Search Results

SORT BY: PREVIOUS / NEXT
Author:Fuerst, Timothy S. 

Working Paper
Privately optimal contracts and suboptimal outcomes in a model of agency costs

This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The privately optimal contract includes indexation to the aggregate return on capital, household consumption, and the return to internal funds. Although privately optimal, this contract is not welfare maximizing as it leads to a sub-optimally high price of capital. The welfare cost of the privately optimal contract (when compared to the planner outcome) is significant. A menu of time-varying taxes and subsidies can decentralize the planner?s ...
Working Papers (Old Series) , Paper 1239

Working Paper
Fiscal multipliers under an interest rate peg of deterministic vs. stochastic duration

This paper revisits the size of the fiscal multiplier. The experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest. We demonstrate that a quantitatively important issue is the articulation of the exit from the policy experiment. If the monetary-fiscal expansion is stochastic with a mean duration of T periods, the fiscal multiplier can be unboundedly large. However, if the monetary-fiscal expansion is for a fixed T periods, the multiplier is much smaller. Our explanation rests on a Jensen?s inequality type argument: the deterministic multiplier is convex in ...
Working Papers (Old Series) , Paper 1235

Journal Article
Explaining apparent changes in the Phillips curve: the Great Moderation and monetary policy

Observations that the Phillips curve may be deviating from historical norms are important to policymakers because deviations would imply that more or less output has to be sacrificed to achieve a permanent reduction in long-term inflation. But we argue that recent economic shocks and a shift in the Fed?s response to inflation may be leading economists to misestimate the curve.
Economic Commentary , Issue Feb

Journal Article
Inertial Taylor rules: the benefit of signaling future policy

This article traces the consequences of an energy shock on the economy under two different monetary policy rules: (i) a standard Taylor rule, where the Fed responds to inflation and the output gap, and (ii) a Taylor rule with inertia, where the Fed moves slowly to the rate predicted by the standard rule. The authors show that, with both sticky wages and sticky prices, the outcome of an inertial Taylor rule is superior to that of the standard rule, in the sense that inflation is lower and output is higher following an adverse energy shock. However, if prices alone are sticky, the results are ...
Review , Volume 90 , Issue May , Pages 193-203

Journal Article
Considerable period of time: the case of signaling future policy

There has been a remarkable increase in the FOMC?s communication over the last decade. Perhaps the most dramatic change was the inclusion of language indicating the possible direction of future policy. One example is the now famous ?considerable-period? language that was inserted in August 2003. This forward-looking language was remarkable in that it seemingly signaled the Committee?s intention to keep rates low for an extended period. This Commentary analyzes the reasons behind the ?considerable-period-of-time? language, and it argues that such language was important to stem further declines ...
Economic Commentary , Issue Nov

Working Paper
Taylor rules in a model that satisfies the natural rate hypothesis

The authors analyze the restrictions necessary to ensure that the interest-rate policy rule used by the central bank does not introduce real indeterminacy into the economy. They conduct this analysis in a flexible price economy and a sticky price model that satisfies the natural rate hypothesis. A necessary and sufficient condition for real determinacy in the sticky price model is that there must be nominal and real determinacy in the corresponding flexible price model. This arises if and only if the Taylor rule responds aggressively to lagged inflation rates.
Working Papers (Old Series) , Paper 0116

Working Paper
Co-movement in sticky price models with durable goods

In an interesting paper Barsky, House, and Kimball (2005) demonstrate that in a standard sticky price model a monetary contraction will lead to a decline in nondurable goods production but an increase in durable goods production, so that aggregate output is little changed. This lack of co-movement between nondurables and durables is wildly at odds with the data and occurs because, by assumption, durable goods prices are relatively more flexible than nondurable goods prices. We investigate possible solutions to this puzzle: nominal wage stickiness and credit constraints. We demonstrate that by ...
Working Papers (Old Series) , Paper 0614

Working Paper
Asset prices, nominal rigidities, and monetary policy

Should monetary policy respond to asset prices? This paper analyzes this question from the vantage point of equilibrium determinacy.
Working Papers (Old Series) , Paper 0413

Journal Article
Monetary policy rules and stability: inflation targeting versus price-level targeting

Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages. But because banks base their actions on forecasts of future inflation, following the rule can lead to inflation-rate instability in some cases. A price-level target offers the same benefits as an inflation target but, because actions are based on past inflation, it avoids this vulnerability.
Economic Commentary , Issue Feb

Working Paper
Indexed debt contracts and the financial accelerator

This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The principal conclusions are that the optimal degree of indexation is significant, and that the business cycle properties of the model are altered under this level of indexation.
Working Papers (Old Series) , Paper 1117

FILTER BY year

FILTER BY Series

FILTER BY Content Type

FILTER BY Author

FILTER BY Jel Classification

C68 3 items

E44 3 items

E61 3 items

E52 1 items

G12 1 items

G17 1 items

show more (1)

FILTER BY Keywords

PREVIOUS / NEXT