Empirical research over the past decade has documented several salient features of macroeconomic fluctuations. Burdens of recessions and benefits of booms are not shared equally by all households; asset prices and interest rates are subject to sudden swings, and macroeconomic uncertainty is an important driver for aggregate fluctuations. This lecture explores the implications of these patterns for the conduct of monetary and fiscal policy. Is the dual mandate of price stability and low unemployment desirable for central banks? How should Treasuries manage public debt to minimize risks to government finance and improve social well-being?

Date: Wednesday May 3, 2023
 

About the speaker

Mikhail Golosov is a Homer J. Livingston Professor of Economics at the University of Chicago. Prior to joining the University of Chicago, he was a professor at Princeton University, Yale University, and MIT, and also taught at Harvard and Northwestern universities. Golosov is currently a co-editor of the American Economic Review, and has served as an associate editor of Econometrica, Review of Economic Studies, Journal of Monetary Economics, and Journal of Public Economics. He is a Fellow of the Econometric Society, Research associate at the National Bureau of Economic Research (NBER) and a Distinguished CESifo Affiliate. Golosov was awarded the Sloan Research Fellowship as well as the National Science Foundation CAREER Grant. In his academic research, Professor Golosov studies optimal conduct of fiscal and monetary policies, design of social insurance policies, regulation of banks, environmental policies, and management of financial portfolios of public sector.

The 2020 Marleau Signature Lecture has been delivered by renowned economist and distinguished university professor Andrew W. Lo.

Financial Market Dynamics and Systemic Risk in a Post-COVID World

Can the actions of central banks limit the economic impact of COVID-19? Are financial markets predicting a global recession? Volatility spikes continue to plague financial markets during this pandemic, and things may get worse before they get better—but they WILL get better. Until then, it is going to be a very challenging set of market conditions for investors and regulators over the next few months, so we need be prepared.
In this talk, Prof. Lo will use the framework of the Adaptive Markets Hypothesis to address the changing global economy since the outbreak of the coronavirus, its impact on global financial markets, and what stakeholders need to watch for in the coming months and years.

Date: Thursday, December 10, 2020
Time: 1 p.m. – 2:30 p.m. EST (6 p.m. – 7:30 p.m. UTC)
Location: online in Zoom
Registration: Attendance is free. Register to obtain a Zoom link.

• Read the Q&A with Prof. Lo in the Gazette
• Watch his interview on the FSS' YouTube Channel

About the Speaker

Andrew W. Lo is the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management, the director of MIT’s Laboratory for Financial Engineering, a principal investigator at MIT’s Computer Science and Artificial Intelligence Lab, and an external professor at the Santa Fe Institute.

Prof. Lo’s current research focuses on systemic risk in the financial system; evolutionary approaches to investor behavior, bounded rationality, and financial regulation; and applying financial engineering to develop new funding models for biomedical innovation. He has published extensively in finance and economics journals (see http://alo.mit.edu), and has authored several books, including Adaptive Markets: Financial Evolution at the Speed of Thought, The Econometrics of Financial Markets, A Non-Random Walk Down Wall Street, Hedge Funds: An Analytic Perspective, and The Evolution of Technical Analysis. Prof. Lo’s has received multiple prestigious awards, including Batterymarch, Guggenheim, and Sloan Fellowships; the Paul A. Samuelson Award; the Eugene Fama Prize; the IAFE-SunGard Financial Engineer of the Year; the Global Association of Risk Professionals Risk Manager of the Year; one of TIME’s “100 most influential people in the world”; and awards for teaching excellence from both Wharton and MIT. He received a B.A. in economics from Yale University and an M.A. and Ph.D. in economics from Harvard University.

In his presentation, Professor Blanchard will discuss why low interest rates make monetary policy less powerful and fiscal policy more powerful as well as assess possible implications of ways the two interact.

*This session includes a networking lunch.

