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Monetary and Macroprudential Policies in an Intangible Economy

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 53, Issue 3
  5. pp. 325–353

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Baldi, G., Bodmer, A. Monetary and Macroprudential Policies in an Intangible Economy. Credit and Capital Markets – Kredit und Kapital, 53(3), 325-353. https://doi.org/10.3790/ccm.53.3.325
Baldi, Guido and Bodmer, André "Monetary and Macroprudential Policies in an Intangible Economy" Credit and Capital Markets – Kredit und Kapital 53.3, 2020, 325-353. https://doi.org/10.3790/ccm.53.3.325
Baldi, Guido/Bodmer, André (2020): Monetary and Macroprudential Policies in an Intangible Economy, in: Credit and Capital Markets – Kredit und Kapital, vol. 53, iss. 3, 325-353, [online] https://doi.org/10.3790/ccm.53.3.325
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Monetary and Macroprudential Policies in an Intangible Economy

Baldi, Guido | Bodmer, André

Credit and Capital Markets – Kredit und Kapital, Vol. 53 (2020), Iss. 3 : pp. 325–353

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.53.3.325
Language
English
Pages
29
Keywords

Author Details

Guido Baldi, University of Bern, Department of Economics, Schanzeneckstr. 1, CH-3012 Bern, Switzerland; German Institute for Economic Research (DIW Berlin), D-10108 Berlin, Germany

André Bodmer, University of Bern, Department of Economics, Schanzeneckstr. 1, CH-3012 Bern, Switzerland

