Today’s increasing complex economic and social challenges are reflected in the delicate balancing acts required to tackle structural issues of national scope against pressures from global factors. The sixth annual research conference jointly organized by the National Bank of Ukraine (NBU) and Narodowy Bank Polski (NBP) will focus on reviewing the effectiveness of traditional policy making strategies and tools and evaluation of possible alternatives in both monetary and fiscal areas.

The two-day event will feature keynotes, policy panels and presentations of research papers in online format. Confirmed keynote speakers are Alan Blinder (Princeton University) and Mikhail Golosov (University of Chicago).

Watch live on YouTube:
Day 1 (10 June)

Day 2 (11 June)
Program
Draft Program (subject to change)

Thursday, 10 June 2021 (GMT+3)
14:45 – 15:00
Registration
15:00 – 15:30
Opening Remarks
Kyrylo Shevchenko, National Bank of Ukraine
Marta Kightley, Narodowy Bank Polski
15:30 – 16:30
Session 1: Policy Communication
Chair:
Małgorzata Walerych, Narodowy Bank Polski

Let’s Face It: Quantifying the Impact of Nonverbal Communication in FOMC Press Conferences img
Presenter:
Sophia Kazinnik, Federal Reserve Bank of Richmond img
Discussant:
Oleksandr Talavera, University of Birmingham img

Diverse Policy Committees Can Reach Underrepresented Groups img
Presenter:
Michael Weber, University of Chicago img
Discussant:
Carola Binder, Haverford College img
16:30 – 17:40
Policy Panel: Post-Pandemic Growth in the Time of High Indebtedness
Moderator:
Volodymyr Lepushynskyi, National Bank of Ukraine

Panelists:
Koba Gvenetadze, National Bank of Georgia
Hyun Song Shin, Bank for International Settlements
Jesper Linde, International Monetary Fund
Ireneusz Dąbrowski, Narodowy Bank Polski
17:50 – 18:50
Session 2: Price Level Targeting
Chair:
Ewa Stanisławska, Narodowy Bank Polski

On Robustness of Average Inflation Targeting img
Presenter:
Nigel McClung, Bank of Finland img
Discussant:
Jacek Suda, Narodowy Bank Polski

Average Inflation Targeting and Household Expectations img
Presenter:
Olivier Coibion, University of Texas at Austin img
Discussant:
Philippe Andrade, Federal Reserve Bank of Boston img
19:00 – 20:00
Session 3: Open Economy (Transmission of Monetary Policy)
Chair:
Nina Karnaukh, Ohio State University

How Does International Capital Flow? img
Presenter:
Andrej Sokol, European Central Bank img
Discussant:
Nicolas Aragon, National Bank of Ukraine

The Global Transmission of U.S. Monetary Policy img
Presenter:
Giovanni Ricco, University of Warwick
Discussant:
Marek Jarociński, European Central Bank img
20:00 – 21:00
Keynote Lecture: Central Banking in the Time of COVID
Moderator:
Yuriy Gorodnichenko, University of California, Berkeley
Key Speaker:
Alan Blinder, Princeton University img

Friday, 11 June 2021 (GMT+3)
14:45 – 15:00
Registration
15:00 – 16:00
Session 4: New Challenges
Chair:
Solomiya Shpak, Kyiv School of Economics

The Exchange Rate Insulation Puzzle img
Presenter:
Gernot Müller, University of Tübingen img
Discussant:
Alexander Rodnyansky, University of Cambridge

Corporate Debt Maturity Matters For Monetary Policy img
Presenter:
Matthias Meier, University of Mannheim img
Discussant:
Walker Ray, London School of Economics
16:00 – 17:00
Session 5: Climate Transition and Monetary Policy
Chair:
Mihnea Constantinescu, National Bank of Ukraine

The Expectations Channel of Climate Change: Implications for Monetary Policy img
Presenter:
Raphael Schoenle, Federal Reserve Bank of Cleveland img
Discussant:
Francois Gourio, Federal Reserve Bank of Chicago img

