Dr. Maryam Mirfatah

We develop a small open economy model interacting with a rest-of-the-world bloc, containing several emerging economies' features: Calvo-type nominal frictions in prices and wages, financial frictions in the form of limited asset markets participation (LAMP), as well as both formal and informal sectors. In addition, we introduce incomplete exchange rate pass-through via a combination of producer and local currency pricing for exports, as well commodity-dependence in the form of an oil export sector. We contrast the stability and determinacy properties of money growth and standard Taylor-type interest rate rules, showing that monetary rules are stable regardless of the level of asset market participation, i.e. they avoid the inversion of the Taylor principle. We estimate our 2-bloc model using data for Iran and the USA employing Bayesian methods and we study the empirical relevance of the frictions in our model. Our results reveal important propagation channels active in emerging economies and that taking these into account is essential for policymaking decisions. Indeed, shocks to the economy are amplified by the presence of LAMP, while the informal sector acts as buffer to several shocks, lowering the variability of aggregate and formal fluctuations.

We construct a small open economy (SOE) DSGE model interacting with the rest of the world (ROW). We depart from the standard SOE model along the following dimensions: Firstly, we nest two different pricing paradigms: dominant currency pricing (DCP) alongside producer currency pricing (PCP). Second, the production function uses not just labour but also capital and intermediate inputs produced domestically and abroad. Finally international asset markets are incomplete. Using US and Canadian data we explore the empirical evidence for PCP vs DCP pricing paradigms through a Bayesian estimation likelihood race and a comparison with the second moments of the data. We then examine the implications of these two paradigms for the conduct of monetary policy using optimized Taylor-type inertial interest rate rules with a zero lower bound constraint. The main results are first, in a likelihood race DCP easily beats PCP and gives a better fit with second moments of the data. Second, whereas for the closed economy ROW the price-level rule closely mimics the optimized general infation-output rule, for the SOE the corresponding result requires a nominal income rule.

 I study the monetary Policy Implications of Dominant, vs Local vs Producer Currency Pricing in a 3-country model.

we set up a composition of BGG-GK banking sector based with liquidity injections to the banking sector. We compare welfare benefits of an optimized liquidity rule alongside an optimized interest rates rule by computing an optimized liquidity rule alongside an optimized interest rate rule with a ZLB constraint on the interest rate.

We are closely examining the claim in the Gopinath papers that choosing a form of preferences that lead to kinked demand curves (“Kimball Preferences”) is an important source of incomplete exchange rate pass-through. But this must happen without generating a counterfactual “super-elasticity” as is the case for the closed economy. There has been a renewed interest in Kimball preferences for both the closed economy (e.g., Klenow and Willis (2016) and Linde and Trabandt (2018a)) and the open economy ( e.g., Gopinath and Itskhoki (2010a), Gopinath and Itskhoki (2011)), The focus of this paper is to try to show how this real rigidity improves data in terms of marginal likelihood races and matching data on the frequency of price and wage contract revisions, price and wage super-elasticities, Philips' Curve slopes and second moments. An important technical contribution is the recursive set-up for Kimball preferences suitable for higher order solutions and computation of welfare-optimal rules.

We are extending the two-country model to an m-country framework that will allow us to extend the PCP vs DCP to local currency pricing.

We are using our m-country framework to study welfare-optimal exchange rate intervention rules alongside those for monetary policy.

We are studying financial frictions and macro-prudential policy rules in an open-economy setting.