Essays in Macroeconomics
My doctoral research focuses, first, on the effect of central bank transparency on people's expectation formation and, second, on the relationship between financial frictions and the macroeconomy. In Chapter 1, I study how the central bank transparency affects disagreement in inflation expectations. In Chapter 2, I investigate the optimal degree of transparency about inflation target for a central bank. In Chapter 3, I examine the impact of financial factors on the growth of total factor productivity. Chapter 1: In this analysis I measures the transparency of the Federal Reserve Board (FRB) regarding its target inflation rate before its adoption of inflation targeting using data on the disagreement in inflation expectations among U.S. consumers. We construct a model of inflation forecasters employing the frameworks of both an unobserved components model and a noisy information model. We estimate the model and extract the transparency of the FRB regarding the target as the standard deviation of the heterogeneous noise in the inflation trend signal, where the trend proxies the FRB's inflation target. The results show a great improvement in transparency after the mid-1990s as well as its significant contribution to the decline in the disagreement in long-horizon inflation expectations. Chapter 2: We examined the optimal degree of transparency for a central bank about its inflation target. We construct a new Keynesian model with dispersed information in which policy rate signals information about underlying shocks. We have shown that a transparent inflation target is not always optimal in the presence of the signaling effects of the policy rate. In addition, it is shown that the optimal degree of transparency depends on the relative size and the persistence of the underlying shocks. Chapter 3: After the global financial crisis, slowdowns of total factor productivity (TFP), often measured as the Solow residual, have been observed across major countries. This study offers an explanation for this by focusing on Japan’s financial crises during the 1990s. We first incorporate credit constraints, for financial intermediaries (FIs) and firms, and input–output structure into the standard New Keynesian model, and show that the model delivers multiple channels through which damaged balance sheets reduce measured TFP. We then estimate the model using Japanese data, and show that adverse shocks to FIs’ balance sheets played a substantial role in lowering measured TFP.