The Rising Cost of Climate Change: Evidence from the Bond Market img
Presenter:
Michael Bauer, Universität Hamburg img
Discussant:
Johannes Stroebel, New York University Stern School of Business
17:10 – 18:10
Keynote Lecture: Inequality, Business Cycles, and Monetary Policy
Moderator:
Oleksiy Kryvtsov, Bank of Canada
Key Speaker:
Mikhail Golosov, University of Chicago img
18:20 – 19:20
Session 6: Fiscal Policy
Chair:
Krzysztof Makarski, Narodowy Bank Polski

Fiscal Foresight and the Effects of Government Spending: It’s All in the Monetary-Fiscal Mix img
Presenter:
Guido Ascari, University of Oxford img
Discussant:
Dmitry Matveev, Bank of Canada img

State Dependence of Fiscal Multipliers: The Source of Fluctuations Matters img
Presenter:
Francesco Zanetti, University of Oxford img
Discussant:
Thuy Lan Nguyen, Santa Clara University
19:20 – 19:35
Closing Remarks
Dmytro Sologub, National Bank of Ukraine


Abstracts
Let’s Face It: Quantifying the Impact of Nonverbal Communication in FOMC Press Conferences
Presenter: Sophia Kazinnik, Federal Reserve Bank of Richmond

We apply facial recognition analysis to FOMC press conference videos, and quantify one of the most important aspects of nonverbal communication — facial expressions. Using minute-level data, we align our nonverbal communication measure with a set of financial assets to estimate the impact of the Federal Reserve Chairs’ facial expressions on investor expectations. We find that investors adversely react to negative expressions revealed during the press conference, even when controlling for the verbal component of the press conference and additional explanatory variables. The effect is heightened in meetings that draw more attention and when forward guidance is discussed.

Diverse Policy Committees Can Reach Underrepresented Groups
Presenter: Michael Weber, University of Chicago

Increasing the diversity of policy committees has taken centre stage worldwide. While the equital and ethical reasons are beyond dispute, the economic motivations and effects of more diverse policy committees are still elusive. In this paper, we design a randomized control trial to test whether diversity of policy committees increases consumers’ trust in such committees and the committees ability to manage consumers’ beliefs and hence choices. To this aim, we vary randomly consumers’ awareness of minority representation in the Federal Open Market Committee (FOMC), the main monetary policy body in the US. White women and African American men trust the FOMC more and update their unemployment expectations more in line with FOMC forecasts after being made aware of the presence of underrepresented demographic groups in the FOMC. Only African American women—who are not represented in the FOMC—do not react to making them aware of the representation of (other) minorities on the FOMC. Overrepresented groups, such as White men, do not react negatively to awareness of minority representation and reactions do not vary across political affiliations. Our findings suggest that more diverse policy committee might increase policy effectiveness by managing the expectations and trust of underrepresented consumers more effectively while at the same time maintaining their ability to manage overrepresented groups’ expectations.

On Robustness of Average Inflation Targeting
Presenter: Nigel McClung, Bank of Finland

This paper considers the performance of average inflation targeting (AIT) policy in a New Keynesian model with adaptive learning agents. Our analysis raises concerns regarding robustness of AIT when agents have imperfect knowledge. In particular, the target steady state can be locally unstable under learning if details about the policy are not publicly available. Near the low steady state with interest rates at the zero lower bound, AIT does not necessarily outperform a standard inflation targeting policy. Policymakers can improve outcomes under AIT by (i) targeting a discounted average of inflation, or (ii) communicating the data window for the target.

Average Inflation Targeting and Household Expectations
Presenter: Olivier Coibion, University of Texas at Austin

Using a daily survey of U.S. households, we study how the Federal Reserve’s announcement of its new strategy of average inflation targeting affected households’ expectations. Starting with the day of the announcement, there is a very small uptick in the minority of households reporting that they had heard news about monetary policy relative to prior to the announcement, but this effect fades within a few days. Those hearing news about the announcement do not seem to have understood the announcement: they are no more likely to correctly identify the Fed’s new strategy than others, nor are their expectations different. When we provide randomly selected households with pertinent information about average inflation targeting, their expectations still do not change in a different way than when households are provided with information about traditional inflation targeting.

