Pawel Zabczyk's Books

An Estimated DSGE Model for Integrated Policy Analysis

By: Kaili Chen,Marcin Kolasa,Jesper Lindé,Hou Wang,Pawel Zabczyk,Ms. Jianping Zhou

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An Estimated DSGE Model for Integrated Policy Analysis

By: Kaili Chen,Marcin Kolasa,Jesper Lindé,Hou Wang,Pawel Zabczyk,Ms. Jianping Zhou

We estimate a New Keynesian small open economy model which allows for foreign exchange (FX) market frictions and a potential role for FX interventions for a large set of emerging market economies (EMEs) and some inflation targeting (IT) advanced economy (AE) countries serving as a control group. Next, we use the estimated model to examine the empirical support for the view that interest rate policy may not be sufficient to stabilize output and inflation following capital outflow shocks, and the extent to which FX interventions (FXI) can improve policy tradeoffs. Our results reveal significant structural differences between AEs and EMEs—in particular FX market depth—leading to different transmission of capital outflow shocks which justifies occasional use of FXI in some EMEs in certain situations. Our analysis also highlights the critical importance of accounting for the endogeneity of FXI behavior when assessing FX market depth and policy tradeoffs associated with volatile capital flows in past episodes.

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International Monetary Fund

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ISBN 13

9798400245763

A Quantitative Model for the Integrated Policy Framework

By: Mr.Tobias Adrian,Christopher J. Erceg,Jesper Lindé,Pawel Zabczyk,Ms.Jianping Zhou

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A Quantitative Model for the Integrated Policy Framework

By: Mr.Tobias Adrian,Christopher J. Erceg,Jesper Lindé,Pawel Zabczyk,Ms.Jianping Zhou

Many central banks have relied on a range of policy tools, including foreign exchange intervention (FXI) and capital flow management tools (CFMs), to mitigate the effects of volatile capital flows on their economies. We develop an empirically-oriented New Keynesian model to evaluate and quantify how using multiple policy tools can potentially improve monetary policy tradeoffs. Our model embeds nonlinear balance sheet channels and includes a range of empirically-relevant frictions. We show that FXI and CFMs may improve policy tradeoffs under certain conditions, especially for economies with less well-anchored inflation expectations, substantial foreign currency mismatch, and that are more vulnerable to shocks likely to induce capital outflows and exchange rate pressures.

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International Monetary Fund

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ISBN 10

1513549669

ISBN 13

9781513549668

A Quantitative Microfounded Model for the Integrated Policy Framework

By: Mr. Tobias Adrian,Christopher J. Erceg,Marcin Kolasa,Jesper Lindé,Pawel Zabczyk

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A Quantitative Microfounded Model for the Integrated Policy Framework

By: Mr. Tobias Adrian,Christopher J. Erceg,Marcin Kolasa,Jesper Lindé,Pawel Zabczyk

We develop a microfounded New Keynesian model to analyze monetary policy and financial stability issues in open economies with financial fragilities and weakly anchored inflation expectations. We show that foreign exchange intervention (FXI) and capital flow management tools (CFMs) can improve monetary policy tradeoffs under some conditions, including by reducing the need for procyclical tightening in response to capital outflow pressures. Moreover, they can be used in a preemptive way to reduce the risk of a “sudden stop” through curbing a buildup in leverage. While these tools can materially improve welfare, mainly by dampening inefficient fluctuations in risk premia, our analysis also highlights potential limitations, including the possibility that their deployment may forestall needed adjustment in the external balance. Finally, our results also emphasize the power of FXIs to provide domestic stimulus in a liquidity trap.

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International Monetary Fund

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ISBN 10

1616356537

ISBN 13

9781616356538

A Requiem for the Fiscal Theory of the Price Level

By: Mr.Roger Farmer,Pawel Zabczyk

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A Requiem for the Fiscal Theory of the Price Level

By: Mr.Roger Farmer,Pawel Zabczyk

The Fiscal Theory of the Price Level (FTPL) is the claim that, in a popular class of theoretical models, the price level is sometimes determined by fiscal policy rather than monetary policy. The models where this claim has been established assume that all decisions are made by an infinitely-lived representative agent. We present an alternative, arguably more realistic model, populated by sixty-two generations of people. We calibrate our model to an income profile from U.S. data and we show that the FTPL breaks down. In our model, the price level and the real interest rate are indeterminate, even when monetary and fiscal policy are both active. Our findings challenge established views about what constitutes a good combination of fiscal and monetary policies.