References

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  2. Becker, B. (2013): The Determinants of R&D Investment: A Survey of the Empirical Research. Discussion Paper Series 2013:09, Department of Economics, Loughborough University.  Google Scholar
  3. Bekiros, S./Nilavongse, R./Uddin, G. S. (2018): Bank Capital Shocks and Countercyclical Requirements: Implications for Banking Stability and Welfare. Journal of Economic Dynamics and Control, Vol. 93(C), 315–331.  Google Scholar
  4. Bernanke, B. S. (2011): Implementing a Macroprudential Approach to Supervision and Regulation. Speech by B. S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, at the 47th Annual Conference on Bank Structure and Competition, Chicago, Illinois, 5 May 2011.  Google Scholar
  5. Borio, C. (2011): Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward. Annual Review of Financial Economics, Vol. 3(1), 87–117.  Google Scholar
  6. Brei, M./Gambacorta, L. (2014): The Leverage Ratio over the Cycle. BIS Working Papers 471, Bank for International Settlements.  Google Scholar
  7. Calvo, G. A. (1983): Staggered Prices in a Utility-maximizing Framework. Journal of Monetary Economics, Vol. 12(3), 383–398.  Google Scholar
  8. Cecchetti, S. G./Kohler, M. (2012): When Capital Adequacy and Interest Rate Policy are Substitutes (and When They are not). BIS Working Papers 379, Bank for International Settlements.  Google Scholar
  9. Cerutti, E./Claessens, S./Laeven, L. (2017): The Use and Effectiveness of Macroprudential Policies: New Evidence. Journal of Financial Stability, Vol. 28(C), 203–224.  Google Scholar
  10. Claessens, S. (2015): An Overview of Macroprudential Policy Tools. Annual Review of Financial Economics, Vol. 7(1), 397–422.  Google Scholar
  11. Corrado, C./Haskel, J./Jona-Lasinio, C./Iommi, M. (2016): Intangible Investment in the EU and US before and since the Great Recession and its Contribution to Productivity Growth, EIB Working Papers 2016/08, European Investment Bank (EIB).  Google Scholar
  12. Corrado, C./Hulten, C./Iommi, M./Jona-Lasinio, C. (2013): Innovation and Intangible Investment in Europe, Japan and the United States. Oxford Review of Economic Policy, Vol. 29(2), 261–286.  Google Scholar
  13. Corrado, C./Hulten, C./Sichel, D. (2009): Intangible Capital and U.S. Economic Growth. Review of Income and Wealth, Vol. 55(3), 661–685.  Google Scholar
  14. Drehmann, M./Borio, C./Gambacorta, L./Jiminez, G./Trucharte, C. (2010): Countercyclical Capital Buffers: Exploring Options. BIS Working Papers 317, Bank for International Settlements.  Google Scholar
  15. Galati, G./Moessner, R. (2013): Macroprudential Policy – A Literature Review. Journal of Economic Surveys, Vol. 27(5), 846–878.  Google Scholar
  16. Galati, G./Moessner, R. (2018): What Do We Know About the Effects of Macroprudential Policy?. Economica, Vol. 85(340), 735–770.  Google Scholar
  17. Gambacorta, L./Signoretti, F. M. (2014): Should Monetary Policy Lean against the Wind?. Journal of Economic Dynamics and Control, Vol. 43(C), 146–174.  Google Scholar
  18. Gerali, A./Neri, S./Sessa, L./Signoretti, F. M. (2010): Credit and Banking in a DSGE Model of the Euro Area. Journal of Money, Credit and Banking, Vol. 42(1), 107–141.  Google Scholar
  19. Hall, B. H./Lerner, J. (2010): The Financing of R&D and Innovation. Chapter 14 of Handbook of the Economics of Innovation, Elsevier, Vol. 1, 609–639.  Google Scholar
  20. Haskel, J./Westlake, S. (2017): Capitalism without Capital: The Rise of the Intangible Economy. Princeton University Press.  Google Scholar
  21. Lambertini, L./Mendicino, C./Punzi, M. T. (2013): Leaning against Boom–bust Cycles in Credit and Housing Prices. Journal of Economic Dynamics and Control, Vol. 37(8), 1500–1522.  Google Scholar
  22. Lopez, J. I./Olivella, V. (2018): The Importance of Intangible Capital for the Transmission of Financial Shocks. Review of Economic Dynamics, Vol. 30, 223–238.  Google Scholar
  23. McGrattan, E. R./Prescott, E. C. (2010): Unmeasured Investment and the Puzzling US Boom in the 1990s. American Economic Journal: Macroeconomics, Vol. 2(4), 88–124.  Google Scholar
  24. McGrattan, E. R./Prescott, E. C. (2012): The Labor Productivity Puzzle. Working Papers 694, Federal Reserve Bank of Minneapolis.  Google Scholar
  25. McGrattan, E. R./Prescott, E. C. (2014): A Reassessment of Real Business Cycle Theory. American Economic Review, Vol. 104(5), 177–82.  Google Scholar
  26. Meh, C. A./Moran, K. (2010): The Role of Bank Capital in the Propagation of Shocks. Journal of Economic Dynamics and Control, Vol. 34(3), 555–576.  Google Scholar
  27. Perez-Orive, A. (2016): Credit Constraints, Firms Precautionary Investment, and the Business Cycle. Journal of Monetary Economics, Vol. 78(C), 112–131.  Google Scholar
  28. Rubio, M. (2011): Fixed- and Variable-Rate Mortgages, Business Cycles, and Monetary Policy. Journal of Money, Credit and Banking, Vol. 43(4), 657–688.  Google Scholar
  29. Svensson, L. (2018): Monetary Policy and Macroprudential Policy: Different and Separate?. Canadian Journal of Economics, Vol. 51(3), 802–827.  Google Scholar
  30. Admati, A. R./DeMarzo, P./Hellwig, M./Pfleiderer, P. (2010): Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive, Research Papers 2065, Stanford University, Graduate School of Business.  Google Scholar
  31. Becker, B. (2013): The Determinants of R&D Investment: A Survey of the Empirical Research. Discussion Paper Series 2013:09, Department of Economics, Loughborough University.  Google Scholar
  32. Bekiros, S./Nilavongse, R./Uddin, G. S. (2018): Bank Capital Shocks and Countercyclical Requirements: Implications for Banking Stability and Welfare. Journal of Economic Dynamics and Control, Vol. 93(C), 315–331.  Google Scholar
  33. Bernanke, B. S. (2011): Implementing a Macroprudential Approach to Supervision and Regulation. Speech by B. S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, at the 47th Annual Conference on Bank Structure and Competition, Chicago, Illinois, 5 May 2011.  Google Scholar
  34. Borio, C. (2011): Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward. Annual Review of Financial Economics, Vol. 3(1), 87–117.  Google Scholar
  35. Brei, M./Gambacorta, L. (2014): The Leverage Ratio over the Cycle. BIS Working Papers 471, Bank for International Settlements.  Google Scholar
  36. Calvo, G. A. (1983): Staggered Prices in a Utility-maximizing Framework. Journal of Monetary Economics, Vol. 12(3), 383–398.  Google Scholar
  37. Cecchetti, S. G./Kohler, M. (2012): When Capital Adequacy and Interest Rate Policy are Substitutes (and When They are not). BIS Working Papers 379, Bank for International Settlements.  Google Scholar
  38. Cerutti, E./Claessens, S./Laeven, L. (2017): The Use and Effectiveness of Macroprudential Policies: New Evidence. Journal of Financial Stability, Vol. 28(C), 203–224.  Google Scholar
  39. Claessens, S. (2015): An Overview of Macroprudential Policy Tools. Annual Review of Financial Economics, Vol. 7(1), 397–422.  Google Scholar
  40. Corrado, C./Haskel, J./Jona-Lasinio, C./Iommi, M. (2016): Intangible Investment in the EU and US before and since the Great Recession and its Contribution to Productivity Growth, EIB Working Papers 2016/08, European Investment Bank (EIB).  Google Scholar
  41. Corrado, C./Hulten, C./Iommi, M./Jona-Lasinio, C. (2013): Innovation and Intangible Investment in Europe, Japan and the United States. Oxford Review of Economic Policy, Vol. 29(2), 261–286.  Google Scholar
  42. Corrado, C./Hulten, C./Sichel, D. (2009): Intangible Capital and U.S. Economic Growth. Review of Income and Wealth, Vol. 55(3), 661–685.  Google Scholar
  43. Drehmann, M./Borio, C./Gambacorta, L./Jiminez, G./Trucharte, C. (2010): Countercyclical Capital Buffers: Exploring Options. BIS Working Papers 317, Bank for International Settlements.  Google Scholar
  44. Galati, G./Moessner, R. (2013): Macroprudential Policy – A Literature Review. Journal of Economic Surveys, Vol. 27(5), 846–878.  Google Scholar
  45. Galati, G./Moessner, R. (2018): What Do We Know About the Effects of Macroprudential Policy?. Economica, Vol. 85(340), 735–770.  Google Scholar
  46. Gambacorta, L./Signoretti, F. M. (2014): Should Monetary Policy Lean against the Wind?. Journal of Economic Dynamics and Control, Vol. 43(C), 146–174.  Google Scholar
  47. Gerali, A./Neri, S./Sessa, L./Signoretti, F. M. (2010): Credit and Banking in a DSGE Model of the Euro Area. Journal of Money, Credit and Banking, Vol. 42(1), 107–141.  Google Scholar
  48. Hall, B. H./Lerner, J. (2010): The Financing of R&D and Innovation. Chapter 14 of Handbook of the Economics of Innovation, Elsevier, Vol. 1, 609–639.  Google Scholar
  49. Haskel, J./Westlake, S. (2017): Capitalism without Capital: The Rise of the Intangible Economy. Princeton University Press.  Google Scholar
  50. Lambertini, L./Mendicino, C./Punzi, M. T. (2013): Leaning against Boom–bust Cycles in Credit and Housing Prices. Journal of Economic Dynamics and Control, Vol. 37(8), 1500–1522.  Google Scholar
  51. Lopez, J. I./Olivella, V. (2018): The Importance of Intangible Capital for the Transmission of Financial Shocks. Review of Economic Dynamics, Vol. 30, 223–238.  Google Scholar
  52. McGrattan, E. R./Prescott, E. C. (2010): Unmeasured Investment and the Puzzling US Boom in the 1990s. American Economic Journal: Macroeconomics, Vol. 2(4), 88–124.  Google Scholar
  53. McGrattan, E. R./Prescott, E. C. (2012): The Labor Productivity Puzzle. Working Papers 694, Federal Reserve Bank of Minneapolis.  Google Scholar
  54. McGrattan, E. R./Prescott, E. C. (2014): A Reassessment of Real Business Cycle Theory. American Economic Review, Vol. 104(5), 177–82.  Google Scholar
  55. Meh, C. A./Moran, K. (2010): The Role of Bank Capital in the Propagation of Shocks. Journal of Economic Dynamics and Control, Vol. 34(3), 555–576.  Google Scholar
  56. Perez-Orive, A. (2016): Credit Constraints, Firms Precautionary Investment, and the Business Cycle. Journal of Monetary Economics, Vol. 78(C), 112–131.  Google Scholar
  57. Rubio, M. (2011): Fixed- and Variable-Rate Mortgages, Business Cycles, and Monetary Policy. Journal of Money, Credit and Banking, Vol. 43(4), 657–688.  Google Scholar
  58. Svensson, L. (2018): Monetary Policy and Macroprudential Policy: Different and Separate?. Canadian Journal of Economics, Vol. 51(3), 802–827.  Google Scholar

