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Is there a rules-based explanation for the low interest rates and quantitative easing undertaken by the Federal Reserve following the Global Financial Crisis? The question is important as it pertains to the ongoing debate between rules-based and discretionary monetary policy. It is also important in the search for a Taylor Rule modification that can fill in the gap left by the breakdown of the original rule following the GFC. This paper examines a recent Taylor Rule modification proposed from James Bullard, President of the St. Louis Federal Reserve, to see if this modification can explain Fed actions following the GFC. The modification is analyzed in the same two ways that the original Taylor Rule was evaluated. Namely, this paper tests the economic logic of the modification as well as examines how well the rule's policy rate prescription has fit the actual federal funds rate over time. The economic logic of the modification is examined during recessions. The fit between the rule's policy rate prescription and the actual federal funds rate is examined using r-squared. I conclude that by changing the neutral rate in a Taylor-type rule, Bullard provides a credible policy rule that helps explain Fed behavior following the GFC.
ContributorsCowan, Daniel Jonathan (Author) / McDowell, John (Thesis director) / Templeton, Len (Committee member) / McDaniel, Cara (Committee member) / Department of Finance (Contributor) / Department of Economics (Contributor) / Barrett, The Honors College (Contributor)
Created2018-05
Description
This dissertation contains a portfolio of papers in economics. The first paper, ``Vehicle Emissions Inspection Programs: Equality and Impact," presents the results of a study of the Arizona Vehicle Emissions Inspection Program. Using a unique data set, I find that the Arizona Vehicle Emissions Inspection Program is regressive in that it constrains the vehicle repair decisions of people on the low end of the income distribution more than those on the high end. I also find that the social cost of the program in Arizona is more than twice the social benefit, assuming a \$7 million value of statistical life. The second paper is ``Fiat Value in the Theory of Value." Because of advances in information processing technology, it is now technically feasible to have a currency-less monetary system. This paper explores one such system. In the model, prices are in units currency-less fiat money called fiat value, fiat value is a form of government debt, and the services of the stock of fiat value are a factor of production. In this system, the National accounts must be revised to account for money as a production factor, Friedman satiation is possible even with positive inflation, and various monetary policy regimes are explored. The third paper, ``Unconventional Monetary Policy in a Modern Paradigm of Money," uses the model developed in ``Fiat Value in the Theory of Value" to evaluate quantitative easing and interest on reserves policies as a response to liquidity shocks. I find that quantitative easing is an effective response to liquidity crises because it drives the marginal product of money to zero. When the marginal product of money is zero, the business sector does not have to pay to rent the services of money, a production factor that is free to create. I also show that a positive interest on reserve policy hampers the effectiveness of quantitative easing, and that quantitative easing does not cause a high inflation rate.
ContributorsWessel, Ryan J (Author) / Prescott, Edward C. (Thesis advisor) / Schoellman, Todd (Committee member) / Hobijn, Bart (Committee member) / Arizona State University (Publisher)
Created2017
Description
This paper intends to examine topics related to Chinese financial policy and
institutions mainly in the early 21st century. China has gone through enormous changes in the late 20th century and early 21st century, and financial policy reforms and adjustments have been at times instrumental to aiding that growth, and at other times have served as impediments to the country’s success. As China’s clout has grown both economically and politically in the wider world, it has become evermore important to understand the Chinese financial system, particularly as other authoritarian regimes may seek to emulate it in the perhaps recent future. The paper will examine the institutional elements of Chinese finance, including the broader structure of the party state apparatus and the role of legislative and executive authorities in determining financial policy. Next, the paper will go through both the legal-regulatory environment of the country and the structure of the preeminent Chinese banks. Finally, issues in Chinese monetary policy, particularly exchange rate system reforms, and the developing stock and bond markets will be addressed.
institutions mainly in the early 21st century. China has gone through enormous changes in the late 20th century and early 21st century, and financial policy reforms and adjustments have been at times instrumental to aiding that growth, and at other times have served as impediments to the country’s success. As China’s clout has grown both economically and politically in the wider world, it has become evermore important to understand the Chinese financial system, particularly as other authoritarian regimes may seek to emulate it in the perhaps recent future. The paper will examine the institutional elements of Chinese finance, including the broader structure of the party state apparatus and the role of legislative and executive authorities in determining financial policy. Next, the paper will go through both the legal-regulatory environment of the country and the structure of the preeminent Chinese banks. Finally, issues in Chinese monetary policy, particularly exchange rate system reforms, and the developing stock and bond markets will be addressed.
