Incomplete Cost Pass-Through Under Deep Habits (2008)
RAVN, Morten O., SCHMITT-GROHÉ, Stephanie, URIBE, Martin
A number of empirical studies document that marginal cost shocks are not fully passed through to prices at the firm level and that prices are substantially less volatile than costs. We show that in...
RAVN, Morten O., SCHMITT-GROHE, Stephanie, URIBE, Martin
Using panel structural VAR analysis and quarterly data from four industrialized countries, we document that an increase in government purchases leads to an expansion in output and private...
Pricing to Habits and the Law of One Price (2006)
RAVN, Morten O., SCHMITT-GROHE, Stephanie, URIBE, Martin
This paper proposes a novel international transmission mechanism based on the assumption of deep habits. The term deep habits stands for a preference specification according to which consumers form...
Pricing to Habits and the Law of One Price (2006)
RAVN, Morten O., SCHMITT-GROHE, Stephanie, URIBE, Martin
This paper proposes a novel international transmission mechanism based on the assumption of deep habits. The term deep habits stands for a preference specification according to which consumers form...
Pricing to Habits and the Law of One Price (2006)
RAVN, Morten O., SCHMITT-GROHE, Stephanie, URIBE, Martin
This paper proposes a novel international transmission mechanism based on the assumption of deep habits. The term deep habits stands for a preference specification according to which consumers form...
Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability (2004)
Schmitt-Grohe, Stephanie., Uribe, Martin.
Journal of Money, Credit, and Banking - Volume 35, Number 6 (Part 2), December 2003
Computing Sunspot Equilibria in Linear (2002)
Thomas A. Lubik, Frank Schorfheide, Ellen Mcgrattan, Stephanie Schmitt-grohe, Martin Uribe
We provide computationally simple methods of analyzing the e#ects of fundamental and sunspot shocks in linear rational expectations models when the equilibrium is indeterminate. Under indeterminacy...
Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
Jess Benhabib, Stephanie Schitt-Grohe, Martin Uribe
The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to...
Optimal Simple and Implementable Monetary and Fiscal Rules
Stephanie Schmitt-Grohe, Martin Uribe
The goal of this paper is to compute optimal monetary and fiscal policy rules in a real business cycle model augmented with sticky prices, a demand for money, taxation, and stochastic government...
A defining stylized fact associated with exchange-rate-based (ERB) stabilization programs is that their initial phase is characterized by several years of expansion in private consumption and a...
The Syndrome of Exchange-Rate-Based Stabilizations and the Uncertain Duration of Currency Pegs
Mendoza, Enrique, Uribe, Martin
This paper shows that some key stylized facts of exchange-rate-based stabilization plans can be explained by the uncertain duration of the plans themselves. Uncertain duration is modeled to reflect...
The Macroeconomics of Subsistence Points
Morten O. Ravn, Stephanie Schmitt-Grohe, Martin Uribe
This paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to...
Optimal Fiscal and Monetary Policy In A Medium Scale Macro Model
Martin Uribe, Stephanie Schmitt-Grohe
In this paper we study optimal fiscal and monetary rules in a medium-scale estimated model of the U.S. business cycle. The model features several real and nominal rigidities that have been identfied...
This paper characterizes the equilibrium dynamics in an economy facing an aggregate debt ceiling. This borrowing limit is intended to capture an environment in which foreign investors base their...
Chaotic Interest Rate Rules: Expanded Version
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
A growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of Taylor-type interest rate feedback rules. That is, rules whereby the nominal interest rate...
Morten Ravn, Stephanie Schmitt-Grohe, Martin Uribe
This paper generalizes the standard habit formation model to an environment in which agents form habits over individual varieties of goods as opposed to over a composite consumption good. We refer to...
Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to...
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
Once the zero bound on nominal interest rates is taken into account, Taylor-type interest rate feedback rules give rise to unintended self-fulfilling decelerating inflation paths and aggregate...
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
Once the zero bound on nominal interest rates is taken into account, Taylor-type interest-rate feedback rules give rise to unintended self-fulfilling decelerating inflation paths and aggregate...
Optimal Fiscal and Monetary Policy in a Medium-Scale Macroeconomic Model: Expanded Version
Stephanie Schmitt-Grohe, Martin Uribe
In this paper, we study Ramsey-optimal fiscal and monetary policy in a medium-scale model of the U.S.\ business cycle. The model features a rich array of real and nominal rigidities that have been...
Optimal fiscal and monetary policy under sticky prices
Martin Uribe, Stephanie Schmitt-Grohe
This paper studies optimal fiscal and monetary policy under sticky product prices. The theoretical framework is a stochastic production economy without capital. The government finances an exogenous...
Real Business Cycles in Emerging Countries?
Javier Garcia-Cicco, Roberto Pancrazi, Martin Uribe
We investigate the hypothesis that an RBC model driven by permanent and transitory productivity shocks can explain well observed business-cycle fluctuations in emerging countries. A drawback of...