Abstract

Advanced economies are increasingly based on intangible capital. Intangible capital has at least two special characteristics compared to tangible capital. First, it can be simultaneously used to produce different goods. Second, it is less suitable as collateral for obtaining external funds than tangible capital. These features could influence monetary and macroprudential policies. Against this backdrop, we study the effects of monetary and macroprudential policies by using a dynamic stochastic general equilibrium model with intangible capital and a banking sector. In our model, sector-specific productivity shocks to tangible and intangible production have different effects on the economy, in particular on inflation and loans. In addition, the two shocks lead to different reactions of monetary and macroprudential policies. As a result, the volatility of macroeconomic variables differs across shocks and policy rules. In particular, augmented Taylor rules increase the volatility of loans after an intangible productivity shock and, from this perspective, appear to be less desirable than macroprudential rules after this type of shock. However, welfare effects of different policy rules are not qualitatively different across shocks because of similar impacts on the volatility of consumption.

Table of Contents

Section Title Page Action Price
Guido Baldi / André Bodmer: Monetary and Macroprudential Policies in an Intangible Economy 1
Abstract 1
I. Introduction 1
II. Model 4
1. Patient Households 5
2. Entrepreneurs 6
3. Firms 7
4. Banking Sector 1
5. Central Bank and Macroprudential Policy 1
III. Choice of Parameter Values 1
IV. Quantitative Findings 1
1. Impulse Response Functions 1
2. Macroeconomic Stability and Welfare 1
V. Conclusions 1
References 1

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