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Working Paper
Investment and interest rate policy: a discrete time analysis
This paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy. It conducts the analysis in a Calvo-style sticky price model. A key innovation is to add investment spending to the analysis. In this environment, local real indeterminacy is much more likely. In particular, all forward-looking interest rate rules are subject to real indeterminacy.
Journal Article
Money growth and inflation: does fiscal policy matter?
Is inflation (in the often-quoted words of Milton Friedman) "always and everywhere a monetary phenomenon"? Some say no, arguing that inflation is controlled not only by the central bank but also by the fiscal authority. This Commentary authors explore their argument, known as the fiscal theory of the price level.
Working Paper
Monetary policy in an economy with nominal wage contracts
A demonstration that optimal monetary policy can be either procyclical or countercyclical in a model where wages are "sticky" because of a nominal contracting constraint.
Working Paper
Optimal Contracts, Aggregate Risk, and the Financial Accelerator
This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler and Gilchrist (1999), hereafter BGG. The optimal contract includes indexation to the aggregate return on capital, household consumption, and the return to internal funds. This triple indexation results in a dampening of fluctuations in leverage and the risk premium. Hence, compared with the contract originally imposed by BGG, the privately optimal contract implies essentially no financial accelerator.
Journal Article
Monetary policy and asset prices with imperfect credit markets
The Modigliani-Miller theorem is fundamental to the theory of corporate finance. One of the theorem's immediate implications is that there is no reason for the monetary authority to respond to asset prices. This article posits a world in which the Modigliani-Miller theorem does not hold. The authors assume that the amount of an entrepreneur's external financing is limited by the amount of collateral she holds. They examine the implications for the monetary authority in such an environment.
Working Paper
Monetary policy in a world without perfect capital markets
This working paper examines a theoretical model in which an entrepreneur?s net worth affects his ability to finance current activity. Net worth, in turn, is determined by asset prices, which can be affected by monetary policy. In this environment, the central bank plays a welfare-improving role by responding to asset price and technology shocks.
Journal Article
The effect of war expenditures on U.S. output
A study of how war-related temporary increases in government expenditures affect real interest rates and output, with particular emphasis on the probable fiscal effects of the Persian Gulf War.
Journal Article
Does the Fed cause Christmas?
A discussion of the relationship between money and output, with emphasis on the possibility that changes in output precede changes in money.
Journal Article
Government consumption, taxation, and economic activity
The authors use a stylized model of the economy to analyze how permanent and temporary increases in government expenditure--and the timing of taxation used to finance them--affect aggregate output and other variables that describe the economy.
Working Paper
Timing and real indeterminacy in monetary models
An increasingly common approach to the theoretical analysis of monetary policy ensures that a proposed policy does not introduce real indeterminacy?and thus sunspot fluctuations?into the model economy. Policy is typically conducted in terms of directives for the nominal interest rate. This paper uses a discrete-time, money-in-the-utility function model to demonstrate how seemingly minor modifications in the trading environment result in dramatic differences in the policy restrictions needed to ensure real determinacy. These differences arise because of the differing pricing equations for the ...