Economic policy when interest rates are zero. This Project studies economic policy when interest rates are zero. Low interest rate environments constrain monetary policy because central banks cannot lower rates to raise demand. We exploit recent international experience with zero rates to understand why new policies have had mixed success. We argue different outcomes across countries arise because of different degrees of credibility and familiarity with new policy initiatives. We provide empiric ....Economic policy when interest rates are zero. This Project studies economic policy when interest rates are zero. Low interest rate environments constrain monetary policy because central banks cannot lower rates to raise demand. We exploit recent international experience with zero rates to understand why new policies have had mixed success. We argue different outcomes across countries arise because of different degrees of credibility and familiarity with new policy initiatives. We provide empirical support for this view and study the consequences of imperfectly credible policy. We characterize how monetary policy (conventional and unconventional) and fiscal policy can be used to greatest effect in low interest rate environments and quantify the welfare implications for Australia. Read moreRead less
Optimal Tax Policy Meets Modern Labour Supply Theory. This project aims to generate new evidence on the optimal design of the federal tax system. Specifically, it seeks to determine the optimal combination of taxes on income, capital and consumption to raise necessary revenue while minimizing disincentives for work and capital formation. The project is innovative because, for the first time, it does optimal tax calculations using models that account fully for how taxes affect human capital inves ....Optimal Tax Policy Meets Modern Labour Supply Theory. This project aims to generate new evidence on the optimal design of the federal tax system. Specifically, it seeks to determine the optimal combination of taxes on income, capital and consumption to raise necessary revenue while minimizing disincentives for work and capital formation. The project is innovative because, for the first time, it does optimal tax calculations using models that account fully for how taxes affect human capital investment and labour force participation. It aims to enhance or understanding of the optimal mix between taxes on earnings, capital and consumption, and the optimal degree of income tax progressivity. The benefit is a tax system better designed to promote economic efficiency and human capital formation. Read moreRead less
Fiscal policy and unemployment in an open economy. This project aims to improve our understanding of the impact of commodity price changes. Over the past two decades, Australia has experienced unprecedented fluctuations in commodity prices. The fiscal position and potential of the economy depends on the extent to which commodity price changes are temporary or permanent. This project will uncover empirical regularities between commodity prices, unemployment across sectors and measures of fiscal p ....Fiscal policy and unemployment in an open economy. This project aims to improve our understanding of the impact of commodity price changes. Over the past two decades, Australia has experienced unprecedented fluctuations in commodity prices. The fiscal position and potential of the economy depends on the extent to which commodity price changes are temporary or permanent. This project will uncover empirical regularities between commodity prices, unemployment across sectors and measures of fiscal policy. The project will build structural models of unemployment which will be estimated and used to assess implications for unemployment and budget deficits of commodity price shocks and to study the optimal design of fiscal policy. The project will benefit the conduct of economic policy in Australia.Read moreRead less
Distorted Beliefs and Asset Price Disconnect Puzzles. Asset price booms and busts have broad ranging implications for households. Despite this, models used for policy analysis struggle to explain asset prices and their implications for the macroeconomy. This project will deliver frontier macro-finance research to inform academics and policymakers on how to model asset price booms and busts, to explain why equity and house price falls appear to have small versus large effects, and how to design e ....Distorted Beliefs and Asset Price Disconnect Puzzles. Asset price booms and busts have broad ranging implications for households. Despite this, models used for policy analysis struggle to explain asset prices and their implications for the macroeconomy. This project will deliver frontier macro-finance research to inform academics and policymakers on how to model asset price booms and busts, to explain why equity and house price falls appear to have small versus large effects, and how to design effective policy responses. Led by internationally recognized experts in macroeconomics, this research proposal is perfectly positioned to deliver scientific peer-reviewed research and embed outcomes through evidenced partnerships with the Reserve Bank of Australia and the Federal Department of Treasury.Read moreRead less
Automation and Income Inequality: Macroeconomic Policy Implications. The transition to wider use of robotics and artificial intelligence may eventually make our citizens better off, yet effects on domestic income and wealth inequality remain uncertain, depending strongly on general governance and macroeconomic policy regimes. This project would help clarify income inequality effects, both abroad and in Australia, through (i) new numerical theory from calibrated economic models at the global and ....Automation and Income Inequality: Macroeconomic Policy Implications. The transition to wider use of robotics and artificial intelligence may eventually make our citizens better off, yet effects on domestic income and wealth inequality remain uncertain, depending strongly on general governance and macroeconomic policy regimes. This project would help clarify income inequality effects, both abroad and in Australia, through (i) new numerical theory from calibrated economic models at the global and national levels; (ii) econometric testing of results from global and national data; (iii) the use of emerging insights to analyse economic policy responses and their global interaction as well as the implications for Australian economic policyRead moreRead less