How Does International Capital Flow?
Presenter: Andrej Sokol, European Central Bank

Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a two-country DSGE model that tracks domestic and cross-border gross positions between banks and households, with explicit settlement of all transactions through banks. We formalise the conceptual distinction between cross-border saving and financing, which often move in opposite directions in response to shocks. This matters for at least four policy debates. First, current accounts are poor indicators of financial vulnerability, because in a crisis, creditors stop financing debt rather than current accounts, and because following a crisis, current accounts are not the primary channel through which balance sheets adjust. Second, we reinterpret the global saving glut hypothesis by arguing that US households do not finance current account deficits with foreigners’ physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. Third, Triffin’s current account dilemma is not in fact a dilemma, because the creation of additional US dollars requires dollar credit creation by US and non-US banks rather than US current account deficits. Finally, we demonstrate that the observed high correlation of gross capital inflows and outflows is overwhelmingly an automatic consequence of double entry bookkeeping, rather than the result of two separate sets of economic decisions.

The Global Transmission of U.S. Monetary Policy
Presenter: Giovanni Ricco, University of Warwick

We quantify global US monetary policy spillovers by employing a high-frequency identification and big data techniques, in conjunction with a large harmonised data-set covering 30 economies. We report three novel stylised facts. First, a US monetary policy tightening has large contractionary effects onto both advanced and emerging economies. Second, flexible exchange rates cannot fully insulate domestic economies, due to movements in risk premia that limit central banks’ ability to control the yield curve. Third, financial channels dominate over demand and exchange rate channels in the transmission to real variables, while the transmission via oil and commodity prices determines nominal spillovers.

The Exchange Rate Insulation Puzzle
Presenter: Gernot Müller, University of Tübingen

The notion that flexible exchange rates insulate a country from foreign shocks is well grounded in theory, from the classics (Meade, 1951; Friedman 1953), to the more recent open economy literature (Obstfeld and Rogoff, 2000). We confront it with new evidence from Europe. Specifically, we study how shocks that originate in the euro area spill over to its neighboring countries. We exploit the variation of the exchange rate regime across time and countries to assess whether the regime alters the spillovers: it does not—flexible exchange rates fail to provide insulation against euro area shocks. This result is robust across a number of specifications and holds up once we control for global financial conditions. We show that the workhorse open-economy model can account for the lack of insulation under a float, assuming that central banks respond to headline consumer price inflation. However, it remains puzzling that policy makers are ready to forego stabilization of economic activity to the extent we found in the data.

Corporate Debt Maturity Matters For Monetary Policy
Presenter: Matthias Meier, University of Mannheim

We provide novel empirical evidence that firms’ investment is more responsive to surprise changes in monetary policy when a higher fraction of their debt is due. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt roll over more debt and are therefore more exposed to fluctuations in the real interest rate (roll-over risk). (2.) These firms have higher default risk and therefore react more strongly to fluctuations in the real burden of outstanding nominal debt (debt overhang). The aggregate effectiveness of monetary policy therefore depends on the joint distribution of debt maturity and default risk across firms.

The Expectations Channel of Climate Change: Implications for Monetary Policy
Presenter: Raphael Schoenle, Federal Reserve Bank of Cleveland

Using a representative consumer survey in the U.S., we elicit beliefs about the economic impact of climate change. Respondents perceive a high probability of costly, rare disasters in the near future due to climate change, but not much of an impact on GDP growth. Salience of rare disasters through media coverage increases the disaster probability by up to 7 percentage points. We analyze these findings through the lens of a New Keynesian model with rare disasters. First, we illustrate how expectations of rare disasters impact economic activity. Second, we calibrate the model to capture the key aspects of the survey and quantify the expectation channel of climate change: disaster expectations lower the natural rate of interest by about 65 basis points and, assuming a conventional Taylor rule for monetary policy, inflation and the output gap by 0.3 and 0.2 percentage points, respectively. The effect is considerably stronger if monetary policy is constrained by the effective lower bound.

The Rising Cost of Climate Change: Evidence from the Bond Market
Presenter: Michael Bauer, Universität Hamburg

The level of the social discount rate (SDR) is a crucial factor for evaluating the costs of climate change. We demonstrate that the equilibrium or steady-state real interest rate is the fundamental anchor for market-based SDRs. Much recent research has pointed to a decrease in the equilibrium real interest rate since the 1990s. Using new estimates of this decline, we document a pronounced downward shift in the entire term structure of SDRs in recent decades. This lower new normal for interest rates and SDRs has substantially boosted the estimated economic loss from climate change and the social cost of carbon.