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International Monetary Fund

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ISBN 10

1513517341

ISBN 13

9781513517346

Central Bank Exit Strategies Domestic Transmission and International Spillovers

By: Christopher J. Erceg,Marcin Kolasa,Jesper Lindé,Mr. Haroon Mumtaz,Pawel Zabczyk

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Central Bank Exit Strategies Domestic Transmission and International Spillovers

By: Christopher J. Erceg,Marcin Kolasa,Jesper Lindé,Mr. Haroon Mumtaz,Pawel Zabczyk

We study alternative approaches to the withdrawal of prolonged unconventional monetary stimulus (“exit strategies”) by central banks in large, advanced economies. We first show empirically that large-scale asset purchases affect the exchange rate and domestic and foreign term premiums more strongly than conventional short-term policy rate changes when normalizing by the effects on domestic GDP. We then build a two-country New Keynesian model that features segmented bond markets, cognitive discounting and strategic complementarities in price setting that is consistent with these findings. The model implies that quantitative easing (QE) is the only effective way to provide monetary stimulus when policy rates are persistently constrained by the effective lower bound, and that QE is likely to have larger domestic output effects than quantitative tightening (QT). We demonstrate that “exit strategies” by large advanced economies that rely heavily on QT can trigger sizeable inflation-output tradeoffs in foreign recipient economies through the exchange rate and term premium channels. We also show that these tradeoffs are likely to be stronger in emerging market economies, especially those with fixed exchange rates.

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ISBN 13

9798400270864

New Perspectives on Quantitative Easing and Central Bank Capital Policies

By: Mr. Tobias Adrian,Christopher J. Erceg,Marcin Kolasa,Jesper Lindé,Roger McLeod,Mr. Romain M Veyrune,Pawel Zabczyk

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New Perspectives on Quantitative Easing and Central Bank Capital Policies

By: Mr. Tobias Adrian,Christopher J. Erceg,Marcin Kolasa,Jesper Lindé,Roger McLeod,Mr. Romain M Veyrune,Pawel Zabczyk

Central banks have come under increasing criticism for large balance sheet losses associated with quantitative easing (QE), and some observers have also argued that QE helped fuel the post-COVID-19 inflation boom. In this paper, we reconsider the conditions under which QE may be warranted considering the recent high inflation experience. We emphasize that the merits of QE should be evaluated based on the macroeconomic stimulus it provides and its effects on the consolidated fiscal position, and not simply on central bank profits or losses. Using an open economy DSGE model with segmented asset markets, we show how QE can provide a sizeable boost to output and inflation in a deep recession and improve the consolidated fiscal position—even if the central bank experiences considerable losses. However, the commitment-based features of QE and the possibility that upside inflation risks are bigger than recognized pre-pandemic call for more caution in using QE closer to full employment. We then consider how central banks might modify their policies for allocating profits to the government in light of large-scale losses. In short, we suggest that a more forward-looking and risk-based approach may be desirable in helping protect central bank financial autonomy and ultimately independence.

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ISBN 13

9798400277061

Monetary Policy and Exchange Rate Dynamics in a Behavioral Open Economy Model

By: Marcin Kolasa,Sahil Ravgotra,Pawel Zabczyk

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Monetary Policy and Exchange Rate Dynamics in a Behavioral Open Economy Model

By: Marcin Kolasa,Sahil Ravgotra,Pawel Zabczyk

We develop an extension of the open economy New Keynesian model in which agents are boundedly rational à la Gabaix (2020). Our setup nests rational expectations (RE) as a special case and it can successfully mitigate many “puzzling” aspects of the relationship between exchange rates and interest rates. Since the model implies an uncovered interest rate parity (UIP) condition featuring behavioral expectations, our results are also consistent with recent empirical evidence showing that several UIP puzzles vanish when actual exchange rate expectations are used (instead of realizations implicitly coupled with the RE assumption). We find that cognitive discounting dampens the effects of current monetary shocks and lowers the efficacy of forward guidance (FG), but its relative importance in mitigating the so-called FG puzzle is decreasing in openness. Finally, we show that accounting for myopia exacerbates the small open economy unit-root problem, makes positive monetary spillovers more likely, and increases the persistence of net foreign assets and the real exchange rate.

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ISBN 13

9798400211935

Dynamics of Foliations, Groups and Pseudogroups

By: Pawel Walczak

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Dynamics of Foliations, Groups and Pseudogroups

By: Pawel Walczak

This book deals with the dynamics of general systems such as foliations, groups and pseudogroups, systems which are closely related via the notion of holonomy. It concentrates on notions and results related to different ways of measuring complexity of systems under consideration. More precisely, it deals with different types of growth, entropies and dimensions of limiting objects. Problems related to the topics covered are provided throughout the book.

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