating current economic activity. While the implication of such discounting for optimal policy depends on its degree, we ﬁnd that, under a wide range of plausible degrees of discounting, it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the ELB for longer.Attenuating the forward guidance puzzle: implications for optimal monetary policyECBFull texthttps://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2220.en.pdfRyota OgakiPaul YooTaisuke NakataSebastian SchmidtTaisuke Nakata, Ryota Ogaki, Sebastian Schmidt and Paul Yoo2019-01European Central Bank Working PapersE52E58E61A Promised Value Approach to Optimal Monetary Policy
https://www.federalreserve.gov/econres/feds/files/2018083pap.pdf
Board of Governors of the Federal Reserve System Finance and Economics Discussion Series by Timothy S. Hills, Taisuke Nakata and Takeki SunakawaA Promised Value Approach to Optimal Monetary Policy2018-12-03T00:08:03ZThis paper characterizes optimal commitment policy in the New Keynesian model using a novel recursive formulation of the central bank's infinite horizon optimization problem. In our recursive formulation motivated by Kydland and Prescott (1980), promised inflation and output gap---as opposed to lagged Lagrange multipliers---act as pseudo-state variables. Using three well known variants of the model---one featuring inflation bias, one featuring stabilization bias, and one featuring a lower bound constraint on nominal interest rates---we show that the proposed formulation sheds new light on the nature of the intertemporal trade-off facing the central bank.A Promised Value Approach to Optimal Monetary PolicyFull texthttps://www.federalreserve.gov/econres/feds/files/2018083pap.pdfTaisuke NakataTimothy S. HillsTakeki SunakawaTimothy S. Hills, Taisuke Nakata and Takeki Sunakawa2018-12-03Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52E61E62E63Speed limit policy and liquidity traps
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2192.en.pdf
European Central Bank Working Papers by Taisuke Nakata, Sebastian Schmidt and Paul YooSpeed limit policy and liquidity traps2018-10-01T00:00:00ZThe zero lower bound (ZLB) constraint on interest rates makes speed limit policies (SLPs) - policies aimed at stabilizing output growth - less effective. Away from the ZLB, the history dependence induced by a concern for output growth stabilization improves the inflation-output tradeoff for a discretionary central bank. However, in the aftermath of a deep recession with a binding ZLB, a central bank with an objective for output growth stabilization aims to engineer a more gradual increase in output than under the standard discretionary policy. The anticipation of a more restrained recovery exacerbates the declines in inflation and output when the lower bound is binding.Speed limit policy and liquidity trapsECBFull texthttps://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2192.en.pdfPaul YooTaisuke NakataSebastian SchmidtTaisuke Nakata, Sebastian Schmidt and Paul Yoo2018-10European Central Bank Working PapersE52E61Speed Limit Policy and Liquidity Traps
https://www.federalreserve.gov/econres/feds/files/2018050pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata, Sebastian Schmidt and Paul YooSpeed Limit Policy and Liquidity Traps2018-07-19T00:00:50ZThe zero lower bound (ZLB) constraint on interest rates makes speed limit policies (SLPs)---policies aimed at stabilizing the output growth---less effective. Away from the ZLB, the history dependence induced by a concern for output growth stabilization improves the inflation-output tradeoff for a discretionary central bank. However, in the aftermath of a deep recession with a binding ZLB, a central bank with an objective for output growth stabilization aims to engineer a more gradual increase in output than under the standard discretionary policy. The anticipation of a more restrained recovery exacerbates the declines in inflation and output when the lower bound is binding.Speed Limit Policy and Liquidity TrapsFull texthttps://www.federalreserve.gov/econres/feds/files/2018050pap.pdfPaul YooTaisuke NakataSebastian SchmidtTaisuke Nakata, Sebastian Schmidt and Paul Yoo2018-07-19Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE52E61Attenuating the Forward Guidance Puzzle : Implications for Optimal Monetary Policy