Pricing to Habits and the Law of One Price
Morten O. Ravn, Stephanie Schmitt-Grohe, Martin Uribe
This paper proposes a novel international transmission mechanism based on the assumption of deep habits. The term deep habits stands for a preference specification according to which consumers form...
Incomplete Cost Pass-Through Under Deep Habits
Morten Ravn, Stephanie Schmitt-Grohe, Martin Uribe
A number of empirical studies document that marginal cost shocks are not fully passed through to prices at the firm level and that prices are substantially less volatile than costs. We show that in...
A fiscal theory of sovereign risk.
This paper presents a fiscal theory of sovereign risk and default. Under certain monetary-fiscal regimes, the risk of default, and thus the emergence of sovereign risk premia, are inevitable. The...
Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate
Morten O. Ravn, Stephanie Schmitt-Grohe, Martin Uribe
Using panel structural VAR analysis and quarterly data from four industrialized countries, we document that an increase in government purchases leads to an expansion in output and private...
Monetary Policy and Multiple Equilibria
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
This paper characterizes conditions under which interest-rate feedback rules that set the nominal interest rate as an increasing function of the inflation rate induce aggregate instability by...
Benhabib, Jess, Schmitt-Grohe, Stephanie, Uribe, Martin
When the Central Bank sets nominal rates as a a non-decreasing function of the inflation rate to stabilize the economy, that is it uses a Taylor Rule, the zero lower bound on interest rates may...
Balanced-budget rules, distortionary taxes, and aggregate instability
Stephanie Schmitt-Grohe, Martin Uribe
Budget ; Taxation
Price level determinacy and monetary policy under a balanced-budget requirement
Stephanie Schmitt-Grohe, Martin Uribe
This paper analyzes the implications of a balanced budget fiscal policy rule for the determinacy of the price level in a cash-in-advance economy under three alternative monetary policy regimes. It...
Monetary policy and multiple equilibria
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
In this paper, we characterize conditions under which interest rate feedback rules whereby the nominal interest rate is set as an increasing function of the inflation rate generate multiple...
Matlab code for Closing Small Open Economy Models
Stephanie Schmitt-Grohe, Martin Uribe
Matlab codes for 'Closing Small Open Economy Models.' Notes: (1) Symbolic Math Toolbox is required (2) The files listed under "General Tools" below are required. Contents: Endogenous Discount Factor...
Stabilization Policy and the Costs of Dollarization.
Schmitt-Grohe, Stephanie, Uribe, Martin
This paper compares the welfare costs of business cycles in a dollarized economy to those arising in economies in which monetary policy takes the form of inflation targeting, money growth rate pegs,...
Solving dynamic general equilibrium models using a second-order approximation to the policy function
Stephanie Schmitt-Grohe, Martin Uribe
This paper studies the role of asset-market completeness for the properties of optimal fiscal and monetary policy. A suitable framework for this purpose is the small open economy with complete...
Stephanie Schmitt-Grohe, Martin Uribe
This paper studies, within a general equilibrium model, the dynamics of Y2K-type shocks: anticipated, permanent losses in output whose magnitude can be lessened by investing resources in advance. The...
Incomplete Cost Pass-Through Under Deep Habits
Morten Ravn, Stephanie Schmitt-Grohe, Martin Uribe
A number of empirical studies document that marginal cost shocks are not fully passed through to prices at the firm level and that prices are substantially less volatile than costs. We show that in...
MORTEN RAVN, STEPHANIE SCHMITT-GROHE, MARTIN URIBE
This paper generalizes the standard habit-formation model to an environment in which agents form habits over individual varieties of goods as opposed to over a composite consumption good. We refer to...
Exchange-rate based inflation stabilization: the initial real effects of credible plans
Foreign exchange - Law and legislation ; Inflation (Finance)
Real exchange rate targeting and macroeconomic instability
Interest rates ; Macroeconomics
Comparing the welfare costs and the initial dynamics of alternative temporary stabilization policies
This paper compares the welfare costs and initial dynamics of three alternative inflation stabilization policies using the staggered price model with imperfect credibility and currency substitution...
The syndrome of exchange-rate-based stabilizations and the uncertain duration of currency pegs
Enrique G. Mendoza, Martin Uribe
This paper conducts a quantitative examination of the hypothesis that uncertain duration of currency pegs causes the sharp real appreciations and business cycles that affect chronically countries...
The Tequila effect: theory and evidence from Argentina
The Tequila Effect hypothesis states that the economic crisis that affected several South American countries in 1995 was caused by an exogenous capital flight triggered by the loss of confidence of...
The business cycles of currency speculation: a revision of the Mundellian framework
Enrique G. Mendoza, Martin Uribe
In his seminal 1960 study on the dynamics of alternative exchange rate regimes, Robert Mundell proposed a theory of balance-of-payments crises in which speculators base their actions on the observed...
Country spreads and emerging countries: who drives whom?
A number of studies have stressed the role of movements in US interest rates and country spreads in driving business cycles in emerging market economies. At the same time, country spreads have been...
