Universität zu Köln

Radke-Arden, Lucas ORCID: 0000-0002-7289-9145 (2023). Essays in Monetary Economics. PhD thesis, Universität zu Köln.

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Abstract

This thesis contains three chapters that cover topics in the field of monetary economics. The first chapter, which is joint work with Florian Wicknig, analyses how the monetary policy stabilisation of inflation and the output gap is affected when agents solely rely on lifetime observations to form expectations. Expectations in our model differ across age groups and are more volatile for young to medium aged individuals. We show that the high variability in expectations of these cohorts impairs the monetary policy transmission on inflation. In consequence, to reduce inflation fluctuations in face of supply shocks, monetary policy needs to accept a more pronounced increase in the output gap fluctuations. Further, since expectations are heterogeneous across cohorts, variations in the age distribution affect aggregate expectations through a composition effect. As the economy ages, aggregate expectations are based on a comparatively broader set of observations which strengthens the monetary policy transmission on inflation. The second chapter analyses the role of fiscal policy for macroeconomic stabilisation when monetary policy is occasionally constrained by the zero lower bound (ZLB) on the short-term nominal interest rate. Even if the ZLB is currently not binding, the anticipation of ZLB episodes in the future causes inflation to fall below the central bank's target value, which is referred to as deflationary bias. Chapter 2 analyses the effect of cyclical government spending on the deflationary bias. I show that a strong counter-cyclical fiscal policy effectively reduces the deflationary bias, improves welfare. Moreover, counter-cyclical fiscal policy substantially mitigates the increase in the deflationary bias that is caused by heightened ZLB risk or a lower degree of price rigidities. Finally, I demonstrate that counter-cyclical fiscal policy is an imperfect substitute for an aggressive monetary policy response to inflation in stabilising inflation and in terms of welfare. The third chapter, which is joint work with Francesco Giovanardi, Matthias Kaldorf and Florian Wicknig, evaluates the preferential treatment of green bonds in central bank's framework as a monetary policy instrument to mitigate the adverse effects of climate change on the economy. We show that the preferential treatment of green bonds is beneficial from an environmental perspective but has adverse side effects on firms' risk taking behaviour which impairs monetary policy's transmission on green investment. Further, we demonstrate that the tilting of central bank's collateral framework toward green bonds is an imperfect substitute for a Pigouvian carbon tax. The tax is more effective in reducing emissions and creates sizeable welfare gains that are substantially larger than those achieved by the optimal preferential treatment of green bonds. Finally, we show that central banks' should treat green bonds preferentially if and only if the carbon tax is below its optimal level.

Item Type:	Thesis (PhD thesis)
Translated title:	Title Language Essays in Monetärer Ökonomik German
Creators:	Creators Email ORCID ORCID Put Code Radke-Arden, Lucas lradke6@gmx.de orcid.org/0000-0002-7289-9145 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-714968
Date:	2023
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Weitere Institute, Arbeits- und Forschungsgruppen > Center for Macroeconomic Research (CMR)
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language Macroeconomics UNSPECIFIED Monetary Policy UNSPECIFIED Expectation Formation UNSPECIFIED Fiscal Policy UNSPECIFIED Environmental Economics UNSPECIFIED
Date of oral exam:	26 October 2023
Referee:	Name Academic Title Pfeifer, Johannes Univ.-Prof. Dr. Krause, Michael Univ.-Prof. Ph.D.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/71496