https://www.federalreserve.gov/econres/feds/files/2018049pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata, Ryota Ogaki, Sebastian Schmidt and Paul YooAttenuating the Forward Guidance Puzzle : Implications for Optimal Monetary Policy2018-07-19T00:00:49ZWe examine the implications of less powerful forward guidance for optimal policy using a sticky-price model with an effective lower bound (ELB) on nominal interest rates as well as a discounted Euler equation and Phillips curve. When the private-sector agents discount future economic conditions more in making their decisions today, an announced cut in future interest rates becomes less effective in stimulating current economic activity. While the implication of such discounting for optimal policy depends on its degree, we find that, under a wide range of plausible degrees of discounting, it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the ELB for longer.Attenuating the Forward Guidance Puzzle : Implications for Optimal Monetary PolicyFull texthttps://www.federalreserve.gov/econres/feds/files/2018049pap.pdfRyota OgakiPaul YooTaisuke NakataSebastian SchmidtTaisuke Nakata, Ryota Ogaki, Sebastian Schmidt and Paul Yoo2018-07-19Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE52E58E61The risk-adjusted monetary policy rule
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1985.en.pdf
European Central Bank Working papers by Taisuke Nakata, Sebastian SchmidtThe risk-adjusted monetary policy rule2016-11-22T12:37:00ZThe risk-adjusted monetary policy ruleECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1985.en.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata, Sebastian Schmidt2016-11-22European Central Bank Working PapersE32E52Gradualism and Liquidity Traps
http://www.federalreserve.gov/econresdata/feds/2016/files/2016092pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata and Sebastian SchmidtGradualism and Liquidity Traps2016-11-19T06:23:00ZModifying the objective function of a discretionary central bank to include an interest-rate smoothing objective increases the welfare of an economy in which large contractionary shocks occasionally force the central bank to lower the policy rate to its effective lower bound. The central bank with an interest-rate smoothing objective credibly keeps the policy rate low for longer than the central bank with the standard objective function. Through expectations, the temporary overheating of the economy associated with such a low-for-long interest rate policy mitigates the declines in inflation and output when the lower bound constraint is binding. In a calibrated model, we find that the introduction of an interest-rate smoothing objective can reduce the welfare costs associated with the lower bound constraint by more than one-half.Gradualism and Liquidity TrapsFull texthttp://www.federalreserve.gov/econresdata/feds/2016/files/2016092pap.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata and Sebastian Schmidt2016-11Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE52E61Gradualism and liquidity traps
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1976.en.pdf
European Central Bank Working papers by Taisuke Nakata, Sebastian SchmidtGradualism and liquidity traps2016-11-15T12:37:59ZGradualism and liquidity trapsECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1976.en.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata, Sebastian Schmidt2016-11-15European Central Bank Working PapersL16L25L72O12O13O30Equilibrium Yield Curves and the Interest Rate Lower Bound
http://www.federalreserve.gov/econresdata/feds/2016/files/2016085pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata and Hiroatsu TanakaEquilibrium Yield Curves and the Interest Rate Lower Bound2016-10-10T10:40:59ZWe study the term structure of default-free interest rates in a sticky-price model with an occasionally binding effective lower bound (ELB) constraint on interest rates and recursive preferences. The ELB constraint induces state-dependency in the dynamics of term premiums by affecting macroeconomic uncertainty and interest-rate sensitivity to economic activities. In a model calibrated to match key features of the aggregate economy and term structure dynamics in the U.S. above and at the ELB, we find that the ELB constraint typically lowers the absolute size of term premiums at the ELB and increases their volatility around the time of liftoff. The central bank's announcement to keep the policy rate at the ELB for longer than previously expected lowers the expected short rate path, but its effect on term premiums depends on the risk exposure of bonds to the macroeconomy; while the announcement increases term premiums if bonds are a hedge against economic downturns, it decreases them otherwise.Equilibrium Yield Curves and the Interest Rate Lower BoundFull texthttp://www.federalreserve.gov/econresdata/feds/2016/files/2016085pap.pdfHiroatsu TanakaTaisuke NakataTaisuke Nakata and Hiroatsu Tanaka2016-11Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE12E32E43E44E52G12Financial Stability and Optimal Interest-Rate Policy