The syndrome of exchange-rate-based stabilizations and the uncertain duration of currency pegs
Enrique G. Mendoza, Martin Uribe
This paper shows that some key stylized facts of exchange-rate-based stabilization plans can be explained by the uncertain duration of the plans themselves. Uncertain duration is modeled to reflect...
Stabilization policy and the costs of dollarization
Stephanie Schmitt-Grohe, Martin Uribe
Dollar, American ; Monetary policy
Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to...
Stephanie Schmitt-Grohe, Martin Uribe
As the millenium draws to an end, the threat posed by the Year 2000 (Y2K) problem is inducing vast private and public spending on its remediation. In this paper, we embed the Y2K problem into a...
Stephanie Schmitt-Grohe, Martin Uribe
Matlab codes for 'Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function.' Contents: First-order approximation: gx_hx.m, solab.m (by Paul Klein),...
Benhabib, Jess, Schmitt-Grohe, Stephanie, Uribe, Martin
interest rate feedback rules; zero bound on nominal rates; liquidity traps; multiple equilibria
Incomplete cost pass-through under deep habits
Martin Uribe, Morten Ravn, Stephanie Schmitt-Grohe
Markets ; Prices
What's News in Business Cycles
Stephanie Schmitt-Grohe, Martin Uribe
In this paper, we perform a structural Bayesian estimation of the contribution of anticipated shocks to business cycles in the postwar United States. Our theoretical framework is a...
Devaluation Risk and the Syndrome of Exchange-Rate-Based Stabilizations
Enrique G. Mendoza, Martin Uribe
This paper shows that the risk of devaluation can be an important factor accounting for the stylized facts of exchange-rate-based stabilizations. This conclusion follows from studying the...
The Business Cycles of Balance-of-Payment Crises: A Revision of Mundellan Framework
Enrique G. Mendoza, Martin Uribe
In his seminal 1960 article Robert Mundell proposed a model of balance-of-payments crises in which confidence in the continuation of a currency peg depended on the observed holdings of central bank...
Optimal Fiscal and Monetary Policy Under Sticky Prices
Stephanie Schmitt-Grohe, Martin Uribe
This paper studies optimal .scal and monetary policy under sticky product prices. The theoretical framework is a stochastic production economy without capital. The government finances an exogenous...
A Fiscal Theory of Sovereign Risk
This paper presents a fiscal theory of sovereign risk and default. Under certain monetary-fiscal regimes, the risk of default, and thus the emergence of sovereign risk premia, are inevitable. The...
Closing Small Open Economy Models
Stephanie Schmitt-Grohe, Martin Uribe
The small open economy model with incomplete asset markets features a steady state that depends on initial conditions and equilibrium dynamics that possess a random walk component. A number of...
Real Exchange Rate Targeting and Macroeconomic Instability
Using an optimizing model of a small open economy, this paper studies the macroeconomic effects of PPP rules whereby the government increases the devaluation rate when the real exchange rate defined...
Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
Jess Behabib, Stephanie Schmitt-Grohe, Martin Uribe
The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to...
Stephanie Schmitt-Grohe, Martin Uribe
This paper studies the role of asset-market completeness for the properties of optimal policy. A suitable framework for this purpose is the small open economy with complete international asset...
Country Spreads and Emerging Countries: Who Drives Whom?
A number of studies have stressed the role of movements in US interest rates and country spreads in driving business cycles in emerging market economies. At the same time, country spreads have been...
Optimal Fiscal and Monetary Policy Under Imperfect Competition
Stephanie Schmitt-Grohe, Martin Uribe
This paper studies optimal fiscal and monetary policy under imperfect competition in a stochastic, flexible-price, production economy without capital. It shows analytically that in this economy the...
Stephanie Schmitt-Grohe, Martin Uribe
This paper identifies optimal interest-rate rules within a rich, dynamic, general equilibrium model that has been shown to account well for observed aggregate dynamics in the postwar United States....
Optimal Inflation Stabilization in a Medium-Scale Macroeconomic Model
Stephanie Schmitt-Grohe, Martin Uribe
This paper characterizes Ramsey-optimal monetary policy in a medium-scale macroeconomic model that has been estimated to fit well postwar U.S.\ business cycles. We find that mild deflation is Ramsey...
Pricing to Habits and the Law of One Price
Morten Ravn, Stephanie Schmitt-Grohe, Martin Uribe
This paper proposes a novel international transmission mechanism based on the assumption of deep habits. The term deep habits stands for a preference specification according to which consumers form...
Comparing Two Variants of Calvo-Type Wage Stickiness
Stephanie Schmitt-Grohe, Martin Uribe
We compare two ways of modeling Calvo-type wage stickiness. One in which each household is the monopolistic supplier of a differentiated type of labor input (as in Erceg, et al., 2000) and one in...
Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function
Stephanie Schmitt-Grohe, Martin Uribe
This paper derives a second-order approximation to the solution of a general class of discrete- time rational expectations models. The main theoretical contribution of the paper is to show that for...
Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability.
Schmitt-Grohe, Stephanie, Uribe, Martin
A traditional argument against a balanced-budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and...
Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
Jess Benhabib, Stephanie Schmitt-Grohe, Martin Uribe
The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates