Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound

We explore the macroeconomic effects of a compression in the long-term bond yield spread within the context of the Great Recession of 2007–09 via a time-varying parameter structural VAR model. We identify a “pure” spread shock defined as a shock that leaves the policy rate unchanged, which allows us to characterize the macroeconomic consequences of a decline in the yield spread induced by central banks’ asset purchases within an environment in which the policy rate is constrained by the effective zero lower bound. Two key findings stand out. First, compressions in the long-term yield spread exert a powerful effect on both output growth and inflation. Second, conditional on available estimates of the impact of the Federal Reserve’s and the Bank of England’s asset purchase programs on long-term yield spreads, our counterfactual simulations suggest that U.S. and U.K. unconventional monetary policy actions have averted significant risks both of deflation and of output collapses comparable to those that took place during the Great Depression.

BDNF Val66Met polymorphism influence on striatal blood-level-dependent response to monetary feedback depends on valence and agency

Animal work implicates the brain-derived neurotrophic factor (BDNF) in function of the ventral striatum (VS), a region known for its role in processing valenced feedback. Recent evidence in humans shows that BDNF Val66Met polymorphism modulates VS activity in anticipation of monetary feedback. However, it remains unclear whether the polymorphism impacts the processing of self-attributed feedback differently from feedback attributed to an external agent. In this study, we emphasize the importance of the feedback attribution because agency is central to computational accounts of the striatum and cognitive accounts of valence processing. We used functional magnetic resonance imaging and a task, in which financial gains/losses are either attributable to performance (self-attributed, SA) or chance (externally-attributed, EA) to ask whether BDNF Val66Met polymorphism predicts VS activity. We found that BDNF Val66Met polymorphism influenced how feedback valence and agency information were combined in the VS and in the right inferior frontal junction (IFJ). Specifically, Met carriers' VS response to valenced feedback depended on agency information, while Val/Val carriers' VS response did not. This context-specific modulation of valence effectively amplified VS responses to SA losses in Met carriers. The IFJ response to SA losses also differentiated Val/Val from Met carriers. These results may point to a reduced allocation of attention and altered motivational salience to SA losses in Val/Val compared to Met carriers. Implications for major depressive disorder are discussed.

Differences Between Monetary and Multidimensional Poverty in the Lao PDR: Implications for Targeting of Poverty Reduction Policies and Interventions

This study compares monetary and multidimensional poverty measures for the Lao People’s Democratic Republic. Using household data of 2007/2008, we compare the empirical outcomes of the country’s current official monetary poverty measure with those of a multidimensional poverty measure. We analyze which population subgroups are identified as poor by both measures and thus belong to the category of the poorest of the poor; and we look at which subgroups are identified as poor by only one of the measures and belong either to the category of the income-poor (identified as poor only by the monetary measure) or to that of the overlooked poor (identified as poor only by the multidimensional poverty measure). Furthermore, we examined drivers of these differences using a multinomial regression model and found that monetary poverty does not capture the multiple deprivations of ethnic minorities, who are only identified as poor when using a multidimensional poverty measure. We conclude that complementing the monetary poverty measure with a multidimensional poverty index would enable more effective targeting of poverty reduction efforts.