http://www.federalreserve.gov/econresdata/feds/2016/files/2016067pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Andrea Ajello, Thomas Laubach, David Lopez-Salido, and Taisuke NakataFinancial Stability and Optimal Interest-Rate Policy2016-07-07T06:23:00ZWe study optimal interest-rate policy in a New Keynesian model in which the economy can experience financial crises and the probability of a crisis depends on credit conditions. The optimal adjustment to interest rates in response to credit conditions is (very) small in the model calibrated to match the historical relationship between credit conditions, output, inflation, and likelihood of financial crises. Given the imprecise estimates of key parameters, we also study optimal policy under parameter uncertainty. We find that Bayesian and robust central banks will respond more aggressively to financial instability when the probability and severity of financial crises are uncertain.Financial Stability and Optimal Interest-Rate PolicyFull texthttp://www.federalreserve.gov/econresdata/feds/2016/files/2016067pap.pdfAndrea AjelloTaisuke NakataJ. David López-SalidoThomas LaubachAndrea Ajello, Thomas Laubach, David Lopez-Salido, and Taisuke Nakata2016-08Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE43E52E58G01The Risk-Adjusted Monetary Policy Rule
http://www.federalreserve.gov/econresdata/feds/2016/files/2016061pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata and Sebastian SchmidtThe Risk-Adjusted Monetary Policy Rule2016-07-01T12:37:00ZMacroeconomists are increasingly using nonlinear models to account for the effects of risk in the analysis of business cycles. In the monetary business cycle models widely used at central banks, an explicit recognition of risk generates a wedge between the inflation-target parameter in the monetary policy rule and the risky steady state (RSS) of inflation---the rate to which inflation will eventually converge---which can be undesirable in some practical applications. We propose a simple modification to the standard monetary policy rule to eliminate the wedge. In the proposed risk-adjusted policy rule, the intercept of the rule is modified so that the RSS of inflation equals the inflation-target parameter in the policy rule.The Risk-Adjusted Monetary Policy RuleFull texthttp://www.federalreserve.gov/econresdata/feds/2016/files/2016061pap.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata and Sebastian Schmidt2016-08Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52The risky steady state and the interest rate lower bound
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1913.en.pdf
European Central Bank Working papers by Timothy Hills, Taisuke Nakata, Sebastian SchmidtThe risky steady state and the interest rate lower bound2016-06-06T17:40:59ZThe risky steady state and the interest rate lower boundECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1913.en.pdfTaisuke NakataSebastian SchmidtTimothy HillsTimothy Hills, Taisuke Nakata, Sebastian Schmidt2016-06-06European Central Bank Working PapersE32E52The Risky Steady State and the Interest Rate Lower Bound
http://www.federalreserve.gov/econresdata/feds/2016/files/2016009pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Timothy S. Hills, Taisuke Nakata, and Sebastian SchmidtThe Risky Steady State and the Interest Rate Lower Bound2016-01-09T13:37:00ZEven when the policy rate is currently not constrained by its effective lower bound (ELB), the possibility that the policy rate will become constrained in the future lowers today's inflation by creating tail risk in future inflation and thus reducing expected inflation. In an empirically rich model calibrated to match key features of the U.S. economy, we find that the tail risk induced by the ELB causes inflation to undershoot the target rate of 2 percent by as much as 45 basis points at the economy's risky steady state. Our model suggests that achieving the inflation target may be more difficult now than before the Great Recession, if the recent ELB experience has led households and firms to revise up their estimate of the ELB frequency.The Risky Steady State and the Interest Rate Lower BoundFull texthttp://www.federalreserve.gov/econresdata/feds/2016/files/2016009pap.pdfTaisuke NakataTimothy S. HillsSebastian SchmidtTimothy S. Hills, Taisuke Nakata, and Sebastian Schmidt2016-02Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52Optimal Government Spending at the Zero Lower Bound: A Non-Ricardian Analysis
http://www.federalreserve.gov/econresdata/feds/2015/files/2015038pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke NakataOptimal Government Spending at the Zero Lower Bound: A Non-Ricardian Analysis2015-06-03T06:19:00ZThis paper analyzes the implications of distortionary taxation and debt financing for optimal government spending policy in a sticky-price economy where the nominal interest rate is subject to the zero lower bound constraint. Regardless of the type of tax available and the initial debt level, optimal government spending policy in a recession is characterized by an initial increase followed by a reduction below, and an eventual return to, the steady state. The magnitude of variations in the government spending as well as their welfare implications depend importantly on the available tax instrument and the initial debt level.Optimal Government Spending at the Zero Lower Bound: A Non-Ricardian AnalysisAbstracthttp://www.federalreserve.gov/econresdata/feds/2015/files/2015038pap.pdfFull texthttp://www.federalreserve.gov/econresdata/feds/2015/files/2015038pap.pdfTaisuke NakataTaisuke Nakata2015-06-02Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52E61E62E63Conservatism and Liquidity Traps
