Essays in Macro-Finance

Abstract

In Chapter 1 (joint with J.R. Scott), we revisit the high-frequency and narrative approaches to estimating the effects of monetary policy shocks. We find that state-of-the-art estimates using both approaches are biased: high-frequency estimates due to nonlinear predictability and narrative estimates due to regularization. To correct for the bias in these approaches, we propose a new estimation procedure called LP-DML that combines ideas from double/debiased machine learning with the local projections framework. We find that LP-DML results in significantly smaller effects of monetary policy on macroeconomic outcomes. In Chapter 2 (joint with Taisuke Nakata and Takeki Sunakawa), we study the following question: how a central bank credibly implement a ”lower-for-longer” strategy? To answer this question, we analyze a series of optimal sustainable policy problems—indexed by the duration of reputational loss—in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates. We find that, even when the central bank lacks commitment, the central bank can still credibly keep the policy rate at the ELB for an extended period though not as extended as under the optimal commitment policy—and meaningfully mitigate the adverse effects of the ELB constraint on economic activity. In Chapter 3, I examine the impact of central bank real estate purchases on financial markets, focusing on the Bank of Japan’s (BoJ) intervention in the Real Estate Investment Trust (REIT) market. Using a regression discontinuity design that exploits a discontinuity in the BoJ’s policy rule, I find that a typical intervention — amounting to about 0.014% of market capitalization — leads to an increase of 0.1% to 0.2% of REIT prices in the hours following the intervention. However, at longer horizons, the interventions do not have a significant effect on REIT prices. These findings suggest that the BoJ did not achieve the program’s intended objective of significantly reducing the risk premium on real estate assets.