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On the effects of "helicopter money" - Sticky Wages and Balance Sheet Recessions

11 May 2016 at 12:00 PM - 1:30 PM

Room 104, Campus on Viale Romania, 32

Speaker: Pasquale Filiani, Grasso Adriana, LUISS
  • Speaker: Pasquale Filiani (LUISS)
  • Title: On the effects of "helicopter money"
  • Abstract: Although it has often been considered a “taboo”, today  the idea of “helicopter money” as a measure to revitalize the economy has regained large interest, perhaps because advocated by some prominent economist. It has been argued that this policy measure assumes the form of an expansionary fiscal policy overtly financed by printing money, thus requiring a strong coordination between government and central bank.  I aim at investigating the effects of this policy in a model featuring money  intended not in a generic sense,  but in the form of reserves held at central bank. This way it is possible to analyse the role of the interest rate central bank pays on reserves.

       

  •  Speaker: Adriana Grasso (LUISS)
  • Title: Sticky Wages and Balance Sheet Recessions
  • Abstract: The great recession ignited a debate about how the financial sector may amplify business cycles. In particular, it has been argued that financial sector imperfections could exacerbate recessions. In this paper, we analyze the amplification mechanism of aggregate shocks in an economy characterized by labor market rigidities. We impose minimal restrictions on the set of securities that can be provided by the financial sector. In particular, we do not rule out the existence of state contingent assets. We built a general equilibrium model with heterogeneous agents and financial intermediaries where the driving friction is in the labor market. The important feature of this friction is that it renders households’ “idiosyncratic” risk dependent on the aggregate state of the economy. We show that aggregate shocks affect households’ willingness to share risk, which in turn triggers a response from the production sector, amplifying the effect of the shock.