ContributorsFeatherston, Ryan (Author) / Hill, John (Thesis director) / Mendez, Jose (Committee member) / Department of Economics (Contributor) / Dean, W.P. Carey School of Business (Contributor) / Barrett, The Honors College (Contributor)
Created2019-05
Description
Abstract: Handling the multiple functions of monetary policy that protect the U.S. economy not only on a short term, but also long-term scale is a complicated responsibility assigned to Federal Reserve, in which their actions present a profound impact on consumer confidence towards financial markets and global economies. Specifically, one of the most important goals of the Federal Reserve is to mitigate the risk of the United States to enter a recession, while maintaining a balanced approach when making those policy decisions. In this thesis, we focus on the monetary policy of the Federal Reserve, particularly, their role in controlling interest rates to prevent recessionary sentiment in the current state of the economy. Since 2008, markets have been stronger and previous policies like Dodd-Frank have ensured that market collapses during the Great Recession do not repeat itself. Yet, fluctuations in the yield curve, polarizing investment views, and unsettled consumer confidence has pointed to another recession in the near future. In this case, we will look at the way the Fed has implemented short term policies to lower this risk in order to fight volatile markets, however, fluctuating interest rates has its consequences. The goal of this thesis is to analyze the various ways the Fed has managed interest rates in the past and present, and further, to offer a framework to serve as the most effective policy to combat volatility and recessionary sentiment in the U.S. economy.
ContributorsPatel, Dylan (Author) / Sacks, Jana (Thesis director) / Simonson, Mark (Committee member) / Economics Program in CLAS (Contributor) / Department of Finance (Contributor) / Barrett, The Honors College (Contributor)
Created2020-05
Description
This dissertation consists of three essays studying the relationship between corporate finance and monetary policy and macroeconomics. In the first essay, I provide novel estimations of the monetary policy’s working capital channel size by estimating a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill is borrowed. But the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. These results provide evidence that monetary policy could have varying effects across industries through the working capital channel. In the second essay, I study the effects of the Unconventional Monetary Policy (UMP) of purchasing corporate bonds on firms’ decisions in the COVID-19 crisis. Specifically, I develop a theoretical model which predicts that the firm’s default probability plays a crucial role in transmitting the effects of COVID-19 shock and the UMP. Using the model to evaluate two kinds of heterogeneities (size and initial credit risk), I show that large firms and high-risk firms are more affected by COVID-19 shock and are more responsive to the UMP. I then run cross-sectional regressions, whose results support the theoretical predictions suggesting that the firm’s characteristics, such as assets and operating income, are relevant to understanding the UMP effects. In the third essay, I document that capital utilization and short-term debt are procyclical. I show that a strong positive relationship exists at the aggregate and firm levels. It persists even when I control the regressions for firm size, profits, growth, and business cycle effects. In addition, the Dynamic Stochastic General Equilibrium (DSGE) model shows that in the presence of capital utilization, positive real and financial shocks cause the firm to change its financing of the equity payout policy from earnings to debt, increasing short-term debt.
ContributorsGalindo Gil, Hamilton (Author) / Pruitt, Seth (Thesis advisor) / Schreindorfer, David (Thesis advisor) / Bessembinder, Hendrik (Committee member) / Mehra, Rajnish (Committee member) / Arizona State University (Publisher)
Created2022
Description
This paper examines the decreasing affordability of single-family residential homes across the United States, with a special emphasis on Maricopa and Pinal County, Arizona. A historical analysis was conducted on the single-family residential property sector utilizing Federal Reserve and local government data. An affordability model is developed to demonstrate income thresholds needed to afford a median priced home in Maricopa and Pinal County, while a factor model is developed to predict the economic shifts needed to rectify this issue. My findings suggest that single-family homes have reached peak prices and are not affordable for the average American, based on median income. This housing crisis is the result of many economic factors, including but not limited to: below-average homebuilding, the lock-in effect, excessively cheap monetary policy, mortgages rates, and housing inflation. This is an unprecedented time in our nation’s history, placing tremendous pressure on the Federal Open Market Committee (FOMC) and Congress to tackle this issue. A closing recommendation will discuss the outlook for the single family residential sector.
ContributorsNunez, Christian (Author) / Koblenz, Blair (Thesis director) / Stapp, Mark (Committee member) / Barrett, The Honors College (Contributor) / Department of Finance (Contributor)
Created2024-05