About the Speaker

Olivier Blanchard, C. Fred Bergsten Senior Fellow at Peterson Institute for International Economics, Robert M. Solow Professor of Economics emeritus at MIT and former chief economist at the International Monetary Fund

Olivier Blanchard is an outstanding scholar whose research has shaped economic thinking of academics and policymakers around the world. He has worked on some of the most challenging macroeconomics issues, such as the costs of public debt, the role of monetary policy, the nature of speculative bubbles, determinants of unemployment, macroeconomic implications of inequality and the origin of the global financial crisis. He is the author of numerous articles and books published in French and English, including undergraduate and graduate textbooks on macroeconomics. His professional career includes various affiliations such as fellow and past council member of the Econometric Society, member of the American Academy of Arts and Sciences, research associate at the National Bureau of Economic Research and member of the Brookings Panel on Economic Activity, as well as affiliations with other prestigious advisory institutions and international organizations.

The RePEc ranking of economists includes Professor Blanchard in the top 1% of economists in the world.

Fiscal policy experts from the private sector and Canadian and U.S. academic institutions will share their perspectives on one of society’s most contentious questions.

Moderator:

• Hafedh Bouakez, Full Professor, Department of Applied Economics, HEC Montréal, and former researcher, Bank of Canada

Panellists:

• Serge Coulombe, Emeritus Professor, Department of Economics, University of Ottawa and former senior research advisor to the chief economist at Industry Canada
• Trevin Stratton, Chief Economist, Chamber of Commerce and award-winning business economist, specializing in global and technological change
• Sarah Zubairy, Associate Professor, Department of Economics, Texas A&M University and former senior analyst, Canadian economic analysis department, Bank of Canada

This academic session will examine recent empirical evidence on how the effectiveness of monetary and fiscal policies depends on the nature of the economic cycle, propose possible theoretical explanations for policy state dependence and explore the implications of uninsurable idiosyncratic risks for evaluating the effects of monetary and fiscal policies.

Session chair:

• Lilia Karnizova, Associate Professor, Department of Economics, University of Ottawa

Presentations:

• “State Dependence of Monetary Policy across Business, Credit and Interest Rate Cycles (PDF, 1,200 KB) ”
  
  Sarah Zubairy, Associate Professor, Department of Economics, Texas A&M University and former senior analyst, Canadian economic analysis department, Bank of Canada
  
  Abstract:  We investigate how the business, credit and interest rate cycles affect the monetary transmission mechanism, using state-dependent local projection methods and data from 18 advanced economies. We exploit the time-series variation within countries, as well as cross-sectional variation across countries, to investigate this issue. We find that the impact of monetary policy shocks on output and most other macroeconomic and financial variables is smaller during periods of economic downturns, high household debt, and high interest rates. We then build a small-scale theoretical model to rationalize these facts. The model highlights the presence of collateral and debt-service constraints on household borrowing and refinancing as a potential cause for state dependence in monetary policy with respect to the business, credit, and interest rate cycles.
• “Taking off into the Wind: Unemployment Risk and State-Dependent Government Spending Multipliers (PDF, 727.9 KB)”
  
  Hafedh Bouakez, Full Professor, Department of Applied Economics, HEC Montréal and former principal researcher, Bank of Canada
  
  Abstract: We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labour market and reduces unemployment. This, in turn, lowers unemployment risk and, thus, precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in the total population increases in response to the spending shock. These features, along with the matching frictions in the labour market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk by more in the former case than in the latter, giving rise to countercyclical multipliers.
• “Monetary and Fiscal Policies in a Heterogeneous-Agent Economy”
  
  Amy Hongfei Sun, Associate Professor, RBC Fellow, Department of Economics, Queen's University
  
  Abstract: We study the effects of long‐run inflation and income taxation in an economy where households face uninsurable idiosyncratic risks. We construct a tractable competitive‐search framework that generates dispersion of prices, income and wealth. We analytically characterize the stationary equilibrium and the policy effects on individual choices. Quantitative analysis finds that monetary and fiscal policies have distinct effects on macro aggregates, such as output, savings and wealth, income and consumption inequalities. There is a hump‐shaped relationship between welfare and the respective policies. Overall, welfare is maximized by a deviation from the Friedman rule, paired with distortionary income taxation.