http://www.federalreserve.gov/econresdata/feds/2014/files/2014105pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata and Sebastian SchmidtConservatism and Liquidity Traps2015-04-13T12:33:59ZAppointing Rogoff's (1985) conservative central banker improves welfare if the economy is subject to large contractionary shocks and the policy rate occasionally falls to the zero lower bound (ZLB). In an economy with occasionally binding ZLB constraints, the anticipation of future ZLB episodes creates a trade-off between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. A conservative central banker mitigates this deflationary bias away from the ZLB, improving allocations both at and away from the ZLB through expectations.Conservatism and Liquidity TrapsAbstracthttp://www.federalreserve.gov/econresdata/feds/2014/index.htm#2014105Full texthttp://www.federalreserve.gov/econresdata/feds/2014/files/2014105pap.pdfTaisuke NakataSebastian SchmidtTaisuke Nakata and Sebastian Schmidt2014-12Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE52E61Fiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia
http://www.federalreserve.gov/econresdata/feds/2014/files/2014107pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Timothy S. Hills and Taisuke NakataFiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia2015-04-13T12:33:59ZThe presence of the lagged shadow policy rate in the interest rate feedback rule reduces the government spending multiplier nontrivially when the policy rate is constrained at the zero lower bound (ZLB). In the economy with policy inertia, increased inflation and output due to higher government spending during a recession speed up the return of the policy rate to the steady state after the recession ends. This in turn dampens the expansionary effects of the government spending during the recession via expectations. In our baseline calibration, the output multiplier at the ZLB is 2.5 when the weight on the lagged shadow rate is zero, and 1.1 when the weight is 0.9.Fiscal Multipliers at the Zero Lower Bound: The Role of Policy InertiaAbstracthttp://www.federalreserve.gov/econresdata/feds/2014/index.htm#2014107Full texthttp://www.federalreserve.gov/econresdata/feds/2014/files/2014107pap.pdfTimothy S. HillsTaisuke NakataTimothy S. Hills and Taisuke Nakata2014-12Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52E61E62E63Reputation and Liquidity Traps
http://www.federalreserve.gov/pubs/feds/2014/201450/201450pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke NakataReputation and Liquidity Traps2014-07-23T12:33:59ZCan the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy sufficiently frequently, the incentive to maintain reputation outweighs the short-run incentive to close consumption and inflation gaps, keeping the central bank on the originally announced path of low nominal interest rates.Reputation and Liquidity TrapsAbstracthttp://www.federalreserve.gov/pubs/feds/2014/201450/201450abs.htmlFull texthttp://www.federalreserve.gov/pubs/feds/2014/201450/201450pap.pdfTaisuke NakataTaisuke Nakata2014-07-21Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesE32E52E61E62E63Small Sample Properties of Bayesian Estimators of Labor Income Processes
http://www.federalreserve.gov/pubs/feds/2014/201425/201425pap.pdf
Board of Governors of the Federal Reserve System FEDS series by Taisuke Nakata and Christopher TonettiSmall Sample Properties of Bayesian Estimators of Labor Income Processes2014-04-08T17:32:00ZThere exists an extensive literature estimating idiosyncratic labor income processes. While a wide variety of models are estimated, GMM estimators are almost always used. We examine the validity of using likelihood based estimation in this context by comparing the small sample properties of a Bayesian estimator to those of GMM. Our baseline studies estimators of a commonly used simple earnings process. We extend our analysis to more complex environments, allowing for real world phenomena such as time varying and heterogeneous parameters, missing data, unbalanced panels, and non-normal errors. The Bayesian estimators are demonstrated to have favorable bias and efficiency properties.Small Sample Properties of Bayesian Estimators of Labor Income ProcessesAbstracthttp://www.federalreserve.gov/pubs/feds/2014/201425/201425abs.htmlFull texthttp://www.federalreserve.gov/pubs/feds/2014/201425/201425pap.pdfChristopher TonettiTaisuke NakataTaisuke Nakata and Christopher Tonetti2014-04-08Board of Governors of the Federal Reserve System Finance and Economics Discussion SeriesC32C33D12D31D91E21