The Role of a Central Bank’s Balance Sheet in Shaping the Economy. In response to the global financial crisis, the world’s major central banks cut their rates to near zero and implemented untested unconventional monetary policies, significantly expanding the size and composition of their balance sheets. More than a decade later, the Reserve Bank of Australia is considering similar balance sheet policies. This proposal aims to develop various frameworks that can be used to simulate and evaluate w ....The Role of a Central Bank’s Balance Sheet in Shaping the Economy. In response to the global financial crisis, the world’s major central banks cut their rates to near zero and implemented untested unconventional monetary policies, significantly expanding the size and composition of their balance sheets. More than a decade later, the Reserve Bank of Australia is considering similar balance sheet policies. This proposal aims to develop various frameworks that can be used to simulate and evaluate when and how to eventually undo unconventional monetary policies in order to prevent a prolonged recession. Thus this research proposal will contribute to the current Australian monetary policy debate while providing some insights on how best to implement such policies, improving the living standards of Australians.Read moreRead less
Discovery Early Career Researcher Award - Grant ID: DE210100137
Funder
Australian Research Council
Funding Amount
$347,889.00
Summary
Global Economic Uncertainty, Liquidity and Monetary Policy in Australia. This project aims to analyse the impact of global trade and financial uncertainty on the Australian economy and provide quantifiable policy prescriptions. This project expects to generate new knowledge in the area of monetary and macroeconomic policy using an innovative approach with search and matching frictions, to formalise how investors respond to higher uncertainty given their liquidity requirements. The intended outco ....Global Economic Uncertainty, Liquidity and Monetary Policy in Australia. This project aims to analyse the impact of global trade and financial uncertainty on the Australian economy and provide quantifiable policy prescriptions. This project expects to generate new knowledge in the area of monetary and macroeconomic policy using an innovative approach with search and matching frictions, to formalise how investors respond to higher uncertainty given their liquidity requirements. The intended outcomes of the project include offering a new theory with the potential to guide future research and novel quantitative application to Australian macroeconomic data. This should provide significant insights for institutions such as the Reserve Bank of Australia and benefits through the design of policy.Read moreRead less
Gross credit flows, credit reallocation, and the macroeconomy. This project aims to construct measures of credit reallocation from regulatory bank-level data for Australia and other countries. The project intends to develop empirical models able to evaluate the role of credit reallocation on aggregate output and a theoretical model with search and match frictions to evaluate quantitatively the role of bank credit in explaining macroeconomic outcomes. The project expects to provide significant be ....Gross credit flows, credit reallocation, and the macroeconomy. This project aims to construct measures of credit reallocation from regulatory bank-level data for Australia and other countries. The project intends to develop empirical models able to evaluate the role of credit reallocation on aggregate output and a theoretical model with search and match frictions to evaluate quantitatively the role of bank credit in explaining macroeconomic outcomes. The project expects to provide significant benefits for policymakers for assessing the interplay between monetary and credit policy, formulating macroeconomic and macro prudential policies, and shedding light on the causes of productivity dynamics in Australia, boosting its comparative advantage.Read moreRead less
Monetary policy, redistribution and endogenous asset market incompleteness. This project aims to provide a new framework for modelling agent heterogeneity and for evaluating the effects of monetary policy on aggregate welfare and wealth distribution over the business cycle. This project will focus on monetary policy, using new quantitative theories with new efficient computational methods, to understand and quantify links between monetary policy the dynamics of aggregate outcomes (such as inflat ....Monetary policy, redistribution and endogenous asset market incompleteness. This project aims to provide a new framework for modelling agent heterogeneity and for evaluating the effects of monetary policy on aggregate welfare and wealth distribution over the business cycle. This project will focus on monetary policy, using new quantitative theories with new efficient computational methods, to understand and quantify links between monetary policy the dynamics of aggregate outcomes (such as inflation or employment), and the distribution of individual wealth (such as money, capital and housing).Read moreRead less
Structural Adjustment, Income Risk, and Human Capital Specificity. This project will build a macroeconomic model to attempt to understand how an economy should manage structural adjustment to economic shocks (such as a substantial change in trade policy, significant exchange rate appreciation, or major technological change) in order to induce the reallocation of labour and other factors of production across different sectors of the economy. Two key features of the model will be human capital spe ....Structural Adjustment, Income Risk, and Human Capital Specificity. This project will build a macroeconomic model to attempt to understand how an economy should manage structural adjustment to economic shocks (such as a substantial change in trade policy, significant exchange rate appreciation, or major technological change) in order to induce the reallocation of labour and other factors of production across different sectors of the economy. Two key features of the model will be human capital specificity, that is, skills may not be easily transferrable across sectors of the economy, and incomplete markets for income risk so that the burdens of adjustment may be concentrated on displaced workers rather than being efficiently shared. Various policies for managing adjustment will be evaluated quantitatively.Read moreRead less