Fiscal Foresight and the Effects of Government Spending: It’s All in the Monetary-Fiscal Mix
Presenter: Guido Ascari, University of Oxford

The effects of an announcement of future government spending changes on economic activity vary according to the monetary-fiscal regime in place. While once implemented, an increase in public expenditures is always expansionary, its announcement has opposite effects in the monetary regime, where it is contractionary, and in the fiscal regime, where it is expansionary. Anticipation effects can help to empirically distinguish between the two regimes. The data support this robust theoretical implication, reconciling conflicting results in the empirical literature, that disappear conditioning the estimates on the existing monetary-fiscal policy mix. Furthermore, these results suggest that it could be (un)wise to anticipate future fiscal policies, depending on the regime in place.

State Dependence of Fiscal Multipliers: The Source of Fluctuations Matters
Presenter: Francesco Zanetti, University of Oxford

We develop a general theory of state-dependent fiscal multipliers in a framework featuring interaction between two empirically relevant goods market frictions: idle productive capacity and unsatisfied demand. Our key novel finding is that the source of economic fluctuations determines the cyclicality of fiscal multipliers. Policies that stimulate aggregate demand, such as government spending and consumption tax cuts, have multipliers that are large in demand-driven recessions, but small and possibly negative in supply-driven downturns. On the other hand, policies that boost aggregate supply, such as cuts in taxes on labor income and firms’ payroll and sales, are ineffective in demand-driven recessions, but powerful if the downturn is driven by supply factors. Spending austerity, implemented by a reduction in government consumption, can be the policy with the largest multiplier in severe supply-side recessions and demand-driven booms, provided elasticities of labor demand and supply are sufficiently low. We obtain model-free empirical support for our theoretical predictions by using a novel econometric specification that allows us to estimate spending and tax cut multipliers in recessionary and expansionary episodes, conditional on those being either demand- or supply-driven.

Speakers
Philippe Andrade
Federal Reserve Bank of Boston
Nicolas Aragon
National Bank of Ukraine
Guido Ascari
University of Oxford
Michael Bauer
Universität Hamburg
Carola Binder
Haverford College
Alan Blinder
Princeton University
Olivier Coibion
University of Texas at Austin
Mihnea Constantinescu
National Bank of Ukraine
Ireneusz Dąbrowski
Narodowy Bank Polski
Mikhail Golosov
University of Chicago
Yuriy Gorodnichenko
University of California, Berkeley
Francois Gourio
Federal Reserve Bank of Chicago
Koba Gvenetadze
National Bank of Georgia
Marek Jarociński
European Central Bank
Nina Karnaukh
Ohio State University
Sophia Kazinnik
Federal Reserve Bank of Richmond
Marta Kightley
Narodowy Bank Polski
Oleksiy Kryvtsov
Bank of Canada
Thuy Lan Nguyen
Santa Clara University
Volodymyr Lepushynskyi
National Bank of Ukraine
Jesper Linde
International Monetary Fund
Krzysztof Makarski
Narodowy Bank Polski
Dmitry Matveev
Bank of Canada
Nigel McClung
Bank of Finland
Matthias Meier
University of Mannheim
Gernot Müller
University of Tübingen
Walker Ray
London School of Economics
Giovanni Ricco
University of Warwick
Alexander Rodnyansky
University of Cambridge
Raphael Schoenle
Federal Reserve Bank of Cleveland
Kyrylo Shevchenko
National Bank of Ukraine
Solomiya Shpak
Kyiv School of Economics
Andrej Sokol
European Central Bank
Dmytro Sologub
National Bank of Ukraine
Hyun Song Shin
Bank for International Settlements
Ewa Stanisławska
Narodowy Bank Polski
Johannes Stroebel
New York University Stern School of Business
Jacek Suda
Narodowy Bank Polski
Oleksandr Talavera
University of Birmingham
Małgorzata Walerych
Narodowy Bank Polski
Michael Weber
University of Chicago
Francesco Zanetti
University of Oxford
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