UC San Diego

Chapter 1 contributes to the recent debate about the importance of temporary price changes for monetary policy transmission. Although sales occur very frequently, macroeconomists often filter them out because sales are not responsive to economic shocks. Using micro data underlying CPI, I demonstrate that after sales, the price index of durables goes down gradually, and that the aggregation of sales of durable goods have a significant impact on the aggregate inflation. However, sales of nondurables -- the focus of previous studies -- do not show these results. To study the impact of sales, I then propose a two-sector menu-cost model with the feature of sales. The model is able to match the pattern of sales and moments in the micro data. By contrast, failing to account for temporary sales in a menu-cost model would increase the output effect by 73%, and the Calvo model calibrated to the frequency of regular price changes triples the output effect.

Chapter 2 examines the impact of unconventional monetary policies on the stock market when the short-term nominal interest rate is stuck at the zero lower bound. Unconventional monetary policies appear to have significant effects on stock prices and the effects differ across stocks. In agreement with existing credit channel theories, I find that firms subject to financial constraints react more strongly to unconventional monetary policy shocks (especially large-scale asset purchases) than do less constrained firms. My results imply that the credit channel is as important as the interest rate channel in the transmission of unconventional monetary policies at the zero lower bound.

Chapter 3 investigates the time-varying effects of monetary policy shocks on financial markets. I show that the corporate bond market is highly responsive to monetary policy shocks throughout 2000 - 2012, implying a high pass-through of policy-induced movements in Treasury yields to private yields even during the zero lower bound period. While the long-term Treasury bond market is highly sensitive to monetary policy shocks throughout almost the entire sample, the short-term Treasury bond market is severely constrained by the zero lower bound. The stock market is less responsive from 2008 to 2010, but the responsiveness bounces back rapidly in 2011.